How To Restructure Your Salary To Pay Less Tax In FY26? Here's A Five-Point Guide

With the onset of H2FY26, it is the perfect time to explore ways to restructure your salary, which can help you save more on your total tax liability. As employers generally seek tax-saving declarations from employees ahead of the beginning of the new financial year, a request for structuring your salary could help in lowering your overall tax burden.

It’s advisable to discuss your financial needs and objectives with your employer before going ahead with a salary restructure. However, the tax regime you choose plays a crucial role in deciding total tax liability. Restructure your salary as per the tax regime, between the old and the new, to maximise deductions.

Several deductions like House Rent Allowance (HRA), Leave Travel Allowance (LTA), standard deduction and investment-related exemptions under Section 80C are available only under the old regime. On the other hand, the new regime offers lower tax rates with fewer exemptions.

1. The first thing to understand are the components make up the salary. A typical salary includes the basic pay, Dearness Allowance (DA), HRA, special allowances, bonuses and perks. Each component is taxed differently, so you should know which parts are taxable and which are exempt, as this helps in planning efficiently.

For example, you can claim HRA to lower your tax expenses if you are a salaried employee and reside in a leased home or apartment. However, if you receive HRA but do not live in a rental accommodation, this benefit can’t be claimed.

2. Also, salaried employees in India can avail tax exemptions on domestic trips under the LTA. The exemption is applicable for travel with spouse, dependent parents, siblings and up to two children. Employees must submit travel bills to their employers to claim the benefit. According to the Income Tax rules, this can be claimed twice in a span of four years.

3. In addition to this, each company provides perks apart from your basic salary. This can be in the form of cash or kind and includes benefits such as a company car, rent-free accommodation, meal vouchers, or travel allowances. The Income Tax Act, 1961, allows exemptions on certain perks if they are part of the salary structure.

4. Salaried taxpayers can also claim deductions up to Rs 1.5 lakh in a financial year for tax-saving investments, such as life insurance, PPF, ELSS and EPF, among others, under Section 80C of the Income Tax Act, 1961.

5. You can also claim exemptions on health insurance premiums for yourself, your family and parents under Section 80D. It's advisable to consider all the key components of your salary and finalise the tax regime before going ahead with restructuring your salary. You can also take the help of a tax expert to maximise benefits.