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As per the Income Tax Act, certain allowances are exempt from income tax in the new tax regime if certain conditions are met. These provisions can be used by employees to reduce their tax liability by making changes to their salary structure.
Income Tax Calculator.
Income Tax Calculator: The Union Budget 2025-26 has made an annual income up to Rs 12 lakh tax-free. But, this income limit can be raised to Rs 17 lakh by availing of certain allowances if your company makes changes to your salary structure. As per the Income Tax Act, certain allowances are exempt from income tax in the new tax regime if certain conditions are met. These allowances may help taxpayers reduce their tax liability. Check how your annual income or CTC of nearly Rs 17 lakh might become tax-free in FY26 if you rejig your salary structure:
“Under the new tax regime, there are certain allowances in the Income Tax Act that can help taxpayers to rejig their salary structure. These allowances are exempt from tax in the new tax regime if certain conditions are met. These allowances can help taxpayers to reduce taxable income under the new tax regime,” said Harsh Bhuta, partner of tax consulting firm Bhuta Shah & Co, according to an Economic Times report.
The following are some reimbursements and allowances to save you taxes.
Allowances and Reimbursements That Are Exempt From Income Tax Under New Regime
Telephone & Mobile Bills: A salaried employee could claim exemption on the telephone and mobile bills that he or she paid. There is no limit for that. The ET report cited Yogesh Kale, executive director of tax consulting firm Nangia Andersen LLP, as saying, “There is no limit prescribed concerning the exemption of telephone and internet bills under either of the tax regimes. However, as an ideal practice, the reimbursement amount should be reasonable, considering an employee’s designation and the roles and responsibilities.”
So, if employees tweaks their salary structure to include telephone, mobile, internet bills, the move will help them reduce tax liability.
Transport Allowance For Specific Employees: There is a provision of tax-exempt transport allowance for specially-abled people under the Income Tax Act. This is an allowance for travelling from home to work place and vice-versa. The ET report quoted Bhuta as saying: “The transport allowance received by specially-abled employees is exempted up to Rs 3,200 per month or Rs 38,400 per annum. Only those specially-abled employees are exempted if they are blind/deaf/dumb or orthopaedically handicapped with a disability of the lower extremities.”
Conveyance Reimbursement: The conveyance reimbursement is a facility provided by employers to the employees for performing their job. This is different from tranport allowance that is available for specially-abled employees. The ET report quoted Bhuta as saying, “The conveyance reimbursement received by an employee is exempt if the same is expended while commuting to the workplace. An employee is required to submit bills to claim reimbursement.”
Car Lease Policy Of Employer: Under the car lease policy, some employers provide a car to employees for personal and official use. Though this is considered a perquisite under the income tax, its value is very low.
“The perquisite value of a car given by the employer for the employee’s personal and official use as per the income tax rules is very low. The valuation mechanism remains the same under the old and new regimes. The taxable value of such perquisite is Rs 1,800 per month if the engine’s cubic capacity does not exceed 1.6 litres. An amount of Rs 2,400 per month would be taxable if the engine’s cubic capacity exceeds 1.6 litres,” Kale said, according to the ET report.
If the chauffeur is also provided, an additional Rs 900 per month is added to the value of perquisite, he added.
| Components | Yearly (Basic Salary @ 30% of CTC) (in Rs) | Yearly (Basic Salary @ 40% of CTC) (in Rs) |
|---|---|---|
| Basic | 5,17,315 | 7,13,992 |
| HRA | 2,58,658 | 3,56,996 |
| Special Allowance | 4,99,027 | 2,04,011 |
| Mobile Reimbursement | 50,000 | 50,000 |
| Conveyance Reimbursement | 2,40,000 | 2,40,000 |
| Employer’s NPS Contribution | 72,424 | 99,959 |
| Gross Pay | 16,37,424 | 16,64,959 |
| Employer’s EPF Contribution | 62,078 | 85,679 |
| Gratuity | 24,883 | 34,343 |
| Total CTC | 17,24,385 | 17,84,981 |
These are the two cases — one with a basic salary of 30 per cent of CTC and another with a basic salary of 40 per cent. For this, the salary structure should include mobile reimbursement, transport reimbursements, conveyance reimbursement, NPS investments, and EPF investments.
Currently, under the new tax regime, a few deductions can be claimed. These include a standard deduction of Rs 75,000, deduction under family pension of Rs 25,000, the employer’s NPS contribution of 14 per cent, and the employer’s EPF contribution of 12 per cent.
Your Tax Calculation As Per This Salary Structure:
| Particulars | Amount (@30%) | Amount (@40%) |
|---|---|---|
| Gross Pay | 16,37,424 | 16,64,959 |
| Less: Mobile Reimbursement | 50,000 | 50,000 |
| Less: Conveyance Reimbursement | 2,40,000 | 2,40,000 |
| Net Pay | 13,47,424 | 13,74,959 |
| Less: Standard Deduction | 75,000 | 75,000 |
| Net Taxable Salary | 12,72,424 | 12,99,959 |
| Less: Employer’s NPS Contribution | 72,424 | 99,959 |
| Net Taxable Income | 12,00,000 | 12,00,000 |
Now, when the annual salary income up to Rs 12 lakh is tax free in FY26, your entire salary of 16,64,959 might become tax free if you follow such tax structure.
Income Tax Slabs for FY26
Under the new regime, the income tax slabs announced in the latest Union Budget 2025-26 are:
Income up to Rs 4,00,000: Nil
Income from Rs 4,00,001 to Rs 8,00,000: 5%
Income from Rs 8,00,001 to Rs 12,00,000: 10%
Income from Rs 12,00,001 to Rs 16,00,000: 15%
Income from Rs 16,00,001 to Rs 20,00,000: 20%
Income from Rs 20,00,000 to Rs 24,00,000: 25%
Income above Rs 24,00,000: 30%.
