Employees can potentially save millions in taxes—even on a salary of 20 lakh rupees—under the New Tax Regime. This new framework, effective from April 1, 2026, introduces several avenues for tax savings that many might overlook.
The most striking feature? The New Tax Regime allows tax-free income up to 12 lakh rupees. That’s a game changer for those earning higher salaries. Imagine structuring your salary smartly, so your taxable income drops significantly.
For instance, let’s break down a typical salary structure. If your basic salary is around 10 lakh rupees, you can leverage various exemptions and deductions to lower your overall tax liability. A standard deduction of 75,000 rupees is available, which is a good start.
But it doesn’t stop there. The meal benefit limit has increased from 50 to 200 rupees per meal. This means more tax-exempt income through meal allowances—something many employees might not even think about.
Additionally, contributions made by employers to the Employees’ Provident Fund (EPF) can provide an extra exemption of up to 1.2 lakh rupees. And if you’re contributing to the National Pension System (NPS), that’s another potential deduction of up to 1.4 lakh rupees!
Now, let’s talk about car leases—a clever strategy that can significantly enhance your tax deductions. If you lease a car through your employer, you could potentially reduce your taxable income even further.
Consider this: without utilizing these strategies, an employee with a gross salary of 20 lakh would have a taxable income around 15.59 lakh, leading to a hefty tax bill of about 1.18 lakh rupees. However, with proper structuring—factoring in car leases and other deductions—this could drop to as low as 11.36 lakh rupees.
So what does this mean? With strategic salary structuring under the New Tax Regime, it’s possible for some employees to bring their total tax liability down to zero.
