Income Tax Benefits: The year 2026 has begun, and the Income Tax Department will soon release new ITR forms. Under the new tax regime, individuals with an annual salary of up to ₹12 lakh do not have to pay tax. However, if your income exceeds ₹12.75 lakh, paying tax becomes mandatory. In this situation, the government provides a special exemption called the standard deduction. This is up to ₹75,000 and is available under Section 115BAC(1A)(iii) of the Income Tax Act, 1961. If you want your annual salary of up to ₹14.66 lakh to be tax-free, the easiest way is to contribute to EPF and NPS.
Save Tax Through EPF and NPS
If your company provides you with the facility to contribute to the Employee Provident Fund (EPF) and the National Pension System (NPS), you can make your income tax-free. In this case, the employer’s contribution to both EPF and NPS is deducted from your taxable income.
Even if the company only contributes to EPF and not NPS, you can still keep your income up to ₹13.56 lakh tax-free under the new tax regime.
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How the Exemption is Calculated
Gaurav Makhijani, Managing Partner of Makhijani Gera & Associates, explains that under the new tax regime, there is no exemption under Section 80C for the employee’s own EPF contribution. However, the company’s contribution, which can be up to 12% of the basic salary and DA, remains tax-free under both tax regimes (old and new). Similarly, the employee’s contribution to NPS is not tax-free, but the company’s contribution, up to 14% of the basic salary and DA, is tax-free.
How to Make a Salary of ₹14.66 Lakh Tax-Free
Let’s assume your annual salary is ₹14.66 lakh. Half of this, i.e., ₹7.33 lakh, is your basic salary. The employer contributes 12% to EPF, which is ₹87,960. This is tax-free.
The employer contributes 14% to NPS, which is ₹1,02,620. This is also tax-free.
In addition, a standard deduction of ₹75,000 is available under the new tax regime.
Adding all these exemptions, the total savings amount to ₹2,65,580. This significantly reduces your taxable income, and a salary of ₹14.66 lakh can even become tax-free.
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A large fund for retirement
EPF and NPS are not just for saving taxes, but they also help in building a large fund for retirement in the long run.
For example, if a 25-year-old person deposits ₹10,000 every month in NPS and increases it by 5% every year, and receives an annual return of 12%, their fund can reach up to ₹8.62 crore by the age of 60.
Similarly, if someone deposits ₹10,000 every month in EPF, increases it by 5% every year, and receives an interest of 8.25%, they will accumulate a fund of approximately ₹4.05 crore by the age of 60. Thus, EPF and NPS not only help in saving taxes but also provide strong financial security for retirement.
