Every April, your employer asks you to pick a tax regime. You pick the new one. Lower rates, no paperwork, nothing to invest.
Then the first salary of the year hits your account. The TDS (Tax Deducted at Source) deduction is larger than you expected.
Most people assume that is just how it works in the new regime. Give up the deductions, pay the lower rate, move on. What they miss is that the way their CTC (Cost to Company) is split matters, sometimes more than the regime itself.
Depending on how your employer structures your CTC, you can pay zero tax on a salary anywhere between ₹15.08 lakh and ₹16.76 lakh. No Section 123 investments. No switching regimes. Just a conversation with your HR at the start of the financial year.
This thread walks through exactly how — with three real scenarios so you can find where you fit.
First: what is CTC and why does its structure matter?
CTC is the total amount your employer spends on employing you in a year. Your take-home salary is always lower than CTC because some components never reach your bank account like your employer’s provident fund contribution and tax deducted at source.
Here is what most employees do not realise: not every component of your CTC is taxable. Some components never enter your taxable income at all. Others are deducted from your income before tax is calculated.
The goal of salary structuring is to maximise those components within your existing CTC. You are not earning more. You are just arranging what you already earn so more of it sits outside the tax net.
The four things that reduce your tax in the new regime
Standard deduction — ₹75,000 (you already have this)
Every salaried employee in the new regime gets ₹75,000 deducted from their taxable salary under Section 19(1) of the Income Tax Act, 2025. Your employer applies it automatically. This is the baseline which everyone gets it, so the question is what you can add on top.
Employer EPF — up to 12% of basic salary
EPF stands for Employees’ Provident Fund. Both you and your employer contribute to it monthly. Your own contribution comes out of your take-home. Your employer’s contribution is part of your CTC.
Your employer’s EPF contribution up to 12% of basic salary does not enter your taxable income at all. It is not a deduction you claim. It simply does not count as your income. Schedule XI, Para 6 of the IT Act 2025 treats only employer EPF exceeding 12% of basic as taxable.
There is one important catch. Under the EPF Act, employers are only legally required to contribute EPF on a statutory wage of ₹15,000/month, regardless of your actual basic. So most employers cap their EPF at:
12% × ₹15,000 = ₹1,800/month (₹21,600/year)
Some employers — typically larger companies and IT firms — voluntarily contribute EPF on your actual basic salary. If yours does, your EPF benefit is significantly larger. This is the single biggest variable between the three scenarios below. Check your payslip or ask HR.
Employer NPS — 14% of basic salary
NPS stands for National Pension System. If your employer contributes to your NPS account, that amount is deductible from your taxable income under Section 124(2) of the IT Act 2025.
One thing worth knowing: Section 124(2) allows a 14% deduction for new regime employees, versus 10% in the old regime. The new regime is actually more generous on this specific point.
Your employer must offer NPS as a CTC component for this to work. Many private sector companies do. If yours doesn’t offer it, asking HR at the financial year start is worth it.
Meal card — ₹1,05,600 per year
If your employer provides a prepaid meal card like Pluxee or Zaggle for use at restaurants and food courts during working hours, that is called a perquisite (a non-cash benefit from your employer). Perquisites are generally taxable. But Rule 15 of the Income Tax Rules, 2026 says a meal card is valued at nil up to ₹200 per meal. Nil value means zero taxable income.
At two meals a day, 22 working days a month, 12 months: ₹200 × 2 × 22 × 12 = ₹1,05,600 per year, entirely outside your taxable income.
Before structuring your CTC around this, confirm with your HR how they are treating the meal card in Form 130 (your salary TDS certificate) under the new regime. Most employers applying a plain reading of Rule 15 extend this in both regimes. Some are waiting for a formal CBDT clarification. So ask before assuming.
What does not work in the new regime
Several allowances appear on corporate payslips and look like they save tax. Under the new regime, they do not. Rule 280(3) of the Income Tax Rules, 2026 lists the only allowances that survive, everything else is fully taxable, the same as basic salary.
| Allowance | What it looks like on your payslip | New regime reality |
|---|---|---|
| Children’s Education Allowance | ₹3,000/month per child, marked exempt | Fully taxable |
| Hostel Expenditure Allowance | ₹9,000/month per child, marked exempt | Fully taxable |
| House Rent Allowance (HRA) | Partial exemption based on rent paid | Fully taxable |
| Leave Travel Allowance (LTA) | Travel reimbursement, marked exempt | Fully taxable |
| Uniform allowance | Clothing cost, marked exempt | Fully taxable |
| Remote locality allowance | ₹7,000–₹31,000/month, marked exempt | Fully taxable |
Three scenarios — find where you are
How much you can save depends on two things: whether your employer caps EPF at ₹1,800/month or contributes on your full basic salary, and how much of your CTC is set as basic. The three scenarios below cover the range from most common to most optimised.
Scenario 1: Standard EPF cap, basic at 50% of CTC
Zero tax achievable up to: ₹15.08 lakh CTC
This is where most private sector employees are today. EPF is capped at ₹1,800/month. Basic is roughly half of CTC. NPS and meal card are structured within the CTC.
Meet Priya. Her CTC is ₹15.08 lakh. Basic is set at 50%.
| Component | Annual amount | Tax treatment |
|---|---|---|
| Basic salary | ₹7,53,871 | Taxable |
| Special allowance | ₹4,99,529 | Taxable |
| Employee EPF (capped at ₹1,800/month) | ₹21,600 | Taxable |
| Employer EPF (capped at ₹1,800/month) | ₹21,600 | Never enters gross salary |
| Employer NPS (14% of basic) | ₹1,05,542 | Deductible under Section 124(2) |
| Meal card | ₹1,05,600 | Nil perquisite value under Rule 15 |
| Total CTC | ₹15,07,742 |
Tax computation:
| Amount | |
|---|---|
| Gross CTC | ₹15,07,742 |
| Less: Employer EPF (never enters salary) | (₹21,600) |
| Less: Employer NPS (Section 124(2)) | (₹1,05,542) |
| Gross salary | ₹13,80,600 |
| Less: Meal card (nil perquisite, Rule 15) | (₹1,05,600) |
| Taxable salary | ₹12,75,000 |
| Less: Standard deduction (Section 19) | (₹75,000) |
| Net taxable income | ₹12,00,000 |
Tax on ₹12,00,000 under Section 202 slab rates:
| Slab | Tax |
|---|---|
| Up to ₹4,00,000 at nil | — |
| ₹4,00,001 to ₹8,00,000 at 5% | ₹20,000 |
| ₹8,00,001 to ₹12,00,000 at 10% | ₹40,000 |
| Tax before rebate | ₹60,000 |
| Less: Rebate under Section 156 | (₹60,000) |
| Tax payable | Nil |
The Section 156 rebate cancels all tax where total income does not exceed ₹12,00,000. Priya’s income lands exactly at the threshold. Tax is zero.
Scenario 2: EPF on full basic salary, basic at 50% of CTC
Zero tax achievable up to: ₹15.87 lakh CTC
Same structure as Scenario 1, except the employer voluntarily contributes EPF on actual basic salary — not just on ₹15,000/month. This is common at larger companies and IT firms.
The difference: employer EPF jumps from ₹21,600/year to roughly ₹95,000/year at this salary level. That additional ₹73,400 stays out of taxable income.
Meet Rahul. His CTC is ₹15.87 lakh. Basic at 50%. His employer contributes EPF on full basic.
| Component | Annual amount | Tax treatment |
|---|---|---|
| Basic salary | ₹7,93,400 | Taxable |
| Special allowance | ₹3,86,308 | Taxable |
| Employee EPF (12% of actual basic) | ₹95,208 | Taxable |
| Employer EPF (12% of actual basic) | ₹95,208 | Never enters gross salary |
| Employer NPS (14% of basic) | ₹1,11,076 | Deductible under Section 124(2) |
| Meal card | ₹1,05,600 | Nil perquisite value under Rule 15 |
| Total CTC | ₹15,86,800 |
Tax computation:
| Amount | |
|---|---|
| Gross CTC | ₹15,86,800 |
| Less: Employer EPF | (₹95,208) |
| Less: Employer NPS | (₹1,11,076) |
| Gross salary | ₹13,80,516 |
| Less: Meal card | (₹1,05,600) |
| Taxable salary | ₹12,74,916 |
| Less: Standard deduction | (₹75,000) |
| Net taxable income | ₹11,99,916 |
Below ₹12,00,000. Rebate applies in full. Tax payable: nil.
The only difference from Scenario 1 is whether your employer contributes EPF on your actual basic. That one policy decision shifts the zero-tax ceiling by almost ₹80,000 of CTC.
Scenario 3: EPF on full basic, basic pushed higher
Zero tax achievable up to: ₹16.76 lakh CTC
So far, basic has been 50% of CTC. That is a convention, not a legal requirement. Your employer can set basic higher — and doing so increases both EPF and NPS proportionally.
Here is the logic: every ₹1,000 increase in basic adds ₹120 to employer EPF and ₹140 to employer NPS. That is ₹260 moving out of taxable income for every ₹1,000 shifted to basic. The higher the basic, the harder these two components work.
Meet Sanjana. Same company as Rahul — EPF on full basic. But her employer agrees to restructure her CTC with basic set much higher.
| Component | Annual amount | Tax treatment |
|---|---|---|
| Basic salary | ₹11,38,393 | Taxable |
| Employee EPF (12% of basic) | ₹1,36,607 | Taxable |
| Employer EPF (12% of basic) | ₹1,36,607 | Never enters gross salary |
| Employer NPS (14% of basic) | ₹1,59,375 | Deductible under Section 124(2) |
| Meal card | ₹1,05,600 | Nil perquisite value under Rule 15 |
| Total CTC | ₹16,76,582 |
Tax computation:
| Amount | |
|---|---|
| Gross CTC | ₹16,76,582 |
| Less: Employer EPF | (₹1,36,607) |
| Less: Employer NPS | (₹1,59,375) |
| Gross salary | ₹13,80,600 |
| Less: Meal card | (₹1,05,600) |
| Taxable salary | ₹12,75,000 |
| Less: Standard deduction | (₹75,000) |
| Net taxable income | ₹12,00,000 |
Tax: ₹60,000. Rebate under Section 156: ₹60,000. Tax payable: nil.
Notice that gross salary after EPF and NPS is identical across all three scenarios — ₹13,80,600. The structuring changes what share of CTC reaches gross salary, not the gross salary itself. Higher basic with full-basic EPF and 14% NPS simply means more of your CTC is absorbed before it becomes gross salary.
The theoretical ceiling with other pay reduced to zero is ₹16.76 lakh CTC (basic = ₹12,75,000). In practice, most companies need at least a small special allowance component in the salary structure. ₹16.76 lakh with basic absorbing the full CTC (no special allowance) is the realistic optimum.
Where do you fit?
| Your situation | Zero-tax CTC ceiling |
|---|---|
| EPF capped at ₹1,800/month, NPS and meal card included | ₹15.08 lakh |
| EPF on full basic salary, NPS and meal card included | ₹15.87 lakh |
| EPF on full basic, basic pushed higher | ₹16.76 lakh |
| No meal card in new regime | Subtract ₹1,05,600 from above, ceiling drops by roughly ₹1.2 lakh in each case |
Three questions to ask your HR before April 15
1. Does your employer contribute EPF on your actual basic or only on ₹15,000/month?
Check your payslip. If EPF deduction shows ₹1,800/month employer contribution, you are on the statutory cap. Ask whether voluntary EPF on full basic is available. It costs your employer nothing extra in total CTC outflow, the money shifts within your existing CTC but moves more of it outside the tax net.
2. Is employer NPS part of your CTC?
If not, ask whether it can be added this financial year. A 14% NPS contribution on your basic is the largest deduction available in the new regime. On a ₹7.5 lakh basic, that is ₹1,05,000 out of your taxable income.
3. How is the meal card being treated in Form 130 under the new regime?
Ask payroll specifically. A yes means ₹1,05,600 sits outside your taxable income. A no means your ceiling is roughly ₹1.2 lakh lower.
None of these require you to invest anything or change your tax regime. They require your employer to structure your CTC correctly. Most companies allow CTC restructuring at the financial year start. April is the right time to have this conversation.
Questions about your specific salary structure? Drop them below.