The Union Budget 2025-26 has significantly enhanced tax relief under the new tax regime by making annual incomes up to Rs 12 lakh tax-free. However, with a well-structured salary, you can extend this limit to Rs 17 lakh while paying zero income tax. By leveraging specific exemptions and reimbursements, you can legally minimize your taxable income and maximize your take-home salary.
Optimizing Your Salary for Maximum Tax Benefits
Many salaried employees end up paying more tax than necessary due to an inefficient salary structure. The Income Tax Act allows certain exemptions that, when strategically incorporated, can significantly reduce tax liability under the new regime.
Here’s a breakdown of key allowances and reimbursements that can help you achieve tax savings:
Tax-Exempt Allowances and Reimbursements
- Mobile & Internet Reimbursements
There is no upper limit for claiming telephone and internet bill reimbursements under the new tax regime. However, the claimed amount should align with the employee’s job role and usage. - Transport Allowance for Specially-Abled Employees
Employees with certain disabilities are eligible for a tax-free transport allowance of:
* Rs 3,200 per month (Rs 38,400 per annum) for blind, deaf, mute, or orthopedically handicapped individuals with lower extremity disabilities. - Conveyance Reimbursement
Unlike transport allowance, this reimbursement covers the cost of commuting to the workplace. Employees must provide actual expense proofs to avail of this exemption. - Company-Leased Car Policy
Some employers offer a leased car for both professional and personal use. The taxable perquisite value is:
* Rs 1,800 per month for cars with an engine capacity of up to 1.6L
* Rs 2,400 per month for cars with an engine capacity above 1.6L
* An additional Rs 900 per month is taxable if a chauffeur is provided.
Structuring Your Salary for Tax-Free Earnings
By incorporating these components, your taxable income can be significantly reduced. Here’s an optimized salary breakdown for a Rs 17 lakh CTC:
| Component | Yearly (30% Basic) | Yearly (40% Basic) |
| Basic Salary | Rs 5,17,315 | Rs 7,13,992 |
| House Rent Allowance (HRA) | Rs 2,58,658 | Rs 3,56,996 |
| Special Allowance | Rs 4,99,027 | Rs 2,04,011 |
| Mobile Reimbursement | Rs 50,000 | Rs 50,000 |
| Conveyance Reimbursement | Rs 2,40,000 | Rs 2,40,000 |
| Employer’s NPS Contribution | Rs 72,424 | Rs 99,959 |
| Gross Pay | Rs 16,37,424 | Rs 16,64,959 |
| Employer’s EPF Contribution | Rs 62,078 | Rs 85,679 |
| Gratuity | Rs 24,883 | Rs 34,343 |
| Total CTC | Rs 17,24,385 | Rs 17,84,981 |
Tax Calculation Based on This Salary Structure
| Particulars | Amount (@30%) | Amount (@40%) |
| Gross Pay | Rs 16,37,424 | Rs 16,64,959 |
| Less: Mobile Reimbursement | Rs 50,000 | Rs 50,000 |
| Less: Conveyance Reimbursement | Rs 2,40,000 | Rs 2,40,000 |
| Net Pay | Rs 13,47,424 | Rs 13,74,959 |
| Less: Standard Deduction | Rs 75,000 | Rs 75,000 |
| Net Taxable Salary | Rs 12,72,424 | Rs 12,99,959 |
| Less: Employer’s NPS Contribution | Rs 72,424 | Rs 99,959 |
| Net Taxable Income | Rs 12,00,000 | Rs 12,00,000 |
Since the new tax regime exempts income up to Rs 12 lakh from tax, a properly structured Rs 17 lakh CTC can be completely tax-free!
Income Tax Slabs for FY26 (New Regime)
| Income Slab | Tax Rate |
| Up to Rs 4,00,000 | Nil |
| Rs 4,00,001 – Rs 8,00,000 | 5% |
| Rs 8,00,001 – Rs 12,00,000 | 10% |
| Rs 12,00,001 – Rs 16,00,000 | 15% |
| Rs 16,00,001 – Rs 20,00,000 | 20% |
| Above Rs 20,00,000 | 30% |
Final Thoughts
By strategically incorporating allowances, reimbursements, and employer contributions into your salary, you can legally reduce your taxable income and pay zero tax even with a CTC of Rs 17 lakh. Ensure that you discuss these structuring options with your employer to take full advantage of the tax benefits available under the new regime for FY26.
Disclaimer: The information provided here is for general informational purposes only and should not be considered financial, tax, or legal advice. Tax laws are subject to change, and individual circumstances may vary. It is always recommended to consult a qualified tax professional or refer to official government sources for personalized guidance.
