Income Tax: In the Union Budget for the fiscal year 2025-26, individuals with an annual income of up to Rs 12 lakh are exempt from taxation. However, should your employer modify your salary structure, this income threshold may be elevated to Rs 17 lakh by utilizing specific allowances.
The Income Tax Act stipulates that certain allowances can be exempt from income tax under the new tax framework, provided specific criteria are satisfied. These allowances can significantly assist taxpayers in minimizing their tax obligations. By adjusting your salary structure, it is possible for your annual income or cost to company (CTC) of approximately Rs 17 lakh to remain tax-free in the financial year 2026.
The following allowances can facilitate tax savings:
1. Telephone and Mobile Bills – Employees can claim exemptions for telephone and mobile expenses incurred. There is no cap on this exemption. Therefore, if employees revise their salary structure to encompass telephone, mobile, and internet expenses, it can effectively lower their tax liabilities.
2. Transport Allowance for Special Employees – The Income Tax Act provides a tax-free transport allowance for individuals with disabilities. This allowance is intended for travel between home and workplace. For able-bodied employees, the transport allowance is exempt up to Rs 3,200 monthly or Rs 38,400 annually. This exemption is exclusively available to specially abled individuals who are blind, deaf, mute, or have orthopedic disabilities affecting their lower extremities.
3. Vehicle Reimbursement – Vehicle reimbursement is a benefit offered by employers to employees for work-related travel. This differs from the transport allowance designated for specially abled employees. According to Income Tax regulations, the taxable value of a vehicle provided by the employer for both personal and professional use is relatively low.