In a significant relief for salaried individuals, the Union Budget 2025 has made annual incomes up to ₹12 lakh tax-free under the new tax regime. Additionally, a standard deduction of ₹75,000 ensures zero tax liability on incomes up to ₹12.75 lakh. However, financial experts reveal that strategic investments in the National Pension System (NPS) can push this limit to an impressive ₹19.20 lakh. “By leveraging NPS and flexi-pay benefits, middle-class taxpayers can significantly boost their savings,” says Mumbai-based financial planner Priya Sharma.

Consider an annual Cost to Company (CTC) of ₹19.20 lakh. This includes a basic salary of ₹6 lakh, personal allowance of ₹5.50 lakh, minimum PF contribution of ₹21,600, gratuity of ₹28,800, variable pay of ₹96,000, and tax-free flexi-pay components worth ₹6,23,600. Under the new tax regime, the ₹75,000 standard deduction reduces the taxable income to ₹18.45 lakh. Opting for NPS allows a further deduction of 14% of the basic salary, i.e., ₹84,000, bringing the taxable income down to ₹17.61 lakh. This provision has emerged as a game-changer for salaried taxpayers.

The flexi-pay tax-free components offer additional relief. These include conveyance allowance (₹2,85,600), books and periodicals (₹1,08,000), entertainment (₹2,40,000), and uniform allowance (₹90,000), totaling ₹6,23,600. Subtracting this from ₹17.61 lakh leaves a taxable income of ₹11,37,400. Since incomes up to ₹12 lakh are tax-free under the new regime, individuals with a ₹19.20 lakh CTC owe no tax. “This structured approach to salary and investments can be a boon for the middle class,” notes Sharma.

The new tax regime opens fresh avenues for financial planning. However, experts advise consulting a financial advisor to maximize these benefits. By smartly utilizing NPS and flexi-pay components, taxpayers can ensure that an income of up to ₹19.20 lakh remains entirely tax-free, paving the way for greater financial security.