One of the most common questions among salaried employees is: “How much income tax will I pay if my CTC is ₹9 lakh?”
Many people assume that a ₹9 lakh salary package automatically results in a substantial tax liability. However, under the New Tax Regime applicable for FY 2025-26 (AY 2026-27), the actual tax payable can be significantly lower than expected. In fact, depending on the salary structure, a person earning a ₹9 lakh CTC may end up paying zero income tax.
Understanding the Difference Between CTC and Taxable Salary
Before calculating income tax, it is important to understand that CTC (Cost to Company) is not the same as taxable income.
CTC represents the total annual cost incurred by the employer for an employee. It includes, among other components:
- Basic Salary
- House Rent Allowance (HRA)
- Special Allowances
- Employer’s PF Contribution
- Gratuity
- Insurance Benefits
- Other Employer Contributions
However, not every component included in CTC becomes taxable income immediately. Therefore, income tax is always calculated on taxable salary and not on the overall CTC figure.
Salary Structure for ₹9 Lakh CTC
Let’s consider the following salary breakup:
| Particulars | Amount (₹) |
| Basic Salary | 4,50,000 |
| HRA | 2,25,000 |
| Conveyance Allowance | 1,80,000 |
| Gross Salary | 8,55,000 |
| Employer PF Contribution | 21,600 |
| EDLI Charges | 900 |
| PF Administrative Charges | 900 |
| Gratuity | 21,600 |
| Total CTC | 9,00,000 |
As seen above, the employee’s take-home salary is based primarily on the gross salary of ₹8.55 lakh, while the remaining amount forms part of the employer’s cost.
Step 1: Calculate Gross Taxable Salary
Under the New Tax Regime, most salary allowances are taxable because exemptions available under the old regime are generally not permitted.
This means:
- HRA exemption is not available.
- Most allowances become taxable.
- Salary income is considered in full for tax purposes.
Therefore:
Gross Salary
₹8,55,000
This amount becomes the starting point for tax calculation.
Step 2: Claim Standard Deduction
To provide relief to salaried taxpayers, the government allows a standard deduction of ₹75,000 under the New Tax Regime.
This deduction is available automatically and does not require any investment or proof.
Calculation
| Particulars | Amount (₹) |
| Gross Salary | 8,55,000 |
| Less: Standard Deduction | 75,000 |
| Taxable Income | 7,80,000 |
Thus, after claiming the standard deduction, the taxable income reduces to:
Taxable Income = ₹7,80,000
Step 3: Income Tax Slabs Under the New Tax Regime
The New Tax Regime for FY 2025-26 provides the following tax slabs:
| Taxable Income | Tax Rate |
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 to ₹8,00,000 | 5% |
| ₹8,00,001 to ₹12,00,000 | 10% |
| ₹12,00,001 to ₹16,00,000 | 15% |
| ₹16,00,001 to ₹20,00,000 | 20% |
| ₹20,00,001 to ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
These slabs apply progressively, meaning different portions of income are taxed at different rates.
Step 4: Calculate Income Tax on ₹7.8 Lakh Taxable Income
Now let’s calculate the tax step by step.
Income up to ₹4,00,000
Tax Rate = Nil
Tax = ₹0
Income Between ₹4,00,000 and ₹7,80,000
Taxable Portion:
₹7,80,000 − ₹4,00,000
= ₹3,80,000
Tax Rate = 5%
Tax = ₹3,80,000 × 5%
= ₹19,000
Total Tax Before Rebate
| Particulars | Amount (₹) |
| Tax on First ₹4 Lakh | Nil |
| Tax on Remaining ₹3.8 Lakh | 19,000 |
| Total Tax | 19,000 |
Thus, the total income tax before rebate is:
₹19,000
Step 5: Rebate Under Section 87A
One of the biggest benefits available under the New Tax Regime is the rebate under Section 87A.
For FY 2025-26, a resident individual can claim a rebate if taxable income does not exceed ₹12 lakh.
Since the taxable income in this case is only ₹7.8 lakh, the employee is fully eligible for this benefit.
Rebate Calculation
| Particulars | Amount (₹) |
| Income Tax Before Rebate | 19,000 |
| Rebate Under Section 87A | 19,000 |
| Tax After Rebate | Nil |
The rebate completely eliminates the tax liability.
Step 6: Health and Education Cess
Normally, a 4% Health and Education Cess is levied on the income tax amount.
However, since the tax liability becomes zero after claiming rebate, no cess is payable.
Final Tax Liability
| Particulars | Amount (₹) |
| Tax Before Rebate | 19,000 |
| Rebate u/s 87A | (19,000) |
| Tax After Rebate | Nil |
| Health & Education Cess | Nil |
| Final Tax Payable | Nil |
Why Is Tax Liability Zero Despite a ₹9 Lakh CTC?
Many taxpayers are surprised to learn that no tax is payable on a ₹9 lakh CTC.
The reasons are:
1. Standard Deduction Reduces Taxable Income
The standard deduction of ₹75,000 reduces taxable salary from ₹8.55 lakh to ₹7.8 lakh.
2. Income Remains Below ₹12 Lakh
The taxable income remains well below the ₹12 lakh threshold prescribed for rebate eligibility.
3. Section 87A Rebate Eliminates Tax
Although tax of ₹19,000 is initially calculated, the entire amount is offset by the rebate.
4. Employer Contributions Are Part of CTC
A portion of the ₹9 lakh CTC consists of employer PF and gratuity contributions, which do not increase immediate taxable salary.
Illustration: Monthly Perspective
For an employee with ₹9 lakh CTC:
| Particulars | Amount |
| Annual CTC | ₹9,00,000 |
| Monthly CTC | ₹75,000 |
| Annual Gross Salary | ₹8,55,000 |
| Monthly Gross Salary | ₹71,250 |
| Annual Tax Payable | ₹0 |
| Monthly Tax Deduction ( TDS) | ₹0 |
Thus, an employee earning a monthly CTC of ₹75,000 may not have any income tax liability under the New Tax Regime, subject to the given salary structure and no additional taxable income.
Key Takeaways for Salaried Employees
- A ₹9 lakh CTC does not mean tax is payable on the full ₹9 lakh.
- Tax is calculated on taxable income and not on CTC.
- Standard deduction of ₹75,000 is available under the New Tax Regime.
- Taxable income in this example is only ₹7.8 lakh.
- Tax before rebate comes to ₹19,000.
- Section 87A rebate reduces the entire tax liability to zero.
- No Health and Education Cess is payable when tax becomes nil.
Conclusion
For a salaried employee with a ₹9 lakh CTC and the salary structure discussed above, the taxable income after claiming the standard deduction works out to ₹7.8 lakh. Based on the latest tax slabs under the New Tax Regime for FY 2025-26, the tax liability is calculated at ₹19,000.
However, since the taxable income is below ₹12 lakh, the employee becomes eligible for the Section 87A rebate, which completely offsets the tax. As a result, the final tax liability becomes zero.
This example clearly demonstrates how the New Tax Regime benefits middle-income salaried taxpayers by reducing compliance requirements and providing significant tax relief, especially for individuals with annual taxable income below ₹12 lakh.
