Introduction
With the New Tax Regime under Section 115BAC(1A) becoming the default regime from FY 2023–24, it is imperative for employers and payroll teams to align their salary structures and HR policies with its stipulations. While most exemptions/deductions are not allowed, certain reimbursements continue to be tax-exempt, subject to strict conditions.
This guidance note provides:
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Final positions on tax-exempt components under Section 115BAC(1A)
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HR Policy Format for Allowable Reimbursements
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Employee Declaration Format
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Payroll Structuring Matrix: Old vs New Regime
Eligibility of Common Pay Components Under Section 115BAC(1A)
| Component | Exempt Under 115BAC(1A)? | Legal Basis / Interpretation | Conditions |
|---|---|---|---|
| Fuel & Maintenance Allowance | ❌ Not Exempt | Not covered under Sec. 10 exemptions allowed in 115BAC(1A) | Fully taxable unless reimbursement linked to company-owned car under Rule 3 |
| Food Allowance / Meal Coupons | ✅ Exempt (in kind only) | Allowed as non-cash perquisite, ₹50/meal as per CBDT Circular 15/2021 | Should be through voucher/card, not in cash. Working hours only. |
| NPS - Employer Contribution | ✅ Allowed | Deduction under Section 80CCD(2) specifically retained under 115BAC(2)(ii) | Upto 10% of salary (basic + DA) |
| NPS - Employee Contribution | ❌ Not Allowed | Section 80CCD(1)/(1B) is not available under 115BAC | Fully taxable in New Regime |
| Telephone/Internet (Reimbursement) | ✅ Allowed | Reimbursement of actual official expenses is not income per Rule 3/Employer Circulars | Must be supported by bills + declaration of official use |
| Driver Allowance | ❌ Not Exempt | Perquisite under Rule 3 unless driver provided by employer | If employer-owned car with driver, perquisite valuation applies |
| Books, Newspaper & Periodicals | ✅ Allowed (reimbursement) | Not taxable if for official use & reimbursed against bills | Personal allowance not allowed |
| Uniform Allowance | ✅ Allowed (for job-related use only) | Covered under Rule 3 if uniforms are required for official duties | Not applicable for personal clothing |
| Conveyance Allowance | ✅ Allowed if for official duty | As per CBDT Circular 15/2021, reimbursement for official travel is not considered income | Must not be fixed monthly amount; needs trip records or log approval |
| Children Education & Hostel Allowance | ❌ Not Exempt | Section 10(14) read with Rule 2BB excluded from 115BAC benefits | Fully taxable |
| Standard Deduction ₹50,000 | ✅ Allowed | Retained via Finance Act, 2023 under 115BAC | Automatically applied |
| Professional Tax | ✅ Allowed | Section 16(iii) retained | Deducted by employer |
HR POLICY FORMAT – ALLOWABLE REIMBURSEMENTS UNDER SECTION 115BAC(1A)
Company Name: The Smart HR Solutions Private Limited
Policy Title: Reimbursement Policy under New Tax Regime
Effective From: 01.04.2025
Applicability: All employees who have opted for taxation under Section 115BAC(1A)
✔️ Allowable Reimbursement Heads
| Category | Allowed (Y/N) | Conditions | Limit |
|---|---|---|---|
| Telephone / Internet | Yes | Bills + Declaration of official use | Actual |
| Books / Journals | Yes | Must be for professional/official purpose | Actual |
| Uniform (for work) | Yes | Only job-linked uniforms | Actual |
| Conveyance (official) | Yes | Must maintain travel log or approvals | Actual |
| Meal Coupons (non-cash) | Yes | In-kind via card/vouchers, up to ₹50 per meal | ₹50 per meal |
❌ Disallowed under 115BAC(1A)
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HRA
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LTA
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Education Allowance
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Driver Allowance
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Fuel Allowance
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Medical Reimbursement
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Entertainment Allowance
EMPLOYEE DECLARATION FORMAT
[Company Letterhead]
Declaration for Official Reimbursements – FY 2025–26
Name: ___________
Employee ID: ___________
PAN: ___________
Department: ___________
Tax Regime Chosen: ⬜ 115BAC (New Regime)
| Expense Type | Bill Date | Amount (₹) | Purpose / Remarks |
|---|---|---|---|
Declaration
I certify the above expenses are incurred wholly for official purposes and not for personal benefit. Original bills and supporting documents are attached.
Signature: ___________
Manager’s Approval: ___________
HR Verification: ___________
PAYROLL STRUCTURING MATRIX – OLD VS NEW REGIME
| Component | Old Regime | New Regime (115BAC) | Remarks |
|---|---|---|---|
| Basic Salary | Taxable | Taxable | Common in both |
| HRA | ✅ Exempt u/s 10(13A) | ❌ Not Exempt | Fully taxable under new regime |
| Standard Deduction | ✅ ₹50,000 | ✅ ₹50,000 | Available in both regimes |
| LTA | ✅ Exempt (conditions apply) | ❌ Not Exempt | Not available under new regime |
| NPS – Employee Contribution | ✅ 80CCD(1)/(1B) | ❌ Not allowed | Only employer contribution allowed |
| NPS – Employer Contribution | ✅ 80CCD(2) | ✅ Allowed | Up to 10% of salary |
| Fuel / Driver Allowance | ✅ With Rule 3 conditions | ❌ Fully taxable | Unless official car provided |
| Children’s Education Allow. | ✅ ₹100 / ₹300 per month | ❌ Not Exempt | Fully taxable under 115BAC |
| Reimbursed Telephone Bills | ✅ Not taxable | ✅ Not taxable (official only) | Subject to declaration and bills |
| Food Coupons (non-cash) | ✅ Exempt ₹50/meal | ✅ Exempt ₹50/meal | Only in-kind format (Sodexo, etc.) |
Conclusion
Section 115BAC (1A) allows for certain reimbursements and perquisites to remain non-taxable only when paid strictly as reimbursement against bills and not as fixed allowances.
Employers must:
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Review and redesign salary structures.
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Issue a clear HR reimbursement policy.
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Ensure monthly employee declarations with backup bills.
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Maintain robust documentation to justify non-taxability during assessments.
