Learn how to pay zero tax on ₹18 lakh salary under the New & Old Tax Regime 2024-25. Explore deductions, exemptions & investment tips to reduce tax legally. Compare both regimes & choose the best tax-saving option for your financial goals.
Tax planning is an essential part of financial management, helping individuals legally reduce their tax burden and maximize savings. If you earn a salary of ₹18 lakhs per year, proper tax planning can significantly lower your tax liability—or even bring it down to zero—by utilizing deductions, exemptions, and smart investment options.
Understanding Tax Liability on ₹18 Lakh Salary
Without any deductions or exemptions, an individual earning ₹18 lakh annually falls under a taxable bracket, and the total tax payable varies based on the chosen tax regime. The Indian government offers two tax regimes:
- Old Tax Regime – Allows multiple deductions under Sections 80C, 80D, HRA, and home loan interest.
- New Tax Regime (2024-25) – Offers lower tax rates but removes most deductions and exemptions.
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| How to Pay Zero Tax on Salary of 18 Lakhs |
To optimize tax savings, it is crucial to compare both regimes and choose the one that results in the least tax liability. In the following sections, we will explore how to reduce or eliminate tax on a salary of ₹18 lakhs under both tax regimes.
Income Tax Calculation for ₹18 Lakhs (Before Deductions)
Before applying any deductions or exemptions, let’s understand how much tax is payable on a salary of ₹18 lakh under both the Old Tax Regime and New Tax Regime (2024-25).
1. Tax Calculation Under the Old Tax Regime (Before Deductions)
The old tax regime follows a progressive slab structure with exemptions and deductions available.
| Income Slab (₹) | Tax Rate | Tax Amount (₹) |
|---|---|---|
| 0 - 2,50,000 | 0% | 0 |
| 2,50,001 - 5,00,000 | 5% | 12,500 |
| 5,00,001 - 10,00,000 | 20% | 1,00,000 |
| 10,00,001 - 18,00,000 | 30% | 2,40,000 |
| Total Tax Before Rebate | ₹3,52,500 | |
| Cess @4% | ₹14,100 | |
| Final Tax Payable | ₹3,66,600 |
👉 Total tax liability under the old tax regime (before deductions) = ₹3,66,600
2. Tax Calculation Under the New Tax Regime (2024-25)
The new tax regime has lower tax rates but removes most deductions.
| Income Slab (₹) | Tax Rate | Tax Amount (₹) |
|---|---|---|
| 0 - 3,00,000 | 0% | 0 |
| 3,00,001 - 6,00,000 | 5% | 15,000 |
| 6,00,001 - 9,00,000 | 10% | 30,000 |
| 9,00,001 - 12,00,000 | 15% | 45,000 |
| 12,00,001 - 15,00,000 | 20% | 60,000 |
| 15,00,001 - 18,00,000 | 30% | 90,000 |
| Total Tax Before Rebate | ₹2,40,000 | |
| Standard Deduction (- ₹50,000) | ₹1,90,000 | |
| Cess @4% | ₹7,600 | |
| Final Tax Payable | ₹1,97,600 |
👉 Total tax liability under the new tax regime (before additional deductions) = ₹1,97,600
Key Takeaways
- The new tax regime results in a lower initial tax liability before deductions.
- The old tax regime allows multiple deductions (80C, 80D, HRA, etc.), which can significantly reduce taxable income.
- With proper tax planning, it is possible to reduce this tax burden—and even bring it to zero!
In the next section, we will explore how to legally pay zero tax on a ₹18 lakh salary using smart tax-saving strategies under both tax regimes. 🚀
How to Pay Zero Tax Under the New Tax Regime 2024-25
Although the new tax regime offers lower tax rates, it removes many common deductions like 80C, 80D, and HRA. However, with smart planning, you can still reduce your tax liability to zero. Here’s how:
1. Utilize the Standard Deduction of ₹50,000
- Under the new tax regime, every salaried individual is eligible for a flat ₹50,000 standard deduction.
- This reduces the taxable income from ₹18,00,000 to ₹17,50,000, lowering the overall tax liability.
2. Optimize Rebate Under Section 87A (If Applicable)
- The rebate under Section 87A applies only if taxable income is ₹7 lakh or below.
- Since an ₹18 lakh salary is well above this limit, this rebate does not apply directly.
- However, you can bring taxable income below ₹7 lakh using employer benefits and NPS contributions (explained next).
3. Smart Use of NPS Contribution (Section 80CCD(2))
- Employer’s contribution to NPS (National Pension System) is tax-free up to 10% of basic salary.
- Assuming a basic salary of ₹8,00,000 (approx. 45% of CTC), the employer can contribute ₹80,000 to NPS, which is fully tax-free under Section 80CCD(2).
- This reduces taxable income from ₹17,50,000 to ₹16,70,000.
4. Employer’s Contribution Towards EPF, NPS, and LTA
- Employer’s EPF contribution (up to 12% of basic salary) is exempt from tax. If the employer contributes ₹96,000 (12% of ₹8,00,000), it further lowers taxable income to ₹15,74,000.
- Leave Travel Allowance (LTA) Exemption: If your employer provides LTA, you can claim tax-free travel expenses twice in four years.
- Food Coupons or Meal Allowance (₹50 per meal, up to ₹2,500/month) is also tax-free.
Final Tax Reduction Strategy
By maximizing NPS, EPF, and employer-provided benefits, taxable income can be brought down significantly. However, achieving a zero-tax scenario under the new tax regime for an ₹18 lakh salary is difficult unless additional employer-structured tax-free components are included (e.g., HRA, fuel reimbursements, company car, health benefits, etc.).
How to Pay Zero Tax Under the Old Tax Regime 2024-25
The old tax regime allows various deductions and exemptions, which can significantly reduce taxable income. By strategically utilizing these benefits, you can bring your tax liability to zero on a salary of ₹18 lakh. Here’s how:
1. Maximize Section 80C (₹1.5 Lakh Deduction)
- Eligible Investments & Expenses:
- Employee Provident Fund (EPF)
- Public Provident Fund (PPF)
- Equity-Linked Savings Scheme (ELSS)
- Life Insurance Premium (LIC/Term Plans)
- 5-Year Fixed Deposits (Tax-Saving FDs)
- Principal Repayment on Home Loan
✅ Claim ₹1,50,000 deduction under Section 80C → Taxable Income now: ₹16,50,000
2. Claim Health Insurance Deduction Under Section 80D (₹75,000)
- Self + Family (₹25,000) + Parents (₹50,000 for senior citizens) = ₹75,000 deduction
- This includes health check-ups and medical insurance premiums.
✅ New Taxable Income: ₹15,75,000
3. Use Section 80E for Education Loan Interest
- If you are repaying an education loan for higher studies, the entire interest amount is deductible.
- Assuming ₹1,50,000 interest paid, you can claim a full deduction.
✅ New Taxable Income: ₹14,25,000
4. Donate & Save Under Section 80G
- Donations to approved charitable organizations are eligible for deduction (50% or 100% of the amount).
- If you donate ₹50,000, you can claim ₹50,000 as deduction.
✅ New Taxable Income: ₹13,75,000
5. Claim House Rent Allowance (HRA) & Home Loan Interest (Section 24B)
- HRA Exemption (for salaried individuals living in rented accommodation)
- Let’s assume ₹2,00,000 exemption based on rent paid.
- Home Loan Interest Deduction (₹2 Lakh Under Section 24B)
- If you have a home loan, you can claim up to ₹2,00,000 on interest paid.
✅ New Taxable Income: ₹9,75,000
6. Employer Benefits & NPS (Section 80CCD(2))
- Employer’s Contribution to NPS (₹80,000 tax-free)
- Food Coupons, LTA, Fuel Reimbursements (₹50,000)
✅ Final Taxable Income: ₹8,45,000
7. Use Section 87A to Reduce Tax to ZERO
- If you can further reduce taxable income below ₹7 lakh, you can claim a rebate under Section 87A and pay zero tax.
- Increase NPS, HRA, or voluntary PF contributions to achieve this.
Final Tax Strategy
By combining 80C, 80D, 80E, 80G, HRA, home loan interest, NPS, and employer benefits, you can bring your taxable income under ₹7 lakh and pay zero tax using the Section 87A rebate.
✅ Result: ₹0 Tax Payable on ₹18 Lakh Salary under the old tax regime! 🎉
Practical Comparison: Which Regime is Better?
Choosing between the Old Tax Regime and the New Tax Regime (2024-25) depends on how effectively you can use deductions and exemptions. Let’s compare both with practical case studies.
📌 Case Study 1: Salaried Individual Without Investments
👉 Annual Salary: ₹18,00,000
👉 Deductions & Exemptions Available: None (No investments, no home loan, no HRA)
1️⃣ Tax Calculation Under New Regime (2024-25)
| Income Slab (₹) | Tax Rate | Tax Amount (₹) |
|---|---|---|
| 0 - 3,00,000 | 0% | 0 |
| 3,00,001 - 6,00,000 | 5% | 15,000 |
| 6,00,001 - 9,00,000 | 10% | 30,000 |
| 9,00,001 - 12,00,000 | 15% | 45,000 |
| 12,00,001 - 15,00,000 | 20% | 60,000 |
| 15,00,001 - 18,00,000 | 30% | 90,000 |
| Total Tax Before Standard Deduction | ₹2,40,000 | |
| Less: Standard Deduction | -₹50,000 | |
| Final Tax Payable | ₹2,25,000 |
✅ New Regime Tax Payable: ₹2,25,000
2️⃣ Tax Calculation Under Old Regime (2024-25)
| Income Slab (₹) | Tax Rate | Tax Amount (₹) |
|---|---|---|
| 0 - 2,50,000 | 0% | 0 |
| 2,50,001 - 5,00,000 | 5% | 12,500 |
| 5,00,001 - 10,00,000 | 20% | 1,00,000 |
| 10,00,001 - 18,00,000 | 30% | 2,40,000 |
| Total Tax Before Standard Deduction | ₹3,52,500 | |
| Less: Standard Deduction | -₹50,000 | |
| Final Tax Payable | ₹3,27,500 |
✅ Old Regime Tax Payable: ₹3,27,500
💡 Verdict: If you don’t claim deductions, the New Regime is better, as you save ₹1,02,500 in taxes.
📌 Case Study 2: Salaried Individual Maximizing Deductions
👉 Annual Salary: ₹18,00,000
👉 Deductions Used in Old Regime:
- Section 80C: ₹1,50,000 (EPF, PPF, ELSS, LIC)
- Section 80D: ₹50,000 (Health Insurance)
- Section 24B: ₹2,00,000 (Home Loan Interest)
- HRA Exemption: ₹2,00,000
- Employer’s NPS Contribution (80CCD(2)): ₹80,000
- Other Allowances (LTA, Food Coupons, Reimbursements): ₹50,000
- Total Deductions: ₹7,30,000
1️⃣ Tax Calculation Under Old Regime (2024-25)
| Income Component | Amount (₹) |
|---|---|
| Gross Salary | ₹18,00,000 |
| Less: Total Deductions & Exemptions | ₹7,30,000 |
| Taxable Income | ₹10,70,000 |
| Income Slab (₹) | Tax Rate | Tax Amount (₹) |
|---|---|---|
| 0 - 2,50,000 | 0% | 0 |
| 2,50,001 - 5,00,000 | 5% | 12,500 |
| 5,00,001 - 10,00,000 | 20% | 1,00,000 |
| 10,00,001 - 10,70,000 | 30% | 21,000 |
| Total Tax Before Standard Deduction | ₹1,33,500 | |
| Less: Standard Deduction | -₹50,000 | |
| Final Tax Payable | ₹83,500 |
✅ Old Regime Tax Payable: ₹83,500
2️⃣ Tax Calculation Under New Regime (2024-25)
| Income Component | Amount (₹) |
|---|---|
| Gross Salary | ₹18,00,000 |
| Less: Standard Deduction | ₹50,000 |
| Taxable Income | ₹17,50,000 |
| Income Slab (₹) | Tax Rate | Tax Amount (₹) |
|---|---|---|
| 0 - 3,00,000 | 0% | 0 |
| 3,00,001 - 6,00,000 | 5% | 15,000 |
| 6,00,001 - 9,00,000 | 10% | 30,000 |
| 9,00,001 - 12,00,000 | 15% | 45,000 |
| 12,00,001 - 15,00,000 | 20% | 60,000 |
| 15,00,001 - 17,50,000 | 30% | 75,000 |
| Final Tax Payable | ₹2,25,000 |
✅ New Regime Tax Payable: ₹2,25,000
📊 Final Comparison: Which One Saves More?
| Scenario | New Regime Tax (₹) | Old Regime Tax (₹) | Which is Better? |
|---|---|---|---|
| No Investments/Deductions | ₹2,25,000 | ₹3,27,500 | New Regime |
| Maximizing Deductions | ₹2,25,000 | ₹83,500 | Old Regime |
💡 Verdict:
- If you don’t invest in tax-saving instruments → New Regime is better.
- If you maximize deductions (80C, 80D, HRA, Home Loan) → Old Regime saves more tax.
✅ Final Tax Planning Tip
- Salaried individuals with high deductions → Stick to the Old Tax Regime.
- Individuals with no tax-saving investments → Choose the New Tax Regime for lower tax liability.
🔹 Expert Advice: If your employer contributes to NPS, or if you have home loans and HRA, try to bring taxable income below ₹7 lakh to pay zero tax under the old regime! 🎯
Final Tips to Reduce Tax Legally
Reducing your tax burden legally requires smart planning and strategic investments. Here are some expert tips to ensure minimal tax liability:
📌 1. Invest Wisely in Tax-Saving Instruments
Choosing the right tax-saving investments can help you significantly lower your taxable income. Some of the best options under Section 80C (limit: ₹1.5 lakh) include:
✔ Public Provident Fund (PPF) – Lock-in of 15 years, tax-free interest
✔ Employees’ Provident Fund (EPF) – Mandatory for salaried employees, tax-free on maturity
✔ Equity Linked Savings Scheme (ELSS) – Shortest lock-in (3 years) with high return potential
✔ National Savings Certificate (NSC) – Fixed return, 5-year lock-in
✔ 5-Year Tax-Saving Fixed Deposit – Safe but interest is taxable
Additional Tax-Saving Investments:
✔ NPS (National Pension System) under Section 80CCD(1B) – Additional ₹50,000 deduction
✔ Health Insurance (Section 80D) – ₹25,000 deduction (₹50,000 for senior citizens)
✔ Home Loan Interest (Section 24B) – Up to ₹2 lakh deduction
✔ HRA (House Rent Allowance) Exemption – Save tax if you live in a rented house
📌 2. Optimize Employer Benefits
Many salary components are tax-free if structured properly. Speak to your HR about:
✔ Food Coupons (₹50 per meal, up to ₹26,400 per year) – Fully tax-free
✔ Leave Travel Allowance (LTA) – Covers travel expenses for family, tax-free
✔ Employer’s NPS Contribution (80CCD(2)) – Up to 10% of basic salary is tax-free
✔ Gratuity & Superannuation Contributions – Tax-exempt for long-term employees
📌 3. Plan Early in the Financial Year
Tax planning shouldn’t be last-minute! Start investing from April to:
✔ Avoid last-minute rush in March
✔ Ensure maximum benefits from deductions
✔ Keep track of tax-saving investment limits
📌 4. Keep Your Taxable Income Below ₹7 Lakh (Old Regime)
If you maximize deductions and bring taxable income below ₹7 lakh, you can pay zero tax using:
✔ ₹1.5 lakh under 80C
✔ ₹50,000 under 80D (Health Insurance)
✔ ₹2 lakh under Home Loan Interest (24B)
✔ ₹50,000 under NPS (80CCD(1B))
This way, after deductions, your taxable income can reduce below ₹7 lakh, making you eligible for zero tax under Section 87A. 🎯
📌 5. File Your ITR on Time & Claim Refunds
✔ Always file your Income Tax Return (ITR) before the deadline to avoid penalties
✔ Check Form 26AS & AIS (Annual Information Statement) to verify tax credits
✔ If excess tax is deducted, claim a refund by filing your ITR correctly
💡 Final Advice from a Tax Expert
✔ Choose the New Tax Regime if you don’t want deductions & exemptions
✔ Stick to the Old Tax Regime if you maximize investments & deductions
✔ Always plan ahead and consult a CA for personalized tax strategies
By following these smart tax-saving strategies, you can legally reduce your tax burden and keep more of your hard-earned money. ✅ 🚀
Conclusion
Tax planning is essential to maximize savings and ensure you pay the least tax legally on your ₹18 lakh salary. Here are the key takeaways:
✔ New Tax Regime 2024-25 – Simpler, with lower tax rates but fewer deductions.
✔ Old Tax Regime 2024-25 – Higher tax rates but significant deductions and exemptions.
✔ Smart Tax Planning – Investing in 80C, 80D, 24B, NPS, and employer benefits can significantly reduce taxable income.
✔ Early Planning – Avoid last-minute decisions and optimize deductions from the start of the financial year.
Which regime is better? 💡 The answer depends on your financial goals. If you prefer simplicity and flexibility, the New Tax Regime is ideal. If you maximize deductions and invest smartly, the Old Tax Regime can help you save more.
🔹 Final Advice: Choose the best tax regime based on your income, expenses, and investment plans. Plan early, invest wisely, and save more! 🚀
FAQ
Can I pay zero tax on a salary of ₹18 lakhs?
Yes, with proper tax planning using deductions like 80C, 80D, HRA, NPS, and employer benefits, you can legally reduce taxable income to pay zero tax.
Which tax regime is better for an ₹18 lakh salary in 2024-25?
The best regime depends on your deductions. The New Tax Regime has lower rates but fewer deductions, while the Old Tax Regime offers more exemptions.
How does Section 80C help in tax savings?
Section 80C allows deductions up to ₹1.5 lakh for investments like PPF, EPF, ELSS, NSC, and life insurance, reducing taxable income under the Old Tax Regime.
Can HRA and home loan interest be claimed together?
Yes, if you live in a rented house but also have a home loan for another property, you can claim both HRA and a deduction on home loan interest (Section 24B).
What is the maximum tax-free employer contribution to NPS?
Under Section 80CCD(2), an employer's NPS contribution up to 10% of salary (basic + DA) is tax-free, helping reduce taxable income under the New Tax Regime.
Does Section 87A rebate apply to an ₹18 lakh salary?
No, the rebate under Section 87A is available only for taxable income up to ₹7 lakh under the New Tax Regime.
What are the best tax-saving investment options?
Top tax-saving investments include PPF, ELSS, NPS, Sukanya Samriddhi Yojana, and fixed deposits under Section 80C, as well as health insurance under 80D.