FY 2026-27

Negotiate your offer letter for tax

FY 2026-27 is 1 April 2026 to 31 March 2027. The headline on an offer, ₹18 lakh CTC or ₹25 lakh CTC, is a total. Tax depends on the lines inside it. Moving one line, with the CTC unchanged, can cut tax by ₹50,000 to ₹1,50,000 a year. Each line is on the CTC anatomy page. Salary tax overall is on the salaried guide.

Official sources

Employee benefits (page labelled AY 2026-27). Employer PF, NPS, and superannuation above ₹7,50,000 is a taxable perquisite. HRA is Section 10(13A) and Rule 2A, the least of the three amounts. For ESOPs, a Finance Act, 2020 note on that page defers startup perquisite tax until the earliest of 48 months from the end of the relevant assessment year, sale of the shares, or the date you stop being an employee. That note does not state a 60-month window.
Threshold limits (page labelled AY 2026-27, which is not FY 2026-27). Section 80CCD(2) is 14% of salary for a government employer and for income taxed under Section 115BAC(1A), and 10% for other employers.
Section 115BAC (1961 Act text as hosted). The new regime. Chapter VI-A deductions are dropped, other than Section 80CCD(2), Section 80CCH(2), and Section 80JJAA.
Income-tax Act, 2025 (CBDT hub), for the Act text that applies when you file.

Same CTC, different tax

Basic salary is fully taxable. HRA can be partly exempt if you pay rent and you use the old regime. Special allowance is fully taxable. Employer EPF, NPS, and superannuation are exempt until they together cross ₹7.5 lakh. ESOPs from an eligible startup can wait before the perquisite tax is due. The HRA page has the rent test. Employer NPS is Section 80CCD(2).

Take the same ₹20 lakh CTC. ₹12 lakh basic plus ₹8 lakh special allowance is taxed more than ₹10 lakh basic plus ₹6 lakh HRA plus ₹4 lakh special allowance, if you pay rent in a metro and you use the old regime.

What to ask

Ask for the split, not only the total. Payroll will tax the lines on the offer letter.

What to push up or down

The 30-line breakdown is on the CTC anatomy page. Which line to raise depends on the regime you will actually use.

Component	When to Push Higher	When to Push Lower	Why
Basic Salary	Old regime, and you pay rent (HRA uses basic)	New regime (no HRA exemption)	Higher basic raises the HRA exemption in the old regime. It also raises PF, gratuity, and taxable income. In the new regime there is no HRA exemption.
HRA	Old regime, and rent is at least 10% of basic	New regime, or you do not pay rent	Old regime, Section 10(13A) and Rule 2A: the lowest of actual HRA, rent minus 10% of basic, and 50% of basic (metro) or 40% (non-metro). If you do not pay rent, the exemption is nil.
Special Allowance	New regime (taxable cash, no exemption lost)	Old regime (HRA or LTA can be partly exempt)	Fully taxable in both regimes. In the old regime, put the same rupees in HRA or LTA if those exemptions apply. In the new regime, special allowance is taxed like other taxable cash.
Employer NPS	Both regimes, while EPF + NPS + superannuation stay within ₹7.5L	Only if that total is already near ₹7.5L	Section 80CCD(2): up to 14% of basic in the new regime, and 10% of basic for a private employer in the old regime. Ask for it unless the ₹7.5 lakh cap is already used.
LTA	Old regime (domestic travel, block 2026-29)	New regime (fully taxable)	Old regime: 2 domestic journeys in a block. The current block is 2026-29. In the new regime the whole LTA line is taxable.
ESOPs	DPIIT and IMB certified startup	Not IMB-certified, or a listed company	Eligible startup: perquisite tax can wait until you sell, you leave, or the window ends. Allotment before 1 Apr 2026: 48 months from the end of the relevant assessment year. Allotment on or after 1 Apr 2026: 60 months from the end of the FY of exercise. Otherwise, tax is due at exercise and you need cash before you can sell.

Which way to push

Old regime, metro, and you pay rent: ask for more basic and more HRA. New regime: HRA and LTA do not reduce tax, so ask for employer NPS, and leave the rest as special allowance. Skip extra NPS if employer EPF, NPS, and superannuation are already at ₹7.5 lakh.

The ₹7.5 lakh cap

Above the cap

If employer EPF + employer NPS + superannuation is more than ₹7.5 lakh in a year, the excess is a taxable perquisite. In the three examples below, basic is about half of CTC. The ₹25 lakh and ₹40 lakh examples stay under the cap. The ₹55 lakh example crosses it.

The cap is one total of those three employer contributions. On the employee-benefits page, anything above ₹7,50,000 is a perquisite.

Basic Salary (₹25L CTC, ~50%)₹12,50,000

Employer EPF (12% of Basic)₹1,50,000

Employer NPS (14% of Basic)₹1,75,000

Superannuation₹1,50,000

Aggregate₹4,75,000

Within ₹7.5L capFully exempt

At ₹40 lakh CTC, with basic still about half:

Basic Salary (₹40L CTC, ~50%)₹20,00,000

Employer EPF (12% of Basic)₹2,40,000

Employer NPS (14% of Basic)₹2,80,000

Superannuation₹1,50,000

Aggregate₹6,70,000

Within ₹7.5L capFully exempt

The ₹55 lakh example crosses the cap:

Basic Salary (₹55L CTC, ~50%)₹27,50,000

Employer EPF (12% of Basic)₹3,30,000

Employer NPS (14% of Basic)₹3,85,000

Superannuation₹1,50,000

Aggregate₹8,65,000

Excess over ₹7.5L₹1,15,000 taxable

Tax at 30% + 4% cess₹35,880

₹1,15,000 × 30% is ₹34,500. Cess at 4% of that tax is ₹1,380. Together that is ₹35,880.

Ask the employer to keep the three contributions at or under ₹7.5 lakh. Move the rest to special allowance or a cash bonus. The amount above the cap is still credited to you. It is also taxed.

Company car

A company car is taxed at a fixed monthly perquisite, not at what the car costs. The same rates are on the CTC anatomy page: engine up to 1.6 litre, ₹1,800 a month; above 1.6 litre, ₹2,400 a month; a driver adds ₹900 a month.

Car Engine	Monthly Perquisite	Annual Tax (30% slab)
≤ 1.6L cc	₹1,800/mo	₹7,344/yr
> 1.6L cc	₹2,400/mo	₹9,792/yr
Either + Driver	+ ₹900/mo	+ ₹3,672/yr

At these rates a large car with a driver is a ₹39,600 perquisite a year (₹2,400 + ₹900, times 12). The tax column on that row is ₹9,792 plus ₹3,672. The perquisite is often lower than what the car actually costs the company.

Draft 2026 rates, not notified

Draft rules propose ₹5,000 a month up to 1.6 litre, ₹7,000 a month above that, and ₹3,000 a month for a driver. A large car with a driver would then be a ₹1,20,000 perquisite a year (₹7,000 + ₹3,000, times 12). That ₹1,20,000 is added to income. It is not the tax. CBDT has not notified these rates.

If the offer includes a car and you do not need one, ask for the cash instead. Put the fixed perquisite, and the draft rates if they are notified, into the take-home sum before you sign.

ESOP or cash

If part of the CTC is ESOPs, the tax depends on whether the startup is both DPIIT-recognised and IMB-certified. The windows, and a worked ₹490 perquisite, are on the ESOP deferral page.

check_circle DPIIT and IMB certified

Take the ESOPs if you can wait for the tax. You do not pay the perquisite on the day you exercise. It is due when you sell, when you leave, or when the window ends, whichever is first.

Two windows

Allotment before 1 Apr 2026: 48 months from the end of the relevant assessment year. Allotment on or after 1 Apr 2026: 60 months from the end of the FY of exercise. The employee-benefits note states the 48-month rule. It does not state the 60-month window.

cancel Not certified

Take cash. Without deferral, the perquisite is taxed at exercise. You need cash for tax on shares you have not sold.

Tax at exercise

Exercise FMV ₹500, exercise price ₹10. The perquisite is ₹490 a share. At a 30% slab that is ₹147 tax a share.

Ask for the certificate

Many DPIIT-recognised startups do not have IMB certification. DPIIT recognition alone does not defer the tax. Ask HR to confirm IMB status in writing.

Deferral only moves the tax. The shares can fall, vesting can stop if you leave, and there may never be a listing or a buyer. Cash is taxed as salary, and you can spend it. If you do hold the shares, the investor guide is the place for capital gains next to salary.

What you gain

✓ The shares can be worth much more if the company is sold or lists
✓ At a DPIIT and IMB startup, no perquisite tax in cash on the exercise date
✓ Long-term capital gains at 12.5% if you hold more than 24 months after exercise

What you take on

✗ No buyer until an exit
✗ Taxed twice: a perquisite (at exercise, or later if deferral applies), then capital gains when you sell
✗ The company may never list or be acquired

Emails you can send

Replace the brackets. Leave the CTC the same unless you are also negotiating the total.

mail 1. Higher basic, old regime

Subject: Basic salary in the offer — [Your Name]

Hi [HR Name],

Thank you for the offer. I would like to change the split, not the CTC. I will use the old regime and I pay rent. A higher basic raises the HRA exemption, which is 50% of basic in a metro. Could we move basic from [current] to [target], and reduce special allowance by the same amount? That also raises PF and gratuity.

Best regards,

mail 2. HRA

Subject: HRA in the offer — [Your Name]

Hi [HR Name],

I pay ₹[amount] a month in rent. Under Section 10(13A), the HRA exemption is the lowest of actual HRA, rent minus 10% of basic, and 50% of basic in a metro (40% otherwise).

With HRA at [amount], the exemption stops before the rent I pay. Could we raise HRA to [target]? I can share rent receipts.

Best regards,

mail 3. Employer NPS

Subject: Employer NPS — [Your Name]

Hi [HR Name],

The offer does not show an employer NPS contribution. Under Section 80CCD(2), that contribution is exempt up to 14% of basic in the new regime, and 10% of basic for a private employer in the old regime.

Could we add employer NPS at [X]% of basic, taken from another component so the CTC does not change? Please keep employer EPF, NPS, and superannuation together at or under ₹7.5 lakh.

Best regards,

mail 4. ESOPs at a DPIIT and IMB startup

Subject: ESOPs in the offer — [Your Name]

Hi [HR Name],

I understand [Company] is DPIIT-recognised and IMB-certified. Under Section 17(2)(vi), ESOPs from an eligible startup can defer the perquisite tax. It is not due on the day of exercise.

Could we include [X] options, vesting over [Y] years? Please confirm the IMB certificate in writing. DPIIT recognition alone does not give the deferral.

Best regards,

mail 5. New regime

Subject: Split for the new regime — [Your Name]

Hi [HR Name],

I expect to use the new regime. HRA and LTA do not reduce tax there. Employer EPF and NPS still do, up to ₹7.5 lakh together with superannuation. The rest is taxed the same as special allowance.

Could we move [amount] from HRA and LTA into special allowance, and keep or add employer NPS, with CTC unchanged?

Best regards,

Read every CTC line before you reply

Taxable, exempt, perquisite, and the ₹7.5 lakh cap, one component at a time.

CTC Anatomy →

Same CTC, different tax

What to push up or down

The ₹7.5 lakh cap

Company car

ESOP or cash

Emails you can send

Read every CTC line before you reply

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