NEW DELHI: Earning ₹12 lakh and paying zero tax is no longer the ceiling under the new regime. With the right salary structure and employer-backed benefits, even professionals earning ₹15 lakh, or more, can reduce their taxable income to zero.
That shift marks a break from the old regime, where tax planning revolved around deductions such as house rent allowance (HRA), leave travel allowance (LTA), home loan interest and Section 80C investments. The new regime strips most of these away, but compensates with lower rates and a narrower, more efficient set of benefits that can deliver equal or better outcomes.
How the math works
Foremost, the new labour codes are quietly reshaping salary structures in a way that lowers taxable income for most employees. By mandating that basic pay plus eligible allowances account for at least 50% of total CTC, they push up components such as gratuity and employer contributions to the Employees’ Provident Fund (EPF).
In the new tax regime—where most exemptions that earlier qualified as ‘wages’ have been removed—this shift naturally results in a higher basic component. As a result, linked contributions such as EPF (12% of basic), gratuity, and National Pension Scheme (up to 14% of basic) rise in tandem.
Since these contributions are deductible from taxable income, they reduce the overall tax burden without requiring any active investment decisions from the employee.
Take a ₹14 lakh CTC, with 50% allocated to basic pay ( ₹7 lakh). Gratuity of about ₹33,670 (4.81% of basic) is exempt from tax. The standard deduction of ₹75,000 and EPF contribution of ₹75,000 are deductible and together lower the taxable income by roughly ₹1.93 lakh—to about ₹12.07 lakh.
The residual gap is marginal, and easily bridged.
The expanded meal allowance can take care of it. With the exemption now at ₹200 per meal (up from ₹50), employees can claim up to ₹400 a day for two meals. Over 22 working days a month and 12 months, that translates to ₹1.05 lakh in tax-free value annually.
Even a fraction of this benefit is enough to push taxable income below the ₹12 lakh threshold. Fully utilized, it allows CTCs of up to about ₹15.05 lakh to be structured into effectively zero-tax income under the new regime.
Salary structuring
Salary structuring has become central under the new regime, where the goal is to bring taxable income within the ₹12 lakh rebate threshold. One of the most effective levers is employer contribution to the NPS, not just for the immediate tax benefit, but also as a long-term retirement tool. Recent changes, including greater withdrawal flexibility after 15 years and up to 80% tax-free corpus at maturity, have added to its appeal for salaried individuals.
A car lease is another powerful component. Structured through the employer, it allows expenses such as fuel and driver salary to be claimed as tax-free reimbursements, lowering taxable income while aligning with actual spending. There’s an added nuance: under the new labour codes, a car lease can be treated as part of ‘wages’. This gives employers flexibility to keep basic pay below the 50% threshold, potentially reducing mandatory PF contributions and increasing take-home flexibility.
Consider a ₹18 lakh CTC structured with a car lease, with basic pay at 40%. The package includes ₹2.4 lakh annually for the lease ( ₹20,000 a month) and another ₹2.4 lakh towards fuel and driver reimbursements.
Together with EPF contributions and gratuity, these components can reduce taxable income by about ₹5.41 lakh, bringing it down to ₹12.59 lakh. After the standard deduction of ₹75,000, net taxable income falls below ₹12 lakh, resulting in zero tax under the new regime.