The Union Budget 2025-26 has made annual incomes up to Rs 12 lakh tax-free. However, this limit can be increased to Rs 17 lakh by availing of certain allowances, provided your company makes adjustments to your salary structure. These allowances, as per the Income Tax Act, are exempt from income tax under the new regime if specific conditions are met, helping taxpayers reduce their tax liability.
Harsh Bhuta, a partner at tax consulting firm Bhuta Shah & Co, highlights, “Under the new tax regime, certain allowances can help taxpayers to rejig their salary structure, reducing taxable income.”
### Exempt Allowances and Reimbursements Under the New Regime
1. *Telephone & Mobile Bills*: Employees can claim exemptions on telephone and mobile bills. There’s no limit on this exemption as long as the reimbursement is reasonable, considering the employee’s designation and responsibilities.
2. *Transport Allowance for Specific Employees*: Specially-abled employees can receive a tax-exempt transport allowance of up to Rs 3,200 per month or Rs 38,400 per annum for commuting between home and workplace.
3. *Conveyance Reimbursement*: Employers can provide conveyance reimbursement for job-related commuting expenses. Employees must submit bills to claim this reimbursement.
4. *Car Lease Policy of Employer*: Employers may provide a car for personal and official use. The perquisite value is minimal under income tax rules, with a taxable amount of Rs 1,800 per month for engines up to 1.6 litres and Rs 2,400 per month for engines exceeding 1.6 litres. An additional Rs 900 per month is added if a chauffeur is provided.
### Example Salary Structures and Tax Calculations
The following example shows how restructuring your salary can make an annual income of nearly Rs 17 lakh tax-free:
#### Components
| Component | 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 |
#### Tax Calculations
| 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 |
With an annual salary of Rs 12 lakh being tax-free in FY26, your entire salary of Rs 16,64,959 could become tax-free with the appropriate salary structure adjustments.
### Income Tax Slabs for FY26
Under the new regime, the income tax slabs are as follows:
– 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 20,00,001 to Rs 24,00,000: 25%
– Income above Rs 24,00,000: 30%
By restructuring your salary to include tax-exempt allowances, you can significantly reduce your taxable income and maximize your tax savings.
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