How to increase your in-hand salary without changing your CTC

Your employer has agreed to a CTC. That number is fixed. But the way that CTC is split into components determines how much of it actually reaches your bank account each month. Four levers affect this: your basic salary percentage, your HRA component (if you pay rent), the allowances in your flexible benefits plan, and whether your employer offers an NPS contribution. This article shows each lever with numbers.

All the restructuring options below operate within legal frameworks. The goal is not to evade tax — it is to use tax provisions that already exist in the Income Tax Act for the purposes they were designed for.

Lever 1: Adjust basic salary downward (if appropriate for your situation)

Basic salary drives two compulsory deductions: your employee EPF (12% of basic) and, indirectly, TDS (since lower basic can mean slightly different tax treatment of other components). A lower basic salary means:

• Lower employee EPF deduction each month
• Lower employer EPF deduction (uses more CTC elsewhere)
• Lower gratuity accrual (a trade-off)

Example: ₹20 LPA CTC, changing basic from 50% to 30%

The gross pay does not change. The in-hand goes up by approximately ₹4,000/month because ₹4,000 less is being diverted to EPF.

The trade-off: EPF corpus grows more slowly, and gratuity after 5 years drops from approximately ₹2,40,385 to ₹1,44,231 (based on the formula in Article 2 of this series). This is not free money — it is a shift from forced savings to discretionary savings.

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Key Point:

Reducing basic to increase take-home only makes sense if you have a plan for the extra ₹4,000/month — investing it at a return higher than EPF's 8.25% p.a., for example. If you would simply spend it, the higher EPF deduction at a higher basic was arguably the better outcome for your long-term financial position.

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Lever 2: Maximise HRA component if you pay rent (old tax regime)

If you are on the old tax regime and pay rent, your HRA component should be structured to maximise the exemption under the three-part minimum formula. Recall from Article 3 in this series:

HRA exemption = Minimum of:

Actual HRA received

Rent paid − 10% of basic

50%/40% of basic (metro/non-metro)

The HRA component your employer pays is typically 40%–50% of basic. If your actual rent is higher than what the formula allows you to exempt anyway (i.e., Limit 3 is always the binding constraint), increasing HRA beyond 50% of basic wastes tax planning opportunity — you cannot exempt more than 50% of basic in a metro city regardless of how much HRA you receive.

Example: Metro city, basic ₹8,00,000, rent paid ₹3,60,000/year (₹30,000/month)

• HRA received at 50% of basic = ₹4,00,000
• Rent − 10% basic = ₹3,60,000 − ₹80,000 = ₹2,80,000
• 50% of basic = ₹4,00,000

Minimum = ₹2,80,000 exempt. ₹1,20,000 is taxable.

The rent amount (₹3,60,000) is the binding limit here. Paying slightly more rent (up to ~₹4,80,000/year, or ₹40,000/month) would push the exemption up. At ₹40,000/month rent: ₹4,80,000 − ₹80,000 = ₹4,00,000 = equals the HRA received. At that point, Limits 1 and 3 both bind at ₹4,00,000, and the entire HRA is exempt.

This is one reason people structure their rent to ensure the HRA is fully utilised.

Lever 3: Use flexible benefit plan (FBP) allowances

Many companies, particularly larger ones, offer a Flexible Benefit Plan (FBP) — a pool of allowances where you choose how to allocate a fixed amount. The same total CTC produces different after-tax in-hand depending on your choices. Tax-advantaged options within an FBP include:

a) Meal / food allowance: ₹26,400/year tax-free (FY 2025-26)

Meal allowances up to ₹50 per meal are tax-exempt under the current income tax rules (Perquisite Valuation Rules, Rule 3). With a standard assumption of two meals per working day and approximately 22 working days per month:

• 2 meals × 22 days × ₹50 = ₹2,200/month tax-free
• Annual: ₹26,400/year exempt

This must be provided as meal vouchers or a prepaid meal card, not cash. Sodexo, Pluxee, and similar platforms are commonly used. Cash reimbursement does not qualify for this exemption.

Note: From FY 2026-27 (effective 1 April 2026 under the new Income Tax Act 2025), this limit is being increased to ₹200 per meal, which would make up to ₹1,05,600/year tax-free. But that increase does not apply for FY 2025-26 filings.

Tax saving from ₹26,400 meal allowance (new regime, 15% slab): ~₹1,584/year (₹132/month) — modest but real.

b) Leave Travel Allowance (LTA): tax-exempt for actual domestic travel costs

LTA exemption under Section 10(5) applies under the old tax regime only. You can claim LTA exemption twice in a block of four calendar years. The current block runs from 2022–2025; the next block runs from 2026–2029.

The exemption covers actual domestic travel costs (to/from anywhere in India) for economy airfare, train travel, or bus travel for you and your immediate family. Hotel, food, and sightseeing are not covered. The exemption is limited to the LTA component in your CTC.

If you are on the new tax regime, LTA is fully taxable and this lever is not available.

c) Telephone / internet reimbursement

If your role requires you to use your personal phone or internet connection for work, employers can reimburse these costs as non-taxable perquisites, provided bills are submitted. The actual amount varies by employer policy, but ₹1,500–₹3,000/month is a common range.

d) Fuel and driver allowance

For employees who use their own car for official purposes, fuel reimbursement and driver allowances can be exempt from tax up to prescribed limits under the perquisite rules. This is relevant only for roles with genuine work-related travel — attempting to claim this without a work-use basis is a tax risk.

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Key Point:

FBP allowances only work if your employer's payroll system supports them and you actually use them correctly. Meal vouchers you never spend, LTA you never claim, and reimbursements without supporting bills either go unused or become fully taxable. These are not automatic savings — they require action.

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Lever 4: NPS employer contribution under Section 80CCD(2)

If your employer offers it, an employer contribution to your NPS (National Pension System) Tier I account is deductible from your taxable income under Section 80CCD(2) — and this deduction is available even under the new tax regime.

For FY 2025-26:

• For private sector employees: employer can contribute up to 14% of basic salary to NPS, and the entire amount is deductible for you
• This is separate from and additional to the normal EPF contribution
• Your employer contributes this amount to your NPS account (it is not paid to you in cash); it is a CTC cost to the employer

Example: Basic salary ₹8,00,000/year. Employer contributes 10% to NPS = ₹80,000/year.

• This ₹80,000 is included in your CTC but is deducted from taxable income under 80CCD(2)
• If you are in the 20% tax slab: tax saving = 20% × ₹80,000 = ₹16,000/year = ₹1,333/month
• New regime: this deduction still applies (unlike most other deductions)

The trade-off: the ₹80,000 goes into your NPS corpus (locked until age 60 for the most part). You cannot withdraw it freely like a bank balance.

Before-and-after example: ₹20 LPA CTC, new regime, metro city

Starting structure (baseline):

• Basic: 40% = ₹8,00,000/year
• HRA: ₹4,00,000/year
• Special Allowance: ₹5,11,200/year
• Employer EPF: ₹96,000
• Gratuity: ₹38,480
• Insurance: ₹54,320
• Monthly take-home: ~₹1,23,000

After restructuring (same CTC, new regime, paying rent of ₹25,000/month):

• Basic: 30% = ₹6,00,000/year (reduced)
• HRA: ₹3,00,000 (50% of basic)
• Meal allowance: ₹26,400/year (added to FBP, replacing part of special allowance)
• NPS employer contribution: ₹60,000/year (10% of basic, replacing part of special allowance)
• Special Allowance: Reduced accordingly
• Employer EPF: ₹72,000 (lower because basic is lower)
• Gratuity: ₹28,860 (lower)
• Insurance: ₹54,320

Note: In the new regime, HRA is fully taxable — the HRA restructuring does not help here. The gains in this example come from:

Lower EPF deduction: +₹2,000/month in hand

Meal allowance exemption (if old regime): +₹132/month

NPS employer contribution Section 80CCD(2): ~+₹833/month (tax saving spread monthly)

Total approximate improvement: ₹2,000–₹3,000/month in this scenario under new regime.

Under the old regime with HRA exemption (paying ₹25,000/month rent in a metro), the HRA restructuring adds another significant saving. The combined levers under old regime can yield ₹5,000–₹8,000/month more in hand at this CTC level.

What you need from your employer

None of this restructuring happens automatically. You need to:

Ask HR whether salary restructuring is allowed (some employers fix the structure, others are flexible)

Submit FBP choices at the beginning of the financial year (typically April) — mid-year changes are often restricted

Submit Form 12BB to your employer with investment proofs, rent details, and PAN of landlord, so that TDS is correctly calculated throughout the year

Missing the April window means your FBP choices may default to fully taxable special allowance for the year.

Bottom line

• Reducing basic salary reduces EPF deductions and increases take-home — at the cost of lower EPF corpus and lower gratuity
• HRA maximisation (old regime only) is one of the highest-impact levers if you pay significant rent in a metro city
• Meal allowance (₹26,400/year, FY 2025-26) and other FBP components reduce taxable income for users of either regime, but are modest in absolute value
• NPS employer contribution under Section 80CCD(2) is deductible even in the new regime — valuable if your employer offers it
• The window to make these choices is typically the start of the financial year; plan in April

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Frequently asked questions

My company says the salary structure is fixed. Can I still change it?

Some companies, especially large MNCs and PSUs, have rigid pay bands and structures. Others, including many startups and mid-sized firms, allow component-level flexibility. It is always worth asking HR — the worst outcome is a no. If you are at the offer-negotiation stage, it is far easier to set the structure before you join than to change it later.

Does restructuring affect my PF passbook balance?

Yes. If you reduce your basic salary, your EPF contribution falls, and so does your employer's EPF contribution. Over multiple years this compounds meaningfully. Check your EPF passbook at epfindia.gov.in to understand your current corpus before deciding.

Can I restructure mid-year?

Most employers allow FBP changes only at the start of the financial year (April). Some allow a mid-year window. Changing the basic/HRA split mid-year is even rarer because it triggers payroll system changes. The safest approach is to plan during the previous January–March period.

Is the ₹26,400 meal allowance available under the new tax regime?

This is a nuanced point. The meal allowance exemption under the Perquisite Valuation Rules (Rule 3) technically applies to both regimes, as it is a perquisite valuation rule rather than a deduction. However, the practical position varies by employer interpretation and payroll software. Clarify with your employer's payroll team whether they apply this exemption under the new regime.

What is the NPS Tier I lock-in, and is there any liquidity?

NPS Tier I funds are locked until age 60. At 60, you must use at least 40% of the corpus to buy an annuity; the remaining 60% is available as a lump sum tax-free. Partial withdrawals (up to 25% of your contributions) are allowed after 3 years for specific purposes like higher education, medical emergencies, and house purchase. NPS Tier II (a voluntary, separate account) has no lock-in but offers no Section 80CCD(2) deduction.

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Sources

• Section 80CCD(2) NPS employer contribution deduction: pfrda.org.in — Tax Benefits
• Perquisite valuation rules (meal allowance): incometaxindia.gov.in — Employees Benefits
• LTA exemption Section 10(5): incometax.gov.in — Salaried Individuals AY 2026-27
• New regime deduction availability: incometax.gov.in — New vs Old Regime FAQs
• EPF contribution rates: epfindia.gov.in — Contribution Rate PDF