Salary Structuring Under the New Tax Regime: What Still Saves Tax

Salary structures in India were built around old-regime exemptions: HRA, leave travel, meal vouchers and a list of reimbursements. With the new regime now the default, most employees get little from these. This guide explains what still works.

What the New Regime Allows

• A higher standard deduction than the old regime (₹75,000 for recent years).
• Employer contributions to NPS, deductible up to a percentage of salary (14% for recent years).
• A rebate that makes income up to ₹12 lakh effectively tax-free for residents from FY 2025-26.
• Genuine business reimbursements, which aren't income at all.

What It Doesn't Allow

• HRA exemption.
• Leave travel concession.
• Section 80C-type investment deductions.
• Most other allowance exemptions.

Components Worth Keeping

• Employer NPS contribution, offered as an option.
• Reimbursements for genuine business expenses like travel, mobile and internet used for work, supported by bills.
• Employer-provided benefits that are not taxable or are valued low, like group health insurance.

Watch the Overall Limit

Employer contributions to PF, NPS and superannuation above an aggregate annual limit (₹7.5 lakh in recent years) become taxable.

Designing for Both Regimes

Some employees still benefit from the old regime, usually those with large rent, home loan interest or investments. Flexible structures, where HRA and similar components are available but not forced, work for both.

The Labour Codes Angle

Any redesign should also keep basic pay and DA at a level that fits the Labour Codes' 50% wage rule, to avoid surprises in PF and gratuity.

Law Changes

From tax year 2026-27, salary is taxed under the Income-tax Act, 2025. The main features of the new regime continue, but check current limits.

Getting Help

Think Filing redesigns salary structures to fit both tax regimes and the Labour Codes.