Under the new tax regime, almost nothing in your salary structure saves tax. The standard deduction is automatic. The exemptions that once justified a complex CTC are gone. One large exception survives. Your employer’s contribution to the National Pension System is still deductible under Section 80CCD(2). On the new regime that runs to 14% of salary.
So the honest advice turns on which regime you are on. Decide that first. Rebuilding a salary for the old regime, while taxed under the new one, buys nothing.
Which components still change your tax?
| Component | Limit | Regime | Source |
|---|---|---|---|
| Standard deduction | ₹75,000 new regime; ₹50,000 old regime | Both | Income Tax Department |
| Employer NPS, Section 80CCD(2) | 14% of salary under the new regime; 10% for a non-government employer under the old regime | Both | Income-tax Act, Section 80CCD(2) |
| Section 80C | ₹1,50,000 | Old only | Income-tax Act, Section 80C |
| Additional NPS, Section 80CCD(1B) | ₹50,000, over and above 80C | Old only | Income-tax Act, Section 80CCD(1B) |
| Health insurance, Section 80D | Up to ₹1,00,000, being ₹25,000 for self and family and ₹50,000 for senior citizen parents | Old only | Income-tax Act, Section 80D |
| Home loan interest, Section 24(b) | ₹2,00,000 on a self-occupied property | Old only | Income-tax Act, Section 24(b) |
| House rent allowance | Least of the three statutory formulas | Old only | Income-tax Act, Section 10(13A) |
| Free meals or meal vouchers | Up to ₹50 per meal, during working hours | Perquisite valuation rule | Income-tax Rules, Rule 3(7)(iii) |
Limits above are for the financial year 2026-27, read from the Income Tax Department on 6 September 2026. “Salary” for the NPS deduction means basic pay plus dearness allowance, not your full CTC.
Why the employer NPS deduction is the one worth arranging
It is the only real deduction left under the new regime. It is also the only one that grows with your pay instead of sitting under a fixed cap. Take a basic salary of ₹12,00,000 a year. At 14%, that is ₹1,68,000 that never enters your taxable income.
The catch is that the money must come from the employer. Your own NPS contribution is an old-regime deduction. So this is a payroll change, not an investment choice. Ask HR two things. Is corporate NPS switched on? And can the amount come out of your current CTC rather than on top of it?
Two costs to weigh honestly. The money is locked until you retire, with only limited early withdrawals. So it is not general savings. And taking it out of CTC cuts your take-home now. If cash is tight, the tax saving is not worth the squeeze. Our NPS page covers the exit rules.
What the old regime still rewards
On the old regime, the structure matters a great deal. It turns on rent and on home loans.
House rent allowance is usually the biggest exemption a tenant gets. It is worked out on basic salary, so a low basic caps it. If you rent and you are on the old regime, a higher basic can beat the allowances it replaces. Read how HRA is calculated before you ask for a change.
Home loan interest under Section 24(b) stops at ₹2,00,000 on a self-occupied home. The principal you repay sits inside the ₹1,50,000 of Section 80C. Health cover under Section 80D is separate, and often unused. Add the ₹50,000 of extra NPS under 80CCD(1B). Together, these are what keep the old regime in the game. Run the numbers on our old versus new regime page.
The components that promise more than they deliver
Meal cards are the clearest example. The rule caps the exemption at ₹50 per meal during working hours. That is a small figure over a year. It also comes with a card you can spend in only a few places. It is not a reason to change anything.
Leave travel allowance does help some families. But it covers travel fare only, on domestic trips only, against real tickets for trips you took. It is not a lifestyle allowance. Phone and fuel reimbursements work the same way. All of them are old-regime items, and all of them need bills.
Be wary of any component that makes you spend in a set way to save tax. If the exemption is ₹50 a meal, you are working on the wrong end of the problem.
The cost of restructuring that nobody mentions
Lowering your basic pay to inflate allowances has three consequences people discover later.
Your provident fund shrinks, because it is worked out on basic plus dearness allowance. Your gratuity shrinks for the same reason. And your loan eligibility drops, because lenders trust fixed pay more than variable pay.
So a structure tuned to this year’s tax bill can cost you retirement money and borrowing power. Buying a home soon? Check the effect on home loan eligibility first. Our page on CTC versus in-hand salary shows where the money goes. The take-home salary calculator lets you test a change before you ask for it.
Frequently asked questions
Can I still claim HRA under the new tax regime?
No. The HRA exemption under Section 10(13A) is an old-regime item. On the new regime you get the ₹75,000 standard deduction and the employer NPS deduction. Your rent makes no difference to your tax.
How much employer NPS contribution is tax-free?
Up to 14% of salary on the new regime. Up to 10% for a private employer on the old regime. Salary here means basic pay plus dearness allowance. The relief covers the employer’s money only, not your own.
Is it worth switching to the old regime just for deductions?
Only if your total deductions clear the break-even for your income. Add up 80C, 80D, HRA, home loan interest and 80CCD(1B). Use what you would really claim, not what you could. Then compare both regimes on the same income. A tenant with a home loan gets a very different answer from a young employee with neither.
Does a meal card actually save meaningful tax?
No. The exemption stops at ₹50 per meal during working hours under Rule 3(7)(iii). The yearly benefit is small, and the card limits where you can spend. Ask your employer how it is treated under your regime before you opt in.
Should I ask for a lower basic to reduce tax?
Usually not. A lower basic cuts your provident fund and your gratuity. It also cuts the pay component lenders weigh most. And it shrinks your HRA exemption if you rent on the old regime. The tax gain is small. The cost runs for years.
Sources
- Income Tax Department, deductions and Section 80CCD: incometaxindia.gov.in
- Income Tax Department, perquisites and benefits allowable to employees: incometaxindia.gov.in
- National Pension System Trust, tax benefits under NPS: npstrust.org.in
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