Tax-Free Income Threshold Set at Rs 12 Lakh
Starting April 1, 2025, individuals earning up to Rs 12 lakh in taxable income will be exempt from income tax under the new regime introduced in the recent Budget 2025. Taxpayers earning above this threshold can utilize various allowances to structure their salaries and reduce their taxable income. Tax experts emphasize that these allowances can significantly aid in managing tax liabilities.
New Income Tax Regime: Reimbursements Exempt From Tax
The new income tax regime offers several allowances that can help taxpayers lower their taxable income. According to Harsh Bhuta, a partner at Bhuta Shah & Co., taxpayers can restructure their salary to take advantage of these exemptions.
- Conveyance Reimbursement: Employees can receive reimbursements for work-related travel expenses. Bhuta explains that these reimbursements are exempt from tax if employees submit appropriate bills for their commuting expenses.
- Transport Allowance for Special Employees: This allowance is specifically for specially-abled individuals, covering travel between home and workplace. Bhuta notes that this allowance is exempt up to Rs 3,200 per month or Rs 38,400 per annum for eligible employees.
- Phone Bills: Employees can also receive tax exemptions for reimbursed telephone bills. Yogesh Kale, Executive Director at Nangia Andersen LLP, states that there is no specified limit for these exemptions under either tax regime. However, he advises that the reimbursement amounts should be reasonable based on the employee’s role.
- Car Leasing: Employers providing vehicles for both personal and official use can help reduce taxable income. Kale explains that the taxable value of such perquisites is relatively low, making it an attractive option for employees.
How To Save Tax
Taxpayers can optimize their savings under the new regime by strategically using reimbursements. The analysis shows two scenarios with varying basic salary percentages (30% and 40% of CTC). Higher basic salary percentages allow for greater tax savings at elevated CTC levels.
Tax exemptions apply to mobile and conveyance reimbursements when bills are submitted to employers. Both scenarios include employer contributions to the National Pension System (NPS) at 14% of the basic salary.
The calculations indicate that the net taxable income can be reduced to Rs 12 lakh through timely submission of mobile and conveyance bills, claiming the Rs 75,000 standard deduction, and employer NPS contributions.
Kale emphasizes that while the new tax regime offers lower tax rates, it limits many salary-based exemptions and deductions. Although options for reducing tax burdens exist, they are more restricted compared to the old regime.
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