New Tax Regime: Often employed people feel that the new tax regime means closure of all avenues of tax saving. It has become a common belief that after the abolition of old deductions like 80C, any professional earning Rs 20 lakh annually will have to pay a large portion of his hard-earned money (about more than Rs 1 lakh) as income tax. However, the reality is quite different from this. If you design your salary structure with some smartness, then even in the new regime, your taxable income can come down to zero instead of being huge. Let us understand this entire mathematics in detail.
Salary structure, not investment, is the real game changer
In the old system, people used to hurriedly invest in insurance or PPF at the end of the financial year to save tax. Now the rules have changed. The new system completely depends on the composition of your CTC. Suppose your annual package is Rs 20 lakh. In this situation, if your basic salary is fixed at 50 percent of CTC i.e. Rs 10 lakh, then you can include many such tax-friendly components in your package which will significantly lighten your tax burden.
This is how a big base is created with small discounts
Tax planning starts with everyday allowances. Take the example of Meal Benefit. If you get Rs 200 per mile, twice a day and for 22 working days in a month, then in a year your amount of around Rs 1.05 lakh becomes directly tax-free.
After this comes the contribution made by the employer to EPF. This is 12 percent of the basic salary, which directly gives additional tax exemption of Rs 1.2 lakh. Additionally, the company's contribution to NPS under section 80CCD(2) (which can be up to 14 percent of the basic) gives you another benefit of around Rs 1.4 lakh. These figures may seem modest on paper, but when added together, they form a very strong base for tax savings.
The biggest 'Brahmastra' to save tax
If you really want to save huge tax, then the option of 'Car Lease' plays the most important role in this. If an employee takes a car worth Rs 8 lakh on a two-year lease, the annual cost including interest comes to around Rs 4.23 lakh. When this large expense is routed through the salary structure, it is considered a tax-efficient 'perquisite' under income tax rules.
With just this one step, your total deduction limit jumps from Rs 3.65 lakh to Rs 7.88 lakh. At the same time, those who have their own personal car can also legally claim tax exemption on driver and fuel expenses by maintaining the logbook properly.
How did the tax on Rs 20 lakh become 'zero'?
If we look at the data of tax filing platform ClearTax, the picture becomes very clear. When all the above mentioned deductions are deducted from CTC, your net salary comes down to Rs 12.11 lakh. After this, standard deduction of Rs 75,000 is applicable, which brings the taxable income to Rs 11.36 lakh. At this stage, due to the rebate available in the new regime, your tax liability becomes almost negligible i.e. zero. If you give up the option of car lease, then this taxable income will be Rs 15.59 lakh and you will have to pay a heavy tax of Rs 1.18 lakh.
ClearTax Founder and CEO Archit Gupta clearly says on this change that if professionals earning Rs 20 lakh make proper use of options like car lease, they can bring their taxable income to zero. This does not put any additional financial pressure on the company, but there is a direct increase in the in-hand salary of the employee equal to 6 percent of CTC.
How to make salary tax-free
| Particulars | With Car Lease (₹) | Without car lease (₹) |
| Annual CTC | 20,00,000 | 20,00,000 |
| Basic Salary (50% of CTC) | 10,00,000 | 10,00,000 |
| Subtract: Meal Exemption (₹200 per meal x 22 working days x 2 meals per day x 12 months) | 1,05,600 | 1,05,600 |
| Less: Exemption on employer's contribution to PF (12% of basic salary) | 1,20,000 | 1,20,000 |
| Subtract: Car lease discount (₹8 lakh car on lease for 2 years) | 4,23,000 | 0 |
| Subtract: Employer's contribution to NPS | 1,40,000 | 1,40,000 |
| net salary | 12,11,400 | 16,34,400 |
| standard deduction | 75,000 | 75,000 |
| Taxable Income | 11,36,400 | 15,59,400 |
| Total Tax Liability | 0 | 1,18,466 |
Note: The monthly cost of car lease (₹8 lakh for 24 months) comes to ₹35,200 (including interest); Thus the annual expenditure is ₹ 4.23 lakh.
Source: ClearTax
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