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.
