What is CTC restructuring for tax savings? CTC restructuring is the legal reallocation of salary components within the same Cost to Company to reduce taxable income. For FY 2026-27 under the new tax regime, the two most effective restructuring tools are employer NPS contribution (up to 14% of basic plus DA, deductible under Section 80CCD(2) of the 1961 Act, now Section 124 of the Income-tax Act, 2025) and meal vouchers (Rs 200 per meal under the Income-tax Rules, 2026). In the worked example below they cut tax on a Rs 15 lakh CTC by about Rs 90,000 without changing the total CTC.
The new tax regime became the default for all employees from FY 2024-25 under Section 115BAC. Unless you explicitly inform your employer to opt out at the start of the year, your salary TDS is computed under the new regime. This matters because the new regime strips away most deductions and exemptions that formed the backbone of traditional salary structuring: HRA, LTA, Section 80C, Section 80D, and home loan interest under Section 24(b).
But "most deductions gone" does not mean "no restructuring possible." Two specific provisions survived the new regime, and the Income-tax Rules, 2026 made one of them significantly more valuable. If your HR department is still issuing salary structures designed around the old regime, you are leaving money on the table.
Salary structuring is one lever among several; our guide on how to save tax under the new tax regime in FY 2026-27 covers the others with worked examples.
This guide covers every CTC component that still works under the new regime, compares both regimes with a worked example at Rs 15 lakh CTC, and gives you the exact email to send to HR.
What Is CTC Restructuring?
CTC restructuring is not tax evasion. It is not even tax avoidance in the aggressive sense. It is the legal reallocation of salary components within the same gross cost to your employer, designed to shift portions of your compensation from fully taxable heads (like Special Allowance) to exempt or deductible heads (like employer NPS or meal vouchers).
Your employer's cost does not change. Your take-home does not necessarily change on a monthly basis. What changes is how much of your CTC the Income Tax Department can tax.
How It Works in Practice
Consider a CTC of Rs 15 lakh. An HR department that has not updated its salary structure might allocate:
- Basic Salary: Rs 6,00,000 (40% of CTC)
- Special Allowance: Rs 8,50,000
- Employer PF, gratuity and insurance: Rs 50,000
That Special Allowance of Rs 8,50,000 is fully taxable. Every rupee of it hits your slab. The restructuring objective, which many employers deliver through a Flexible Benefit Plan (FBP), is to carve out exempt components from this Special Allowance pool without changing the employer's total outflow.
The Only Deduction in the New Regime: Section 80CCD(2)
Under the new tax regime, Section 80CCD(2) is the only Chapter VI-A deduction most salaried employees can use (Sections 80CCH for Agniveer contributions and 80JJAA for employers are the others). It covers the employer's contribution to NPS (National Pension System) on behalf of the employee.
What Changed from FY 2024-25
Before FY 2024-25, private sector employees could deduct only 10% of basic+DA as employer NPS. Government employees enjoyed a 14% limit. The Finance (No. 2) Act, 2024 equalised this for the new regime: from FY 2024-25 onwards, the new-regime limit is 14% of basic+DA for all employees, whether private or government. Under the old regime, the private sector limit is still 10%.
This is a meaningful change. For someone with a basic salary of Rs 50,000 per month:
- Annual basic: Rs 6,00,000
- Employer NPS at 14%: Rs 84,000 a year, fully deductible under the new regime
The Rs 84,000 that goes into your NPS Tier-I account is not included in your taxable salary. Your employer deducts it from what would otherwise be Special Allowance or a similar fully taxable head.
How to Structure It
Ask your HR to set employer NPS contribution at 14% of your basic salary. This is separate from your own voluntary NPS contribution (which is not deductible under the new regime). The employer routes this amount directly to your NPS account through the corporate NPS gateway.
Important: this works only when the employer makes the contribution. If you invest in NPS yourself and the employer does not route it through payroll, Section 80CCD(2) does not apply. Your own contribution falls under 80CCD(1) and 80CCD(1B), neither of which is available under the new regime.
For a deeper breakdown of all three NPS sub-sections, read our NPS Tax Benefits Guide.
Meal Vouchers: The Rs 200 Per Meal Change
The Income-tax Rules, 2026 increased the tax-free limit for meals provided through paid vouchers usable only at eating joints (and free food at the workplace) from Rs 50 per meal to Rs 200 per meal, effective from 1 April 2026 (tax year 2026-27).
This exemption is available under both the old and new tax regimes, making it one of the few restructuring tools that works regardless of which regime you choose.
The Math
- Rs 200 per meal x 2 meals a day x 22 working days x 12 months = Rs 1,05,600 a year
The Rs 1,05,600 annual exemption is substantial. For an employee in the 30% slab (plus 4% cess), the tax saving from meal vouchers alone is approximately Rs 32,950 (Rs 1,05,600 x 31.2%).
How Meal Vouchers Work
Your employer issues meal vouchers (physical cards or digital wallets like Sodexo, Edenred, or similar platforms) loaded with a per-meal amount. These vouchers can only be used at restaurants, food outlets, or canteens. The amount is deducted from your Special Allowance, so your CTC remains unchanged.
The key requirement: the vouchers must be used for meals consumed during working hours. Bulk grocery purchases or non-food items do not qualify.
Components That Work Under the Old Regime Only
If you opt out of the new regime, several additional restructuring tools become available:
HRA (Section 10(13A)): Exempt amount is the least of: actual HRA received, rent paid minus 10% of basic, or 50% of basic (Delhi, Mumbai, Kolkata and Chennai, plus Bengaluru, Hyderabad, Pune and Ahmedabad from tax year 2026-27 under the Income-tax Rules, 2026) or 40% (other cities). For an employee paying Rs 25,000 rent in Hyderabad with a Rs 50,000 basic, the annual HRA exemption can reach Rs 2,40,000.
LTA (Section 10(5)): Tax-free travel allowance for domestic travel during leave. Available in block periods (current block: 2026-2029). Covers economy airfare or AC first-class rail for the employee and family.
Section 80C: Up to Rs 1,50,000 for EPF, PPF, ELSS, life insurance, tuition fees, and similar instruments.
Section 80D: Health insurance premiums. Up to Rs 25,000 for self and family, additional Rs 25,000 (or Rs 50,000 if senior citizen) for parents.
Section 24(b): Home loan interest deduction up to Rs 2,00,000 for a self-occupied property.
When Should You Stick With the Old Regime?
The breakeven calculation depends on your income level, but it is higher than most people think. With a gross salary of Rs 12.75 lakh or less, the new regime already gives nil tax (taxable income up to Rs 12 lakh after the Rs 75,000 standard deduction, covered by the Section 87A rebate). At a gross salary of Rs 15 lakh, the old regime wins only if your deductions and exemptions (beyond the Rs 50,000 standard deduction) exceed about Rs 5.4 lakh. This typically needs a combination of:
- High HRA in a metro city (Rs 20,000+ monthly rent)
- Home loan interest deduction (Section 24(b))
- Full Section 80C utilization (Rs 1,50,000)
- Health insurance under Section 80D (Rs 50,000+)
Run the actual numbers before deciding. The difference can swing either way depending on your specific situation.
Worked Example: Two Employees, Same CTC, Different Structure
Let us compare two employees, both with a CTC of Rs 15,00,000, both under the new tax regime.
Employee A: Unoptimized Structure
| Component | Amount (Rs) |
|---|---|
| Basic salary (40%) | 6,00,000 |
| Special allowance | 8,50,000 |
| Employer PF, gratuity, insurance | 50,000 |
| CTC | 15,00,000 |
Tax computation (New Regime):
| Step | Amount (Rs) |
|---|---|
| Taxable salary (basic + special allowance) | 14,50,000 |
| Less: standard deduction | 75,000 |
| Taxable income | 13,75,000 |
| Tax: 5% on 4 to 8 lakh + 10% on 8 to 12 lakh + 15% on 1,75,000 | 20,000 + 40,000 + 26,250 = 86,250 |
| Add: 4% cess | 3,450 |
| Total tax | 89,700 |
Employee B: Optimized Structure
| Component | Amount (Rs) |
|---|---|
| Basic salary (50%) | 7,50,000 |
| Employer NPS (14% of basic) | 1,05,000 |
| Meal vouchers | 1,05,600 |
| Special allowance | 4,89,400 |
| Employer PF, gratuity, insurance | 50,000 |
| CTC | 15,00,000 |
Tax computation (New Regime):
| Step | Amount (Rs) |
|---|---|
| Taxable salary (basic + special allowance + employer NPS) | 13,44,400 |
| Less: standard deduction | 75,000 |
| Less: employer NPS deduction (Section 80CCD(2) / Section 124) | 1,05,000 |
| Taxable income | 11,64,400 |
| Tax before rebate | 20,000 + 36,440 = 56,440 |
| Less: Section 87A rebate (income up to Rs 12 lakh) | 56,440 |
| Total tax | Nil |
Meal vouchers (Rs 1,05,600) are exempt at source and do not enter taxable salary.
The Difference
Employee B saves Rs 89,700 per year in income tax, partly because the restructuring brings taxable income under the Rs 12 lakh rebate limit. The saving will be smaller for higher incomes that stay above Rs 12 lakh either way. The CTC is identical. The employer's cash outflow is identical. The only difference is how the components are allocated.
Note: Employee B's basic salary is set at 50% of CTC (Rs 7,50,000). A higher basic increases the employer NPS ceiling but also increases the fully taxable base. The 50% level is generally the sweet spot because it maximises NPS room while keeping the overall structure balanced. Your HR department may have constraints on minimum basic percentages based on state-specific Shops and Establishments Act requirements.
Decision Framework: Old vs New Regime
The choice between regimes is not permanent. You can switch every year (salaried employees inform HR; business/professional income taxpayers can switch only once in a lifetime under Section 115BAC(6)).
When the New Regime Wins
- You do not pay rent (no HRA benefit)
- You do not have a home loan
- Your Section 80C investments are below Rs 1,50,000
- Your employer offers NPS under 80CCD(2)
- Your total old-regime deductions are below about Rs 5 lakh
When the Old Regime May Be Better
- Metro HRA exemption exceeds Rs 2,00,000/year
- Home loan interest deduction of Rs 2,00,000 under Section 24(b)
- Full Section 80C (Rs 1,50,000) + 80D (Rs 50,000+) + 80CCD(1B) (Rs 50,000)
- Total deductions comfortably exceed Rs 5.5 lakh (at Rs 15 lakh salary)
For detailed income tax slab rates for FY 2026-27, including the Rs 12 lakh rebate threshold and marginal relief computation, refer to our slab rate guide.
How to Request CTC Restructuring From HR
Most companies allow salary restructuring at the start of the financial year (April) or during the annual compensation revision cycle. Some companies permit mid-year changes effective from the next quarter.
Step 1: Identify Your Current Structure
Pull your latest salary slip and CTC breakup letter. Note the current allocation to Special Allowance, basic salary percentage, and whether employer NPS or meal vouchers are already part of your structure.
Step 2: Prepare Your Request
Send a written request (email is sufficient) to your HR or payroll team. Specify:
- Increase basic salary to 50% of CTC (if currently lower)
- Add employer NPS contribution at 14% of basic under Section 80CCD(2)
- Add meal vouchers at Rs 200 per meal under the Income-tax Rules, 2026
- Reduce Special Allowance by the corresponding amounts
Step 3: Confirm the Changes
After HR processes the restructuring, verify your next salary slip to ensure:
- Employer NPS appears as a separate line item (not clubbed with Special Allowance)
- Meal vouchers are issued through a compliant platform
- The total CTC remains unchanged
For understanding the standard deduction of Rs 75,000 and how it interacts with these components, see our detailed guide.
This guide reflects the law as of June 2026, incorporating changes from the Finance Act 2026 and the Income Tax Act 2025. Salary restructuring rules may vary by employer policy and state-specific labor regulations. For a personalised CTC restructuring plan, speak to a tax professional.
