Save tax on salary in the new regime — the complete guide (Income-tax Act, 2025)

References below are to the Income-tax Act, 2025 (with the old 1961-Act number in brackets for recognition).

First — what the new regime takes away, and what survives

Under the new regime (Section 202 — old 115BAC), now the default, you lose: HRA and LTA, most Schedule-III allowances, and the Chapter-VIA deductions (80C, health insurance, home-loan interest, your own NPS). What survives and is worth using: the standard deduction, employer NPS, a few duty allowances, all the perquisite-valuation rules, and the retirement exemptions. Those are your levers.

1. Standard deduction — ₹75,000 (Section 19)

Automatic on salary or pension in the new regime — no proof needed. (Old Section 16(ia).)

2. Employer NPS — up to 14% of salary (Section 124): the biggest lever

Your employer's contribution to your NPS is deductible up to 14% of salary (basic + DA) — and it's one of the very few deductions that survives in the new regime. (Old Section 80CCD(2).)

Worked example: on ₹12,00,000 basic, routing 14% = ₹1,68,000 into employer-NPS makes that amount tax-free salary — saving roughly ₹1.68L × your marginal rate. Your own NPS (₹50,000, old 80CCD(1B)) is not allowed in the new regime, so the employer route is the one that works.

3. Duty allowances that still survive (Schedule III)

• Transport allowance for a divyang (disabled) employee.
• Conveyance allowance for performing office duties.
• Allowance for travel / tour / transfer on duty.
• Daily allowance to meet ordinary tour expenses.

These four remain exempt even in the new regime — they reimburse official duty, they're not a pay substitute.

4. Structure pay as perquisites — the rules apply in BOTH regimes (Section 17)

The perquisite-valuation rules (Section 17, old Rule 3) don't change with the regime — so these still reduce tax under the new regime:

• Company car: a car owned/leased by the employer is valued at only ₹1,800–2,400/month (+₹900 for a driver) — whatever the car is worth.
• Phone / mobile / internet reimbursement: exempt against actual bills.
• Group health insurance (GMC) paid by the employer: not a taxable perquisite.
• Free / subsidised meals or meal cards at work: concessional perquisite value.
• Gifts up to ₹5,000 a year: exempt.
• Employer-provided accommodation: valued concessionally versus market rent.
• Laptop / equipment provided for use: not a taxable perquisite.
• Interest-free / concessional loan: only a small notional perquisite.

Moving CTC out of the fully-taxed special allowance into these perquisites lowers taxable salary even on the new regime.

5. Retirement exemptions still apply (Schedule III)

• Gratuity — exempt up to ₹20 lakh.
• Leave encashment — up to ₹25 lakh (non-government).
• VRS compensation — up to ₹5 lakh.
• Commuted pension — partly or fully exempt.
• Recognised PF / superannuation withdrawals — exempt within conditions.

These are exemptions on specific receipts, so they're available regardless of the regime you're on.

6. Employer's retirement contributions — the ₹7.5 lakh cap

The employer's combined contribution to PF + NPS + superannuation is tax-free only up to ₹7.5 lakh a year; the excess — and the annual accretion on it — is taxable as a perquisite. Structure the CTC to stay within the cap.

7. Marginal relief at the ₹12 lakh line (Section 202)

Just above the ₹12 lakh rebate threshold, marginal relief caps the extra tax to roughly the income above ₹12 lakh — so a small overshoot doesn't wipe out the rebate. Worth timing bonuses around this line.

8. Other levers

• ESOP TDS deferral for eligible-startup employees — defer the tax on the ESOP perquisite (old Section 192(1C)).
• Family pension recipients get a ₹25,000 deduction in the new regime.
• Agniveer Corpus contribution — deductible in both regimes.
• Relief for arrears / advance salary — Section 157 (old 89) spreads a lump sum over the years it relates to (file Form 10E).

The employer's CTC-restructure play (new regime)

For a workforce on the new regime, redesign CTC to move money out of the fully-taxed special allowance into:

1. Employer NPS (up to 14%) — the single biggest saving.
2. Perquisites — company car, phone/internet, GMC, meals.
3. Duty allowances — conveyance / tour / daily, where genuine.

Same CTC, lower employee tax — at no extra cost to the company.

Employee checklist

• Compare both regimes every year. If you have large HRA + 80C + home-loan interest, the old regime can still win — the new regime is default, not compulsory.
• On the new regime, push your employer for employer-NPS + perquisites.
• Time gratuity / leave-encashment / VRS to use those exemptions in full.

General information under the Income-tax Act, 2025 for the current year. Perquisite limits and notified allowances change — confirm the current figures for your exact facts before acting.