PILLAR GUIDE VERIFIED

The Salaried Employee's Tax Guide.

The difference between CTC and take-home is where most Indians lose money. Here's the complete rulebook for FY 2026-27 under the Income Tax Act, 2025.

The Journey from CTC to Take-Home

Your CTC (Cost to Company) is not what you take home. Between CTC and your bank account, five deductions eat into your salary:

CTC

Gross

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Employer PF

-12%

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Gratuity

-4.81%

Then from your real gross, income tax, employee PF, and professional tax are deducted. Here are all 30 CTC components and their tax treatment:

#	Component	Old Regime	New Regime
1	Basic Salary	Taxable	Taxable
2	DA	Taxable	Taxable
3	HRA	Exempt (Rule 2A)	Taxable
4	Conveyance	19,200/yr exempt	Disallowed
5	Medical Allowance	Taxable	Taxable
6	Special Allowance	Taxable	Taxable
7	Education Allowance	100/mo/child exempt	Taxable
8	LTA	Exempt (domestic)	Taxable
9	Books & Periodicals	Exempt (actual)	Taxable
10	Uniform	Exempt (actual)	Taxable
11	Telephone / Internet	Exempt (actual)	Taxable
12	Meal Coupons	50/meal exempt	Taxable
13	Fuel Reimbursement	Taxable perquisite	Taxable perquisite
14	Driver Reimbursement	Taxable	Taxable
15	Car — Employer-Owned	Taxable	Taxable
16	Car — Employee-Owned	Exempt (logbook)	Exempt (logbook)
17	Accommodation	Taxable perquisite	Taxable perquisite
18	Loan @ Concessional Rate	Taxable perquisite	Taxable perquisite
19	ESOP / RSU — Listed	Perquisite at exercise	Perquisite at exercise
20	ESOP — Startup (Deferred)	Deferred (48/60mo)	Deferred (48/60mo)
21	Gratuity	Exempt up to 20L	Exempt up to 20L
22	EPF Employer	Exempt up to 12%	Exempt up to 12%
23	VPF	80C deduction	No 80C
24	Superannuation	Exempt up to 1.5L	Exempt up to 1.5L
25	NPS Employer (80CCD(2))	10% (old private)	14%
26	Group Health Insurance	Exempt	Exempt
27	Performance Bonus	Taxable	Taxable
28	Gifts from Employer	In-kind up to 5K	In-kind up to 5K
29	Club Memberships	Taxable	Taxable
30	Stock Options (Startup)	Same as #20	Same as #20

The 5 Deductions Everyone Misses

check_circle Employer PF (80CCD(2)) BOTH REGIMES

Your employer's PF contribution (up to 12% of Basic) is exempt from tax in both regimes. Many employees don't realize this is already a deduction — it never appears in your taxable income.

check_circle Employee PF (80C)

Your own 12% PF contribution counts towards your 80C limit of ₹1.5L. If PF alone uses up the full 80C, you get zero additional 80C benefit — plan accordingly.

check_circle TDS (Tax Deducted at Source)

Your employer deducts tax monthly based on your declared investments. If you don't declare, TDS is higher. File ITR to claim refunds if excess TDS was deducted.

check_circle Professional Tax (PT)

State-level tax (max ₹2,500/yr) deducted automatically. Deductible from salary under Section 16(iii) in both regimes. Delhi has no PT.

check_circle Gratuity

Employer contribution to gratuity (4.81% of Basic) is exempt up to ₹20L under Section 10(10). It's part of CTC but doesn't reduce your take-home until you leave.

New vs Old Regime: The Complete Decision Matrix

New Regime is default from FY 2026-27. You opt out via ITR. Here's the income-bracket decision table:

Taxable Income	Better Regime	Why
0 – 5L	NEW WINS	87A rebate makes tax zero under both, but new has higher SD (75K vs 50K)
5L – 12L	NEW USUALLY WINS	Unless heavy 80C (1.5L) + HRA metro + home loan interest in old regime
12L – 16L	NEW WINS	Marginal relief band. New regime tax is capped at income above 12L
16L+	OLD MAY WIN	If HRA metro + 80C 1.5L + 80D + Home Loan 2L + NPS. Run the calculator.

check_circle Rule of Thumb

Under ₹12L? New Regime is almost always better. Over ₹16L with rent + investments? Old might win. In between? Use the calculator.

HRA Exemption: The 8-City Metro Rule

HRA exemption is available only under Old Regime. The exemption is the minimum of three amounts (Rule 2A):

Actual HRA received Option 1

Rent paid – 10% of Basic Option 2

50% of Basic (metro) or 40% (non-metro) Option 3

For FY 2026-27, 8 cities qualify as metros for the 50% rule (expanded from 4 in FY 2025-26):

Delhi 50% METRO

Mumbai 50% METRO

Chennai 50% METRO

Kolkata 50% METRO

Bengaluru NEW 50% METRO

Pune NEW 50% METRO

Hyderabad NEW 50% METRO

Ahmedabad NEW 50% METRO

warning RENT TO SPOUSE

If you pay rent to your spouse, HRA exemption is denied. Form 124 (replaces 12BB from Apr 2026) now requires family rent disclosure.

Standard Deduction

NEW REGIME

₹75,000

Flat deduction from salary. No proof required. Enhanced by Budget 2024.

OLD REGIME

₹50,000

Unchanged since FY 2019-20. Lower than new regime by ₹25,000.

check_circle Family Pension Deduction

New regime: ₹25,000 / Old regime: ₹15,000 under Section 57(iia). Applies if you receive family pension.

Section 80C: The Complete ₹1.5L Basket

OLD REGIME ONLY

Section 80C gives you up to ₹1,50,000 in deductions. Here are all 14 eligible instruments:

check_circle EPF (employee share)

check_circle PPF

check_circle ELSS

check_circle Life insurance premium (≤10% SA)

check_circle Home loan principal

check_circle Stamp duty + registration

check_circle Tuition fees (max 2 children)

check_circle NSC

check_circle 5-year tax-saver FD

check_circle ULIP (≤10% SA)

check_circle SSY (Sukanya Samriddhi)

check_circle SCSS (Senior Citizens)

check_circle Post Office 5-year TD

check_circle Infrastructure bonds

warning COMMON MISTAKES

ULIP premium exceeding 10% of sum assured → entire 80C claim denied
EPF + 80C double-counting — your employee PF contribution already uses part of 80C
Stamp duty must be claimed in year of payment, not year of possession
Tuition fees: max 2 children, only Indian institutions

Section 80D: Health Insurance Four-Bucket Structure

OLD REGIME ONLY

Bucket	Non-Senior	Senior (60+)
Self + spouse + dependent children	₹25,000	₹50,000
Parents (separate bucket)	₹25,000	₹50,000
Preventive health check-up (sub-limit)	₹5,000	₹5,000
Senior medical expenditure (no insurance)	—	₹50,000
Maximum combined	₹50,000	₹1,00,000

Cash payment not allowed for premium. Preventive check-up CAN be paid in cash (within ₹5K sub-limit).

Section 80CCD: NPS Three-Tier System

Tier	Section	Cap	Old	New
Self contribution	80CCD(1)	Within 80C (1.5L)	check	close
Extra NPS	80CCD(1B)	₹50,000	check	check
Employer contribution	80CCD(2)	14% (new + central govt) / 10% (old private)	check	check

ESTIMATE 80CCD(2) old regime private: most sources say 10% but some say Budget 2024 extended 14% universally. Default to 10% until CBDT confirms.

Home Loan Interest: Section 24(b)

SELF-OCCUPIED

₹2L cap

Interest deduction capped at ₹2L per year. Not allowed in New Regime.

LET-OUT

No cap

Full interest deductible. New Regime allows but loss ring-fenced within HP only.

warning NEW REGIME WARNING

Section 24(b) self-occupied interest (₹2L cap), 80C principal, 80EE, 80EEA — all OLD REGIME ONLY. New Regime allows let-out interest but loss cannot offset salary.

Joint loan: Each co-owner can claim ₹2L interest + 80C principal, but must be co-borrower AND co-owner AND demonstrate EMI from own bank account.

Professional Tax: State-Wise Breakdown

STATE-WISE

Professional tax is a state-level deduction from salary under Section 16(iii), allowed in both regimes. Maximum ₹2,500/year.

State	Monthly	Annual Max
Maharashtra	₹200	₹2,500
Karnataka	₹200	₹2,400
Tamil Nadu	₹135-₹208	₹2,500
Andhra Pradesh	₹150-₹200	₹2,500
Telangana	₹150-₹200	₹2,500
Gujarat	₹80-₹200	₹2,400
West Bengal	₹110-₹200	₹2,400
Madhya Pradesh	₹66-₹208	₹2,500
Kerala	₹100-₹208	₹2,500
Punjab	₹200	₹2,400
Rajasthan	₹100-₹200	₹2,400
Bihar	₹200-₹215	₹2,500
Haryana	₹175-₹200	₹2,400
Jharkhand	₹100-₹208	₹2,500
Chhattisgarh	₹83-₹208	₹2,500
Goa	₹150-₹200	₹2,500
Uttar Pradesh	₹125-₹200	₹2,500
Delhi	NIL	No PT

[TO VERIFY] Odisha abolition proposed Apr 2026. Verify against latest state gazette.

Rebate 87A & Marginal Relief Band

NEW REGIME

₹0 tax if TI ≤ ₹12L

Rebate: ₹60,000. Marginal relief: tax capped at income above 12L for income between 12L and ~12.75L.

OLD REGIME

₹0 tax if TI ≤ ₹5L

Rebate: ₹12,500. Standard threshold — no marginal relief band.

Marginal relief (new regime): If your taxable income is between ₹12L and ~₹12.75L, your tax is capped at the amount by which your income exceeds ₹12L. So earning ₹12.75L doesn't mean ₹10,000 tax — it means roughly ₹75,000 more income for ~₹75,000 more tax.

ESTIMATE Marginal relief upper bound (~₹12,75,588) is secondary source only. Exact figure pending CBDT notification.

TDS on Salary

Your employer estimates your annual tax liability and deducts it monthly from your salary. This is TDS under Section 192.

receipt_long Form 16

Your annual tax certificate. Part A shows TDS details (employer, PAN, TDS amount). Part B shows salary breakdown and taxable income. Keep it safe — you need it for ITR filing.

PAN-Aadhaar link: If your PAN is not linked to Aadhaar, your employer deducts 20% TDS instead of the normal slab rate. This applies to ALL TDS — salary, interest, rent, professional fees.

check_circle Verify Your TDS

Check Form 26AS and AIS (Annual Information Statement) on the income tax portal. Mismatch between Form 16 and 26AS = scrutiny trigger.

Worked Example: ₹15L CTC in Bengaluru

calculate EXAMPLE A — SSOT §14

HRA Exemption (Bengaluru is now metro — 50% rule):

Actual HRA received₹3,00,000

Rent paid − 10% of Basic₹3,00,000 − ₹60,000 = ₹2,40,000

50% of Basic (metro)₹3,00,000

Exempt = min of above₹2,40,000

OLD REGIME

Gross₹15,00,000

Less: Employer EPF−₹72,000

Less: Standard Deduction−₹50,000

Less: HRA Exempt−₹2,40,000

Less: 80C−₹1,50,000

Less: 80CCD(1B)−₹50,000

Less: 80D−₹25,000

Less: 80CCD(2) NPS−₹60,000

Taxable Income₹8,53,000

Tax + 4% cess₹86,424

NEW REGIME WINS

Gross₹15,00,000

Less: Employer EPF−₹72,000

Less: Standard Deduction−₹75,000

Less: 80CCD(2) NPS−₹60,000

Less: 80CCD(1B)−₹50,000

Taxable Income₹12,43,000

Base tax (slabs)₹66,450

87A: TI > 12L → marginal relief → capped at TI − 12L= ₹43,000

+ 4% cess₹44,720

RESULT

New Regime wins by ₹41,704

What to Do Next

calculate Income Tax Calculator

Compute your exact tax under both regimes.

Open Calculator arrow_forward compare Regime Comparator

Side-by-side Old vs New comparison.

Compare Now arrow_forward account_tree CTC Breakdown

Understand every component of your CTC.

Read Guide arrow_forward assignment ITR Filing Guide

Deadlines, forms, penalties, compliance.

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