New Tax Regime FY 2026-27: Smart Salary Restructuring & Tax Planning Guide for Salaried Employees - Part 4

By CA  Surekha Ahuja 

"In the new tax regime, the biggest tax-saving opportunity is not hidden in investments. It is hidden in how intelligently your salary is structured."

In the previous parts of this series, we discussed an important transformation in salary tax planning under the new tax regime.

The old approach was:

"Invest to save tax."

The new approach is:

"Structure your income intelligently to achieve tax efficiency."

The new tax regime has reduced the relevance of traditional deductions such as:

• Section 80C investments
• Section 80D medical insurance
• HRA exemption
• LTA exemption

However, it has not eliminated tax planning.

Instead, the focus has shifted towards:

✓ Employer-sponsored retirement benefits
✓ Salary restructuring
✓ Genuine duty-related allowances
✓ Retirement benefit planning
✓ Better compensation decisions

Among these opportunities, smart salary restructuring has become one of the most important areas for salaried employees.

The same Cost to Company (CTC) can result in completely different tax outcomes depending on how the salary package is designed.

Same CTC, Different Tax: Why Salary Structure Matters

Many employees focus only on:

"What is my annual package?"

However, the more important question is:

"How is my annual package structured?"

A salary package may contain:

• Basic salary
• Allowances
• Employer NPS contribution
• Reimbursements
• Retirement benefits
• Other employment-related benefits

Each component may have a different tax impact.

Therefore:

Tax efficiency begins before salary is received — at the stage of salary design.

Employer NPS Contribution: The Foundation of New Regime Tax Planning

As discussed in Part 2, employer contribution to NPS under Section 80CCD(2) has become one of the most valuable benefits under the new tax regime.

It provides:

✓ Deduction from taxable income
✓ Retirement corpus creation
✓ No requirement of personal investment
✓ Benefit even under the new tax regime

Employees should proactively discuss with employers whether this option is available as part of the compensation package.

Illustration: Impact of Salary Restructuring

Salary Structure Before Planning

Particulars	Amount
Annual CTC	₹30,00,000
Taxable salary components	₹30,00,000
Employer retirement contribution	Nil

In this structure, most of the CTC becomes taxable salary.

Salary Structure After Planning

Particulars	Amount
Annual CTC	₹30,00,000
Salary components	₹27,90,000
Employer NPS contribution	₹2,10,000

Benefits:

Impact	Result
Taxable income reduces	Yes
Retirement savings increase	Yes
Employee personal investment required	No
Overall CTC changes	No

The employee receives the same CTC but with improved tax efficiency.

Choosing Between Old and New Tax Regime: A Practical Approach

The right tax regime depends on individual circumstances.

There is no universal answer.

Employees should compare both regimes after considering:

• Salary structure
• Existing investments
• Housing loan benefits
• Medical insurance deductions
• Employer NPS contribution
• Other eligible benefits

Broad Comparison

Particulars	Old Tax Regime	New Tax Regime
Tax rates	Higher	Lower
Section 80C benefits	Available	Generally not available
Section 80D benefits	Available	Generally not available
HRA exemption	Available subject to conditions	Generally not available
Standard deduction	Available	Available
Employer NPS benefit	Available	Available
Importance of salary structure	Moderate	Very High

The mistake many employees make is comparing only deductions.

The correct approach is:

Compare final tax liability after considering the complete salary structure.

3. Salary Planning Mistakes Employees Should Avoid

Mistake 1: Treating CTC as Take-Home Salary

CTC includes several components that may not directly become monthly cash income.

Employees should understand:

• Taxable components
• Employer contributions
• Retirement benefits
• Deferred benefits

before comparing job offers.

Mistake 2: Ignoring Employer Benefits

Many employees focus only on fixed monthly salary and ignore:

• Employer NPS contribution
• Retirement benefits
• Reimbursements
• Other structured benefits

A slightly lower monthly salary with better tax-efficient benefits may actually provide higher overall value.

Mistake 3: Making Tax Decisions at Year End

Tax planning should not begin in March.

By the time the financial year is closing:

• Salary structure may already be fixed
• Payroll changes may not be possible
• Tax-saving opportunities may be lost

The ideal time is:

At the beginning of the financial year or during salary revision discussions.

4. Practical Checklist for Salaried Employees FY 2026-27

Employees should review the following:

Action Point	Importance
Compare old and new tax regimes	Essential
Check employer NPS availability	High
Review salary structure	High
Understand eligible allowances	Important
Maintain previous employment records	Important
Track retirement benefits received	Essential
Review Form 16 before filing ITR	Essential

5. Checklist for Employers and HR Teams

Salary planning is not only an employee responsibility.

Employers should ensure:

✓ Tax-efficient compensation design
✓ Correct payroll implementation
✓ Proper documentation of benefits
✓ Correct TDS calculation
✓ Employee awareness about available options

A well-designed compensation structure improves:

• Employee satisfaction
• Retention
• Financial wellness

6. The New Era of Salary Tax Planning

The direction of tax planning has changed.

Earlier:

Investment → Deduction → Tax Saving

Now:

Salary Design → Tax Efficiency → Wealth Creation

The employee who understands this shift will make better decisions regarding:

• Job offers
• Salary negotiations
• Annual increments
• Retirement planning

Final Takeaway

The new tax regime does not mean:

"No tax planning is possible."

It means:

"Tax planning requires smarter decisions."

For salaried employees, the most important tax-saving decision may not be selecting an investment.

It may be selecting the right salary structure.

A carefully designed compensation package can help employees:

✓ Reduce tax legally
✓ Build retirement wealth
✓ Maximise the value of their CTC
✓ Make informed financial decisions

The future of salary tax planning belongs to those who understand that:

A smart salary structure is not just about earning more. It is about keeping more and building more.

Complete Series: New Tax Regime FY 2026-27 – Salaried Employee Tax Planning Guide

Part 1

New Tax Regime FY 2026-27: What Still Saves Tax for Salaried Employees? The Truth Every Employee Should Know

Part 2

Section 80CCD(2) Under New Tax Regime: The Hidden Tax Saving Opportunity Through Employer NPS Contribution

Part 3

New Tax Regime FY 2026-27: Standard Deduction, Section 10(14), Leave Encashment & Gratuity Exemption

Part 4

New Tax Regime FY 2026-27: Smart Salary Restructuring & Tax Planning Guide for Salaried Employee 

GST Input Tax Credit on Rooftop Solar Panels for Industrial and Commercial Buildings: When Is ITC Available Under GST

Guide with Sections 16 & 17, Judicial Principles and Practical Insights (Part 1A)

By CA Surekha S. Ahuja

"A rooftop solar power plant may generate electricity, but under GST, it is the purpose for which that electricity is used—not the installation itself—that determines whether Input Tax Credit is available."

India's rapid transition towards renewable energy has led industrial units, business parks, warehouses, logistics parks, commercial complexes and shopping malls to invest heavily in rooftop solar power plants. Besides reducing electricity costs and promoting sustainability, these projects involve substantial GST on solar panels, inverters, mounting structures, transformers, cables, installation and commissioning services.

For many taxpayers, the GST paid on such projects may run into several lakhs or even crores of rupees. Naturally, the first question before approving the investment is:

Can the GST paid on the purchase and installation of a rooftop solar power plant be claimed as Input Tax Credit (ITC)?

The answer is Yes—but not merely because GST has been paid on the purchase of the solar plant.

Under the GST law, the availability of ITC is determined by how the solar power plant is used in the business and whether it has a direct and proximate nexus with taxable outward supplies. Thus, two taxpayers installing identical rooftop solar plants may arrive at completely different GST outcomes depending upon the manner in which the electricity generated is utilised. This distinction is central to the statutory framework and the authorities discussed in the source material.

This article examines situations where GST Input Tax Credit is generally available on rooftop solar power plants. Situations where ITC is restricted or denied due to exempt electricity supplies and Rule 43 reversals will be discussed separately in Part 2.

Key Takeaways

Before examining the legal provisions, the following principles deserve attention:

✔ ITC on rooftop solar power plants is not automatic.

✔ Section 16 of the CGST Act creates the entitlement to ITC, subject to fulfilment of statutory conditions.

✔ Section 17 determines whether that entitlement is restricted or blocked.

✔ Where solar power is consumed for common facilities supporting taxable renting or business activities, the legal position is generally favourable for ITC.

✔ Proper documentation, technical design and contractual arrangements are often as important as the statutory provisions themselves.

Why GST Planning Should Begin Before Installing the Solar Plant

A rooftop solar power project is no longer a routine capital expenditure. Depending upon the capacity of the plant, the investment may range from a few lakh rupees to several crores.

The GST component itself may therefore be substantial.

A wrong position on ITC can result in:

• Recovery of wrongly availed ITC.
• Interest liability.
• Penalty, wherever applicable.
• Increased project costs.
• Long-drawn GST litigation.

Professional Insight

Many taxpayers focus only on reducing electricity costs while evaluating a solar project. Equally important is evaluating the GST implications before the EPC contract is finalised. A properly structured project can significantly reduce future litigation and improve overall project economics.

Section 16 – The Foundation of Every ITC Claim

Every discussion on GST Input Tax Credit begins with Section 16 of the Central Goods and Services Tax Act, 2017.

In substance, Section 16 provides that every registered person is entitled to take credit of GST charged on goods or services used or intended to be used in the course or furtherance of business, subject to fulfilment of the prescribed conditions.

This provision establishes three important legal principles.

1. ITC Is a Statutory Entitlement

Input Tax Credit is not a discretionary concession granted by the tax department.

Once the statutory conditions prescribed under the GST law are fulfilled, Section 16 recognises the taxpayer's entitlement to claim ITC.

However, this entitlement is not absolute. It remains subject to the restrictions contained elsewhere in the Act, particularly Section 17.

Accordingly, every ITC analysis should follow a two-step approach:

Step 1: Determine whether Section 16 creates the entitlement.

Step 2: Examine whether Section 17 restricts or blocks that entitlement.

Ignoring either step often results in an incorrect legal conclusion.

2. Business Use Is the Governing Test

The GST law does not ask:

"Has the taxpayer purchased a rooftop solar power plant?"

Instead, it asks:

"Is the rooftop solar power plant being used in the course or furtherance of the taxpayer's business?"

The emphasis is therefore on business use, not merely on ownership of the asset.

3. Capital Goods Are Eligible for ITC

A rooftop solar power plant is ordinarily a capital asset. That fact, by itself, does not prevent the availment of ITC. The GST law permits ITC on capital goods, provided:

• the conditions of Section 16 are fulfilled; and
• no specific restriction under Section 17 applies.

Statutory Conditions for Availing ITC

Even where the solar power plant is otherwise eligible, the following conditions should be satisfied:

Requirement	Practical Compliance
GST Registration	The recipient should be registered under GST.
Valid Tax Invoice	Invoice should comply with the GST law.
Receipt of Goods and Services	The solar power plant should be installed and received.
Tax Paid by Supplier	Subject to statutory compliance under the GST framework.
Return Filing	Relevant GST returns should be furnished.
Time Limit	ITC should be claimed within the prescribed statutory time limit.
Business Use	The plant should be used in the course or furtherance of business.

Failure to comply with these statutory requirements may jeopardise the ITC claim even where the project is otherwise eligible.

The Most Important Question Under GST

Most taxpayers ask:

"Is ITC available on solar panels?"

From a legal perspective, that is not the correct question. The correct question is:

"For what purpose is the electricity generated by the rooftop solar power plant ultimately used?"

This distinction lies at the heart of the GST law.  The same rooftop solar power plant may qualify for full ITC, proportionate ITC, or no ITC at all, depending upon the nature of the outward supplies that it supports.

When Does the Law Generally Support Full ITC?

The strongest case for ITC arises where:

• a landlord owns an industrial or commercial property;
• a rooftop solar power plant is installed on that property;
• the electricity generated is consumed exclusively for common facilities; and
• those common facilities form part of the taxpayer's taxable renting or maintenance services.

Typical examples include electricity used for:

• Common lighting.
• Lifts and elevators.
• CCTV systems.
• Security infrastructure.
• Fire-fighting systems.
• Water pumps.
• Common HVAC systems.
• Parking areas.
• Landscape lighting.
• Other common amenities maintained by the landlord.

In such circumstances, the rooftop solar power plant is not generating an independent outward supply of electricity. Instead, it functions as an input used for providing taxable renting and maintenance services. The uploaded material discusses this distinction as the basis for favourable ITC treatment.

Understanding the Relationship Between Sections 16 and 17

Many disputes arise because taxpayers read Section 16 in isolation. The correct approach is to read Sections 16 and 17 together.

Step 1: Section 16 asks whether the inward supply is used in the course or furtherance of business.

Step 2: Section 17 asks whether any part of that inward supply is used for making exempt supplies or for purposes specifically blocked by law.

Only after answering both questions can the availability of ITC be determined.

Why Section 17(2) May Not Restrict ITC in This Situation

Section 17(2) restricts ITC where goods or services are used partly for taxable supplies and partly for exempt supplies.

However, where:

• electricity generated by the rooftop solar plant is consumed solely for common facilities;
• no separate electricity is supplied to tenants from that generation; and
• the landlord raises GST on rent and common area maintenance charges,

there may be no separate exempt outward supply of electricity attributable to the rooftop solar power plant.

Accordingly, on these facts, the restriction contemplated by Section 17(2) may not arise. This legal reasoning is reflected in favourable rulings dealing with common-area consumption supporting taxable renting activities.

Professional View

During GST audits, the tax authorities often examine the actual flow of electricity, metering arrangements, CAM agreements and the commercial substance of the transaction. Proper documentation demonstrating that the solar power is used exclusively for common taxable facilities significantly strengthens the taxpayer's position.

RBI FLA Return 2026: Filing Deadline, Revision Timeline & Important Caution Points

 By CA Surekha Ahuja

Compliance Alert for Companies, LLPs and Other Eligible Entities Having Foreign Assets or Liabilities

The Foreign Liabilities and Assets (FLA) Return for FY 2025-26 is required to be filed with the Reserve Bank of India (RBI) through the FLAIR Portal by 15 July 2026. The return reports the foreign assets and liabilities position as on 31 March 2026.

Important Dates

Particulars	Date
Reporting Date	31 March 2026
Original FLA Filing Due Date	15 July 2026
Revised Return (where provisional figures were filed)	30 September 2026

Key Caution Points Before Filing FLA Return

1. Do Not Wait for Completion of Audit

If audited financial statements are not available by 15 July 2026, the entity should file the FLA Return using provisional financial data and subsequently revise the return after finalisation of accounts.

2. Verify Applicability Every Year

FLA filing is not based only on fresh foreign investment during the year. Entities having outstanding foreign liabilities or foreign assets as on 31 March 2026 may be required to file even if there was no new transaction during FY 2025-26.

3. Reconcile FLA Data With Other Records

Before submission, ensure proper reconciliation of:

• Foreign shareholding details with MCA records.
• FDI inflow details with FC-GPR filings.
• ODI details with overseas investment records.
• Foreign loans, guarantees and other liabilities.
• Equity, reserves and net worth figures with financial statements.

4. Avoid Incorrect Reporting

Incorrect reporting of foreign investment data, ownership percentage, country-wise details or financial figures may result in RBI queries and future compliance issues.

5. Check FLAIR Portal Access in Advance

Entities filing for the first time should complete registration and DSC-related requirements well before the due date to avoid last-minute technical issues.

Who Should Review FLA Applicability?

Companies, LLPs and other eligible entities should review FLA applicability if they have:

✅ Received Foreign Direct Investment (FDI)
✅ Made Overseas Direct Investment (ODI)
✅ Outstanding foreign equity, debt or other foreign assets/liabilities as on 31 March 2026

Professional Reminder

Do not assume that an extension will be granted. Although RBI has provided extensions in certain earlier years, entities should plan for the statutory deadline of 15 July 2026 and treat any extension only as a relaxation, not as a compliance strategy.

Final Compliance Action:
✔ Review FLA applicability immediately
✔ Collect foreign investment details
✔ Reconcile with FEMA records
✔ File by 15 July 2026
✔ Revise by 30 September 2026 wherever provisional figures were used

FLA Return is not merely a filing — it is an important FEMA compliance declaration of your entity’s foreign exposure

MCA Extends CCFS 2026 Deadline to 31 August 2026 | Major Relief for Companies with Pending Filings

 BY CA SUREKHA AHUJA

The Ministry of Corporate Affairs (MCA) has extended the timeline under the Companies Compliance Facilitation Scheme 2026 (CCFS-2026) from 15 July 2026 to 31 August 2026.

The extension has been provided to support companies that could not complete their pending statutory filings due to disruptions arising from MCA data centre restoration activities and to provide additional time for companies to regularise their compliance position.

Key Highlights of CCFS-2026 Extension

Particulars	Details
Scheme Name	Companies Compliance Facilitation Scheme 2026 (CCFS-2026)
Extended Due Date	31 August 2026
Earlier Due Date	15 July 2026
Purpose	To provide an opportunity to complete pending statutory filings and regularise defaults
Major Benefit	Significant relief from additional fees on eligible filings
Applicable Entities	Companies having pending eligible ROC filings

Major Relief for Companies

Under CCFS-2026, eligible companies can file their pending statutory documents, including annual and other prescribed filings, with substantial relaxation in additional fee burden as provided under the scheme.

This provides a valuable opportunity for companies to:

• Complete pending ROC compliances.
• Avoid prolonged non-compliance status.
• Reduce additional fee exposure.
• Ensure updated corporate records before future regulatory scrutiny.

Companies Should Act Before 31 August 2026

Companies having pending filings should review their compliance status on the MCA portal and utilise this extended window to complete necessary filings within the revised deadline.

Failure to regularise pending compliances after expiry of the scheme may result in:

• Levy of additional filing fees.
• Increased regulatory exposure.
• Possible compliance actions under the Companies Act, 2013.

Professional Advice: Directors and management should not wait until the last date. A compliance review of pending forms, financial statements, annual returns and event-based filings should be undertaken immediately to maximise the benefit available under CCFS-2026.

Reference: MCA General Circular No. 03/2026 relating to Companies Compliance Facilitation Scheme 2026.

Deadline Reminder: 31 August 2026 — Last Opportunity to Clean Up Pending ROC Compliances.

New Tax Regime FY 2026-27: Standard Deduction, Section 10(14) Allowances, Leave Encashment & Gratuity Exemption — Tax Planning Framework for Salaried Employees

By CA Surekha Ahuja

"The new tax regime has not ended tax planning. It has changed the art of tax planning from investment selection to intelligent salary structuring and benefit optimisation."

In Part 1 of this series, we examined the misconception that the new tax regime has eliminated all tax-saving opportunities.

In Part 2, we discussed Section 80CCD(2) — Employer Contribution to NPS, which has become one of the most powerful tax planning tools available to salaried employees.

However, employer NPS contribution is not the only benefit that survives under the new tax regime.

Several other important provisions continue to provide tax relief, including:

• Standard Deduction under Section 16(ia)
• Duty-related allowances under Section 10(14)
• Leave Encashment exemption under Section 10(10AA)
• Gratuity exemption under Section 10(10)
• Rebate under Section 87A subject to applicable conditions

The key is to understand that the new tax regime does not reward traditional investment-based tax saving.

Instead, it rewards:

Genuine employment benefits + retirement planning + proper salary design.

1. Standard Deduction: The Simplest Benefit Available to Every Salaried Employee

The standard deduction remains one of the most important benefits under the new tax regime because:

• It is automatic
• No investment is required
• No proof or documentation is required
• It is available to eligible salaried taxpayers

Section 16(ia): Standard Deduction

For Financial Year 2026-27:

Standard Deduction: ₹75,000

This means salary income is reduced by ₹75,000 before calculating taxable income.

Example:

Particulars	Amount
Gross Salary	₹15,00,000
Less: Standard Deduction	₹75,000
Taxable Salary	₹14,25,000

The importance of standard deduction increases under the new regime because several other deductions are no longer available.

2. Section 10(14): Duty-Related Allowances — A Frequently Misunderstood Benefit

A common misconception among employees is:

"All allowances are taxable under the new tax regime."

This is incorrect.

Certain allowances granted for performing official duties continue to receive exemption under Section 10(14), subject to prescribed conditions.

The principle is simple:

Where an allowance is provided to meet expenses incurred wholly, necessarily and exclusively for official duties, tax exemption may continue.

Types of Duty-Related Allowances Covered Under Section 10(14)

Examples include:

Allowance	Tax Treatment
Travel allowance for official duties	Exempt subject to conditions
Conveyance allowance for official duties	Exempt subject to conditions
Helper allowance	Exempt to the extent of eligible expenditure
Academic/research allowance	Exempt subject to conditions
Uniform allowance	Exempt to the extent utilised

The exemption is generally linked to:

• Actual expenditure incurred
• Purpose of allowance
• Prescribed limits
• Employer records

Documentation is Critical

Employees often lose legitimate tax benefits because of poor documentation.

Important records include:

✓ Employer policy
✓ Salary structure details
✓ Bills and supporting documents wherever required
✓ Proof of official purpose
✓ Internal reimbursement records

A genuine business-related expense should be properly supported.

3. Leave Encashment Exemption Under Section 10(10AA)

Leave encashment is an important retirement-related benefit for salaried employees.

Under the new tax regime, eligible leave encashment exemption continues to be available.

For employees other than Government employees, exemption is subject to prescribed conditions and limits.

The exemption is calculated based on the prescribed formula involving:

• Actual leave encashment received
• Average salary
• Unutilised earned leave
• Statutory ceiling

Maximum Exemption Limit

For eligible non-government employees:

₹25 lakh (lifetime limit)

subject to fulfilment of conditions.

Important Point for Employees Changing Jobs

In today's employment environment, many employees change jobs multiple times during their career.

Employees should remember:

Leave encashment exemption is subject to lifetime limits.

Therefore, employees should maintain records of exemptions already claimed from earlier employers.

Failure to track earlier claims may result in incorrect tax calculations.

4. Gratuity Exemption Under Section 10(10)

Gratuity is a statutory retirement benefit provided to employees who complete the prescribed period of service.

The tax treatment depends upon the category of employee.

Broadly:

Employee Category	Tax Treatment
Government employees	Exempt subject to conditions
Employees covered under Payment of Gratuity Act	Exemption subject to statutory formula
Other employees	Exemption subject to prescribed conditions

For eligible employees, the maximum exemption limit is:

₹25 lakh

subject to applicable conditions.

Gratuity Planning in the New Employment Era

Earlier, gratuity was generally associated only with retirement.

Today, employees frequently:

• Change organisations
• Move between sectors
• Receive gratuity after completing eligibility periods

Therefore, understanding gratuity taxation has become important even for younger professionals.

Employees should maintain:

• Previous employment records
• Gratuity received details
• Service period details

5. Section 87A Rebate: The Zero Tax Possibility

The new tax regime provides rebate benefits under Section 87A subject to applicable income limits and conditions.

For eligible taxpayers, proper utilisation of:

• Standard deduction
• Employer NPS contribution
• Section 10(14) exemptions
• Retirement benefit exemptions

can significantly reduce taxable income.

In suitable cases, this may result in:

Tax liability becoming zero.

However, taxpayers must carefully examine eligibility conditions before planning.

Complete New Tax Regime Salary Planning Framework

A practical salary planning approach should consider the following:

Benefit	Planning Approach
Standard Deduction	Automatically available
Employer NPS Contribution	Request inclusion in salary structure
Duty Allowances	Ensure genuine business purpose and documentation
Leave Encashment	Track lifetime exemption utilisation
Gratuity	Maintain employment records
Section 87A Rebate	Check eligibility before planning

New Tax Regime: What Employees Should Stop Doing

Many employees continue following old tax planning habits.

They should reconsider:

❌ Making unnecessary investments only for tax saving
❌ Ignoring employer-provided benefits
❌ Choosing salary structure without tax analysis
❌ Comparing regimes only on the basis of deductions

What Employees Should Start Doing

The new approach should be:

✓ Review salary structure annually
✓ Evaluate employer NPS option
✓ Understand exempt allowances
✓ Maintain proper documentation
✓ Compare old and new regimes before final selection

Final Takeaway

The new tax regime does not say:

"Tax planning is over."

It says:

"Tax planning must become smarter."

The era of blindly investing ₹1.5 lakh under Section 80C to save tax is changing.

The future of salary tax planning lies in:

Smart compensation design + retirement planning + understanding surviving exemptions.

For salaried employees, the biggest opportunity is not hidden in tax-saving investments.

It is hidden inside their salary structure.

Section 80CCD(2) Under New Tax Regime FY 2026-27: The Hidden Tax Savings Every Salaried Employee Should Know - Part 2

 By CA Surekha Ahuja

The new tax regime has taken away many traditional deductions, but it has not taken away the opportunity to plan taxes. The difference is that tax planning has moved from personal investments to intelligent salary structuring.

In Part 1 of this series, we examined an important misconception among salaried employees:

"The new tax regime has no tax-saving opportunities."

This belief is incorrect.

While deductions such as Section 80C, Section 80D, HRA and LTA are no longer available in the same manner under the new tax regime, the law continues to encourage certain benefits that promote:

• Long-term retirement security
• Employer-sponsored savings
• Genuine employment-related benefits
• Financial discipline

Among all the benefits that continue under the new tax regime, Section 80CCD(2) has emerged as one of the most powerful tax planning tools for salaried employees.

It is unique because:

The employee does not need to invest his or her own money.
The employer contributes to NPS, and the employee gets the tax benefit.

This makes Section 80CCD(2) different from traditional tax-saving investments. It is not merely a tax deduction; it is a structured approach to building retirement wealth while reducing taxable income.

Section 80CCD(2): The Tax Benefit That Survived the New Tax Regime

Section 80CCD(2) allows an employee to claim deduction for the contribution made by the employer towards the employee’s National Pension System (NPS) Tier I account.

The benefit is available over and above many other deductions and continues even when the employee opts for the new tax regime.

The key principle is:

Employer contribution to NPS is not treated merely as salary. It becomes a tax-efficient retirement benefit.

Why Section 80CCD(2) Has Become the Cornerstone of New Tax Regime Planning

Under the old tax regime, employees commonly planned taxes through:

• Section 80C investments
• Life insurance premiums
• Public Provident Fund
• ELSS investments
• Home loan benefits
• Medical insurance deductions

However, under the new tax regime, the focus has shifted.

The question is no longer:

"How much can I invest to save tax?"

The better question is:

"How can my salary structure be designed to maximise tax efficiency?"

Section 80CCD(2) directly addresses this change.

How Section 80CCD(2) Works

The mechanism is simple:

Employer contributes → Employee's NPS account receives contribution → Employee claims deduction → Taxable income reduces

Example:

An employee has:

Particulars	Amount
Basic Salary	₹15,00,000
Employer NPS contribution @14%	₹2,10,000

The employee can claim deduction of ₹2,10,000 under Section 80CCD(2), subject to applicable conditions.

The benefit:

Particulars	Amount
Reduction in taxable income	₹2,10,000
Approximate tax saving at 30% slab plus cess	Around ₹65,500

Thus, the employee receives a dual advantage:

Immediate tax saving + long-term retirement corpus creation

Who Can Claim Benefit Under Section 80CCD(2)?

The benefit is available only where there is an employer-employee relationship.

Employee Category	Eligibility
Private sector employees	Available
Central Government employees	Available
State Government employees	Available
Employees covered under NPS	Available subject to conditions
Self-employed individuals	Not available

A self-employed person cannot claim this benefit because there is no employer contribution involved.

Quantum of Deduction Under Section 80CCD(2)

For employees covered under the new tax regime, employer contribution up to:

14% of Salary

is eligible for deduction, subject to prescribed conditions.

For this purpose, salary generally means:

Basic Salary + Dearness Allowance (where applicable)

It does not include:

• Bonus
• Commission
• Other allowances
• Perquisites

Therefore, salary structure becomes extremely important.

Employer NPS Contribution vs Employee NPS Contribution

A common area of confusion is the difference between employee contribution and employer contribution.

Particulars	Employee Contribution	Employer Contribution
Relevant section	Section 80CCD(1) / 80CCD(1B)	Section 80CCD(2)
Who contributes?	Employee	Employer
Personal funds required?	Yes	No
Benefit under new tax regime	Limited	Available
Salary restructuring required	No	Yes

The practical advantage of Section 80CCD(2) is that it provides an additional tax planning avenue without requiring the employee to reduce current savings.

The ₹7.5 Lakh Overall Employer Contribution Limit

Employees should also be aware of the combined ceiling prescribed under the Income-tax Act.

The aggregate employer contribution towards:

• NPS
• Recognised Provident Fund
• Approved Superannuation Fund

is considered for the purpose of determining taxable perquisite.

If the aggregate employer contribution exceeds ₹7.5 lakh during the financial year, the excess amount becomes taxable.

Therefore, employees receiving high employer retirement benefits should carefully monitor this limit.

Salary Restructuring: The Real Power of Section 80CCD(2)

The biggest advantage of Section 80CCD(2) comes through salary structuring.

Consider an employee with a fixed annual CTC.

Instead of receiving the entire amount as taxable salary, part of the compensation can be structured as employer NPS contribution.

Example:

Before Restructuring

Component	Amount
Basic Salary and taxable components	₹40,00,000
Total CTC	₹40,00,000

After Restructuring

Component	Amount
Basic Salary and other components	₹37,20,000
Employer NPS Contribution	₹2,80,000
Total CTC	₹40,00,000

The employee gets:

✓ Lower taxable income
✓ Tax saving
✓ Retirement corpus creation
✓ No personal cash outflow

Important Points Employees Should Consider

1. Employer Approval is Necessary

An employee cannot independently contribute to NPS and claim Section 80CCD(2).

The benefit is available only when:

The employer makes the contribution as part of the salary structure.

2. Optimum Timing Matters

The benefit should ideally be considered:

• At the time of joining employment
• During annual salary restructuring
• During appraisal discussions

Waiting until the end of the year may limit the opportunity.

3. Employees Changing Jobs Must Track Contributions

In today's employment environment, where job changes are frequent, employees should maintain records of:

• Employer NPS contributions by previous employer
• Employer NPS contributions by current employer
• Total contribution during the financial year

This becomes important for monitoring the overall ₹7.5 lakh ceiling.

Common Mistakes Employees Make

Mistake 1: Assuming New Regime Means No Tax Planning

The new regime has changed the method of planning, not eliminated planning.

Mistake 2: Ignoring Employer NPS Option

Many employees prefer higher monthly cash salary without considering the long-term tax impact.

Mistake 3: Confusing Personal NPS with Employer NPS

Personal NPS contribution and employer NPS contribution operate under different provisions and provide different benefits.

Can Section 80CCD(2) Help in Zero Tax Planning?

For eligible employees, tax planning under the new regime requires a combined approach:

• Standard deduction
• Employer NPS contribution under Section 80CCD(2)
• Eligible Section 10(14) allowances
• Retirement benefit exemptions
• Proper salary restructuring

In suitable cases, these provisions can significantly reduce taxable income and may help eligible taxpayers utilise rebate benefits under Section 87A.

Key Takeaway

The new tax regime has changed the language of tax planning.

Earlier, employees asked:

"Which investment should I make to save tax?"

Today, the smarter question is:

"How should my salary package be structured to reduce tax legally and build financial security?"

Section 80CCD(2) represents this new approach.

It is not merely a tax deduction.

It is a bridge between:

Today's tax efficiency and tomorrow's retirement security.

New Tax Regime FY 2026-27: What Still Saves Tax for Salaried Employees? The Benefits You Cannot Afford to Miss | Part 1

 By CA Surekha Ahuja

Part 1 – What Still Saves Tax Under the New Regime? The Truth Every Salaried Employee Should Know

"The new tax regime has removed many deductions. It has not removed tax planning."

That is perhaps the biggest misconception among salaried taxpayers today.

Ever since the new tax regime became the default tax regime, many employees have assumed that tax planning is no longer possible because deductions such as Section 80C, 80D, HRA and LTA are no longer available in most cases.

Unfortunately, this misunderstanding has resulted in thousands of employees paying significantly higher taxes than necessary or missing valuable retirement benefits simply because they were unaware of the provisions that continue to be available.

The reality is very different.

The Government has consciously shifted the focus from encouraging personal tax-saving investments to promoting retirement planning, genuine employment-related reimbursements and a simpler tax structure. Consequently, while several traditional deductions have been withdrawn, some of the most valuable tax benefits have been retained under the new regime.

For many salaried employees, these surviving provisions can still reduce taxable income substantially. In suitable cases, they may even help bring taxable income within the limit eligible for rebate under Section 87A, resulting in nil tax liability.

Understanding these provisions is therefore no longer optional. It is an essential part of salary structuring and financial planning.

In this comprehensive guide, we shall examine the important deductions, exemptions and planning opportunities that continue under the new tax regime, with special emphasis on:

• Employer's contribution to the National Pension System under Section 80CCD(2)
• Duty-related allowances exempt under Section 10(14)
• Standard deduction
• Leave encashment and gratuity exemptions
• The ₹7.5 lakh aggregate employer contribution ceiling
• Practical salary restructuring strategies
• The zero-tax planning framework for eligible employees
• Important considerations for employees changing jobs during the year

Before discussing each provision in detail, it is useful to understand what actually survives under the new tax regime.

What Still Survives Under the New Tax Regime?

One of the biggest myths surrounding the new tax regime is that "there are no deductions left."

This statement is incorrect.

Although several popular deductions have been withdrawn, Parliament has consciously retained provisions that encourage long-term retirement savings, reimburse genuine official expenses and protect important retirement benefits.

The following table provides a complete snapshot of the principal deductions and exemptions that continue to be available under the new tax regime.

Table 1 – Major Deductions and Exemptions Available Under the New Tax Regime (FY 2026–27)

Section	Nature of Benefit	Maximum Benefit / Condition	Status
Section 16(ia)	Standard Deduction	₹75,000	Available
Section 80CCD(2)	Employer's contribution to NPS Tier I	Up to 14% of Basic Salary plus Dearness Allowance, subject to overall limits	Available
Section 10(10AA)	Leave Encashment	Exemption up to ₹25 lakh (lifetime limit subject to law)	Available
Section 10(10)	Gratuity	Exemption up to ₹25 lakh (subject to applicable conditions)	Available
Section 10(14)(i)	Duty-related allowances	Exempt to the extent of actual expenditure incurred	Available
Section 10(14)(ii)	Specified prescribed allowances	Exemption subject to prescribed monetary limits	Available
Section 17(2)(vii)	Aggregate employer contribution to retirement funds	Excess over ₹7.5 lakh taxable as perquisite	Restriction
Section 87A	Rebate	Subject to prescribed taxable income limit	Available

What Has Actually Changed?

The philosophy of the new tax regime is fundamentally different from the earlier regime.

Earlier, the tax law rewarded taxpayers who invested in specified financial products such as LIC policies, PPF, ELSS, tax-saving fixed deposits and medical insurance.

The new regime, on the other hand, rewards taxpayers who build long-term retirement savings through employer-sponsored retirement schemes and who receive genuine reimbursements for expenses incurred in the course of employment.

In simple words,

Personal tax-saving investments have largely disappeared.

Retirement-oriented employer contributions continue to enjoy significant tax benefits.

Official duty-related reimbursements continue to receive tax exemption.

This distinction is extremely important because many employees continue making investment decisions based on the old regime without reviewing whether their salary structure itself can be made more tax efficient.

The Four Biggest Tax Benefits Still Available

Even after the introduction of the new tax regime, four provisions continue to play a central role in tax planning.

1. Standard Deduction

Every eligible salaried employee continues to receive the standard deduction without making any investment or incurring any expenditure.

This deduction directly reduces taxable salary.

2. Employer's Contribution to NPS under Section 80CCD(2)

This is arguably the single most powerful tax-saving provision available under the new tax regime.

Where the employer contributes to the employee's Tier I NPS account, the employee may claim deduction under Section 80CCD(2), subject to the prescribed conditions.

Unlike many deductions under the old regime, this benefit can substantially reduce taxable income while simultaneously creating a retirement corpus.

We shall discuss this provision in detail in the next part of this guide.

3. Duty-Related Allowances under Section 10(14)

Many taxpayers incorrectly assume that every allowance has become taxable.

That is not correct.

Allowances granted exclusively for the performance of official duties, such as specified conveyance, travel, helper, uniform and similar allowances, continue to enjoy exemption to the extent of actual expenditure incurred, subject to the statutory conditions.

Proper documentation, bills and employer policies become extremely important while claiming these exemptions.

4. Retirement Benefits

Certain retirement-related receipts continue to enjoy substantial tax exemptions even under the new regime, including:

• Leave encashment
• Gratuity
• Other eligible retirement benefits subject to the respective statutory provisions

These exemptions often become relevant not only on retirement but also when employees change jobs during their careers.

Key Takeaway

The new tax regime should not be viewed as a regime without deductions.

Instead, it should be viewed as a regime that rewards structured salary planning rather than investment-driven tax planning.

Employees who understand employer NPS contributions, official reimbursements, retirement exemptions and salary structuring can still achieve significant tax efficiency without relying on traditional deductions such as Section 80C or Section 80D.

The most important of these surviving provisions is Section 80CCD(2), which has become the cornerstone of tax planning for salaried employees under the new regime.

In the next part, we shall examine this provision in detail, including eligibility, conditions, salary definition, employer obligations, practical illustrations and common mistakes that employees and HR departments frequently make.