Income tax calculation under new income tax regime: How to pay zero tax with CTC of around Rs 17 lakh by restructuring salary

Various allowances within the new income tax regime can assist in reducing the taxable income to the Rs 12 lakh limit.

Latest income tax calculation post Budget 2025: Starting April 1, 2025, individuals earning up to Rs 12 lakh in taxable income under the new income tax regime will not need to pay any tax. For those earning above this threshold, there are ways to structure their salary to maintain taxable income below Rs 12 lakh. Various allowances within the new income tax regime can assist in reducing the taxable income to this limit.
ET quotes Harsh Bhuta, Partner of Bhuta Shah & Co., a tax consulting firm as saying, “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.”

New Income Tax Regime: Reimbursements Exempt From Tax

According to the ET report, several allowances are available for taxpayers to restructure their salary and lower their taxable income:

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1. Conveyance reimbursement: Employers can reimburse work-related travel expenses incurred by employees. Bhuta says, “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.”
2. Transport allowance for specific employees: This provision applies to specially-abled individuals. Unlike conveyance reimbursement, this allowance covers travel between home and workplace. Bhuta says, “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.”
3. Phone bills: Salaried employees can receive tax exemptions for reimbursed telephone bills. According to Yogesh Kale, Executive Director of Nangia Andersen LLP, “There is no limit prescribed concerning the exemption of telephone and internet bills under either of the old or new income tax regimes. However, as an ideal practice, the reimbursement amount should be reasonable, considering an employee’s designation and the roles and responsibilities.”
He further explains, “As telephone and internet expenses generally go hand in hand, many employers provide exemptions in respect of internet reimbursements to employees under the income tax rules, though the said rules provide that telephone expenses incurred by the employer on behalf of the employees do not qualify as perquisites in the old or new tax regime and do not specifically mention internet expenses.”
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Staff members have the option to restructure their salary packages to incorporate telephone, mobile and internet bill reimbursements, potentially lowering their taxable income.
4. Car leasing: Employers’ car leasing arrangements can contribute to reducing taxable salary. When an employer provides a vehicle for both personal and official use, it is classified as a perquisite under the Income Tax Act.
Kale explains, “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.”
He continues, “An amount of Rs 900 per month is added to the value of perquisite if the chauffeur is also provided to run the car. (Employees should remember that expenses on maintenance and running are met or reimbursed by the employer.) Thus, the amount taxable as perquisite in respect of a car given by the employer for the employee’s personal and official use is much less as compared to the actual amount of expenditure that may be incurred by the employer.”

How To Save Tax

Here’s how individuals can optimise tax savings under the new tax regime through reimbursements.

Source: ET
The analysis presents two scenarios with varying basic salary percentages (30% and 40% of CTC). Higher basic salary percentages within the CTC enable greater tax savings at elevated CTC levels. Tax exemptions apply to mobile and conveyance reimbursements when bills are submitted timely to employers. Both cases include employer NPS contributions at 14% of basic salary under the new regime.

Source: ET
The net taxable income reduces to Rs 12 lakh in both instances. This reduction occurs through submission of mobile and conveyance bills, claiming the Rs 75,000 standard deduction under the new regime, and employer NPS contributions under Section 80CCD (2) of the Income Tax Act.
These calculations exclude additional income sources like share dividends, savings account interest, and fixed deposit returns. Including these would alter the final calculations.
Kale states, “The new tax regime from FY 2025-26 (AY 2026-27) offers lower tax rates but limits many salary-based exemptions and deductions. Although options such as the ones discussed above provide a bit of scope for reducing the tax burden, the opportunities are more limited than under the old regime.”
Under the new regime, meal coupons (Sodexo) from employers are taxable, whereas the old regime allowed tax exemption up to Rs 26,400 yearly (Rs 2,200 per month).
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