Category: Salaried Persons

Deemed Let-Out Property: Third House, Vacant House and Tax Rules (Tax Year 2026-27)

Posted on by CA Meet Dhrangadhariya

Last updated: 05 September 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • Only two houses of an owner can have a nil annual value as self-occupied; every other house is taxed on the rent it could reasonably fetch, even if it is vacant (section 21(6) and (7) of the Income-tax Act, 2025).
  • The phrase “deemed let-out” is commentary; the Act does not use it. It describes a third or further house that is not actually let.
  • Municipal taxes paid, the 30% deduction and the whole interest are allowed against that notional rent, so the result is often a small income or a loss.
  • The owner chooses which two houses are treated as self-occupied.

If you own more than two houses, tax may be due on a house that earns you nothing. Commentators call it a “deemed let-out” property. This post explains the rule in the Income-tax Act, 2025 and shows how the tax is worked out.

What the Act says

Section 21(6): the annual value of a house or part of it is nil if the owner occupies it for his own residence or cannot actually occupy it due to any reason.

Section 21(7): this applies only to two houses that you specify, and does not apply if the house is actually let at any time in the year or you derive any other benefit from it.

The Act does not use the words “deemed let-out”. They describe the result: a house beyond your two specified houses is taxed on its annual value, which under section 21(1) is the higher of the rent it could reasonably be expected to fetch and the actual rent. If it is not let, the notional rent is the annual value.

What is not a deemed let-out property

  • A house you live in, up to two houses in total.
  • A second house that is vacant because you work or live elsewhere. It qualifies as one of your two, and the reason does not matter.
  • A house held as stock-in-trade by a builder or dealer and not let at any time in the year: its annual value is nil up to two years from the end of the financial year in which the completion certificate is obtained (section 21(5)).
  • A house that you occupy for your own business or profession (section 20(2)): it is outside this head, and the profits are business income.

How the income is worked out

  1. Annual value is the rent the house could reasonably be expected to fetch (nothing is actually received).
  2. Less local taxes actually paid by you during the year.
  3. Less 30% of the annual value.
  4. Less the whole interest on any loan for the house. The ₹2,00,000 limit for self-occupied houses does not apply here.

Example. Mr A owns three houses. He lives in one and the other two are vacant. He specifies the house he lives in and one vacant house as his two self-occupied houses. The third house could fetch ₹40,000 a month. He paid ₹10,000 of municipal tax and has ₹3,00,000 of interest on its loan.

Step Amount (₹)
Annual value (40,000 × 12) 4,80,000
Less: municipal tax paid 10,000
Net annual value 4,70,000
Less: 30% of annual value 1,41,000
Less: interest on the loan 3,00,000
Income from house property 29,000

Many articles show this result as a loss of ₹29,000. It is income of ₹29,000: 4,70,000 - 1,41,000 - 3,00,000 = ₹29,000.

If the interest were ₹4,00,000, the result would be a loss of ₹71,000. In the old regime that could be set off against other income, up to ₹2,00,000, and any balance carried forward for eight tax years. In the new regime it cannot be set off against other heads or carried forward (sections 109, 110 and 202).

Choosing your two houses

The choice is yours and you make it in the return. A house you specify has a nil annual value, so no tax on notional rent, but its interest is capped (₹2,00,000 in total across such houses, and only in the old regime). A house that is not specified is taxed on its notional rent, with a 30% deduction and the whole interest.

As a rule, specify as self-occupied the houses whose notional rent (after the 30% deduction) is largest compared with their interest, because that removes the most income from tax. Leave as taxed houses the ones with large interest, where the interest reduces the tax, subject to the loss rules above. Check the result for each combination before you file.

Old and new regime

  • Old regime: interest on a self-occupied house is capped (₹2,00,000 in total); on a deemed let-out house it is not, and loss set-off is up to ₹2,00,000.
  • New regime: interest on a self-occupied house is not allowed at all; the deemed let-out house keeps the full interest deduction but any loss cannot be set off or carried forward.

Common mistakes

  • Not reporting the notional rent of a vacant third house. It is income even though nothing is received.
  • Treating a house that is let for part of the year as self-occupied. Letting at any time in the year takes it out of section 21(6).
  • Taking the municipal valuation or the rent of a different house as the expected rent. Use what the house could reasonably fetch, and keep evidence such as local rents or a broker’s note.
  • Forgetting the interest certificate for the house.

Where to report it

In the house property schedule of the return, mark the house as self-occupied or as let out or deemed let out, and give the annual value, taxes paid and interest. If you own more than one house, the simplest return form cannot be used; check which form you need.

Frequently asked questions

What is a deemed let-out property?

A house, beyond the two that you specify as self-occupied, that is not actually let. The annual value of such a house is the rent it could reasonably be expected to fetch, so tax is charged on that notional rent even though you receive nothing.

How many houses can I treat as self-occupied?

Two, as specified by you (section 21(7)(a)). The annual value of those houses is nil if you occupy them for your own residence or cannot actually occupy them for any reason.

Do I pay tax on a vacant third house?

Yes, on the annual value, which is the rent it could reasonably be expected to fetch, less the taxes paid, 30% of the annual value and interest on the loan.

Can I choose which houses are the two self-occupied ones?

Yes. You specify them in the return. Work out the tax for each combination and pick the one that gives the lower tax.

Is any vacant house exempt from this?

A house held as stock-in-trade by a builder or dealer and not let at any time in the year has a nil annual value up to two years from the end of the financial year in which the completion certificate is obtained (section 21(5)).

Is interest on a deemed let-out house fully deductible?

Yes. There is no ₹2,00,000 cap because the cap in section 22(2) applies only to houses covered by section 21(6). A resulting loss is subject to the set-off rules.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

ESOP Taxation in India: Perquisite on Exercise and Capital Gains on Sale (2026-27)

Posted on by CA Meet Dhrangadhariya

Last updated: 23 July 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • An employee stock option (ESOP) is a right, not an obligation, to buy shares at a fixed price. Granting and vesting are not taxed; if you never exercise, there is no tax.
  • On exercise, the fair market value (FMV) of the share on that date less the price you paid is a perquisite taxed as salary (section 17(1)(d)), and TDS applies.
  • FMV is set by Rule 15(6): the average of the opening and closing price for a listed share, and a merchant banker’s value for an unlisted one.
  • On sale, capital gains are worked out with that FMV as your cost, and the holding period runs from the date of allotment.
  • Employees of an eligible start-up pay the perquisite tax later: within 14 days of the earliest of 60 months from the end of the tax year, sale of the shares, or leaving the job.

An employee stock option plan (ESOP) lets an employee buy the employer’s shares at a fixed price in the future. The Companies Act, 2013 calls it an employee stock option: a right, but not an obligation. ESOPs are taxed twice, at two different points, under two different heads. This post follows the Income-tax Act, 2025 and the Income-tax Rules, 2026, which apply from 01/04/2026.

The key dates

Term Meaning
Grant date The employer offers you the option
Vesting period The time, or the milestones, before you may exercise
Vesting date The date the option becomes exercisable
Exercise date The date you tell the employer you will buy the shares
Exercise price The price you pay per share, usually below the market price
Allotment The shares are issued or transferred to you

Nothing is taxed on grant or vesting. If the option lapses unexercised, there is no tax either.

Stage 1: tax on exercise (salary)

Under section 17(1)(d), the value of any specified security or sweat equity share allotted or transferred by your current or former employer, free of cost or at a concessional rate, is a perquisite. The value is the fair market value on the date the option is exercised, less the amount you actually paid or that was recovered from you (section 17(4)(h)).

It is added to your salary and taxed at your slab rate. The employer deducts TDS on it under section 392 and shows it in your TDS certificate (Form 130).

How fair market value is fixed (Rule 15(6) and (7))

Situation on the exercise date FMV
Share listed on one recognised stock exchange Average of the opening and closing price on that exchange
Listed on more than one exchange The same average, on the exchange with the highest trading volume
Listed but no trading that day Closing price on the nearest earlier date (on the exchange with the highest volume if more than one)
Not listed Value fixed by a Category I merchant banker registered with SEBI, as on the “specified date”
Specified security that is not an equity share Merchant banker’s value on the specified date

The “specified date” is the exercise date or any earlier date not more than 180 days before it. “Opening” and “closing” price mean the price of the first and the last settlement on the day, and where the exchange quotes buy and sell prices, the sell price.

Employees of an eligible start-up

If the employer is an eligible start-up under section 140 (the section that replaced section 80-IAC), the tax on this perquisite is not payable at exercise. The notice of demand makes it payable within 14 days of the earliest of:

  • the end of 60 months from the end of the tax year in which the shares were allotted;
  • the date you sell the shares; or
  • the date you cease to be an employee of that employer (section 289(3)).

The tax is worked out at the rates in force for the tax year of allotment, and the employer deducts or pays it within the same time (section 392(3)). The older rule used 48 months; the 2025 Act says 60.

Stage 2: tax on sale (capital gains)

When you later sell the shares, the gain after exercise is a capital gain.

  • Cost of acquisition: the FMV that was taken as the perquisite (section 73, Table serial 4). Your own exercise price does not matter again, because the perquisite already taxed the difference.
  • Holding period: counted from the date of allotment (section 2(101)(c)).
Shares Short-term if held for Short-term gain taxed at Long-term gain taxed at
Listed in India, sale on a stock exchange with STT paid 12 months or less 20% (section 196) 12.5% on the gain above ₹1,25,000 a year (section 198)
Listed in India, no STT paid 12 months or less Slab rates 12.5% without indexation (section 197)
Unlisted Indian company 24 months or less Slab rates 12.5% without indexation (section 197)
Foreign company’s shares 24 months or less Slab rates 12.5% without indexation (section 197)

Shares of a foreign company are not “listed on a recognised stock exchange in India”, so the 24 month period applies even if they are listed abroad.

Worked example (listed company)

You hold 2,000 options at an exercise price of ₹80. On the exercise date, 10/06/2026, the FMV is ₹150.

  • Perquisite: (150 - 80) × 2,000 = ₹1,40,000, added to salary. At a 30% slab that is ₹42,000 of tax before cess, mostly collected as TDS.
  • Sale within 12 months, on 15/12/2026 at ₹175: gain = (175 - 150) × 2,000 = ₹50,000, short-term, taxed at 20% = ₹10,000 plus cess.
  • Sale after 12 months, on 20/07/2027 at ₹190: gain = (190 - 150) × 2,000 = ₹80,000, long-term. It is below ₹1,25,000, so no tax on it, provided your other long-term gains from listed equity in that year do not use up the limit.

Other situations

Sell to cover

When shares are allotted, the employer must deduct TDS on a perquisite that you did not receive in cash. Many employers therefore sell part of the allotted shares on your behalf to pay the tax. That sale is itself a transfer, so it can give a small capital gain or loss (usually nil, because the price is close to the FMV used) that belongs in your return.

Buyback of options

An employer, often an unlisted company, may buy back vested options before they are exercised so that employees get cash. Employers generally treat the payment as salary and deduct TDS. We could not find a specific provision for this in the Act, so treat the position as one to confirm for a large amount.

Residence and foreign employers

A resident is taxed in India on income from anywhere in the world. A non-resident is taxed only on income that is received in India or accrues or arises here, and salary for services rendered in India accrues in India. Stock options of a foreign parent can therefore be taxed in India even if the shares are bought and sold abroad. Foreign shares also have to be reported in the foreign assets schedule of the income-tax return.

Advance tax

Gains on sale are income of the year, so include them in your advance tax instalments once the sale has happened. Delay can attract interest, so pay the tax on a sale as soon as you know the gain.

What to check before you exercise

  1. Ask your employer for the FMV method and the FMV it will use on the exercise date.
  2. Check whether the company is a recognised eligible start-up under section 140. If not, you owe tax at exercise even if the shares cannot yet be sold.
  3. Keep the allotment letter and the FMV working. They are your cost of acquisition and holding period when you sell.
  4. Keep cash aside for the tax on the perquisite, because it arises before you receive any money.

Frequently asked questions

Is tax payable when ESOPs are granted or vest?

No. The tax arises when the option is exercised and shares are allotted. If you let the options lapse without exercising them, there is no tax.

How is the ESOP perquisite worked out?

Fair market value of the share on the date you exercise the option, less the amount you paid or that was recovered from you (section 17(4)(h)). It is added to your salary and taxed at your slab rate, and the employer deducts TDS under section 392.

How is FMV decided?

For a listed share, the average of the opening and closing price on the stock exchange on the exercise date (the exchange with the highest trading volume if listed on more than one). If there was no trade that day, the closing price on the nearest earlier day. For an unlisted share, the value fixed by a Category I merchant banker as on the exercise date or any date up to 180 days before it.

What is my cost when I sell the shares?

The FMV that was taken as the perquisite (section 73, Table serial 4). The holding period starts on the date of allotment.

What happens to tax on ESOPs of a start-up?

If your employer is an eligible start-up under section 140, the tax on the perquisite becomes payable within 14 days of the earliest of three events: 60 months from the end of the tax year of allotment, sale of the shares, or your ceasing to be an employee.

Is the sale of shares taxed twice?

No. The perquisite taxes the gain up to the exercise date, and the FMV on that date becomes your cost, so only the increase in value after exercise is taxed as a capital gain.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

How to Save Tax on Salary from ₹7 Lakh to ₹1 Crore: Old vs New Regime (Tax Year 2026-27)

Posted on by CA Meet Dhrangadhariya

Last updated: 13 July 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • Under the new regime a salaried individual pays no tax on salary up to ₹12,75,000: the ₹75,000 standard deduction takes income to ₹12,00,000, and the section 156 rebate of up to ₹60,000 clears the tax.
  • Above that, the old regime wins only if your total deductions (including the ₹50,000 standard deduction) cross a break-even figure, about ₹5.9 lakh at a ₹15 lakh salary and about ₹8.5 lakh from ₹30 lakh upward.
  • In the new regime the useful levers are the employer’s NPS contribution (up to 14% of salary), tax-free perquisite limits and a correct salary structure.
  • Surcharge starts above ₹50 lakh of income and is capped at 25% in the new regime but goes to 37% above ₹5 crore in the old regime.

A salary of ₹7 lakh, ₹12 lakh, ₹20 lakh or ₹50 lakh calls for different advice. Below ₹12.75 lakh the question is whether any tax is payable at all. Above it, the question is whether your deductions are large enough to beat the new regime. This post gives the rules, the tax at each level and the break-even point, for tax year 2026-27 (income earned in FY 2026-27).

The figures are for a resident individual below 60 whose only income is salary, with 4% health and education cess, unless stated.

The two regimes in one table

Point New regime (section 202, default) Old regime
Slabs Up to ₹4,00,000 nil; ₹4,00,001 to ₹8,00,000 5%; ₹8,00,001 to ₹12,00,000 10%; ₹12,00,001 to ₹16,00,000 15%; ₹16,00,001 to ₹20,00,000 20%; ₹20,00,001 to ₹24,00,000 25%; above 30% Up to ₹2,50,000 nil; ₹2,50,001 to ₹5,00,000 5%; ₹5,00,001 to ₹10,00,000 20%; above ₹10,00,000 30%
Standard deduction ₹75,000 ₹50,000
Rebate (section 156) Tax or ₹60,000, whichever is less, if income is up to ₹12,00,000 (marginal relief above) Tax or ₹12,500, whichever is less, if income is up to ₹5,00,000
Chapter VIII deductions (section 123 and others) Not allowed, except employer’s NPS contribution (section 124(1) and (2)) and a few others Allowed
HRA exemption, LTA, interest on a self-occupied home loan Not allowed Allowed
Gratuity, leave encashment and similar exemptions Allowed Allowed
Surcharge 10% above ₹50 lakh, 15% above ₹1 crore, 25% above ₹2 crore 10%, 15%, 25% on the same slabs, and 37% above ₹5 crore

Slabs and the surcharge are from the Finance Act, 2026; the standard deduction, rebate and what is barred in the new regime are from sections 19, 156 and 202 of the Income-tax Act, 2025.

Salary up to ₹12.75 lakh: no tax in the new regime

A salary of ₹12,75,000 less the ₹75,000 standard deduction is ₹12,00,000. The slab tax on that is ₹60,000, and the section 156(2) rebate of ₹60,000 cancels it. No investment is needed to save tax on these salaries.

Marginal relief covers the next slice. The tax on income above ₹12,00,000 cannot exceed the excess over ₹12,00,000. On a salary of ₹12,85,000 the income is ₹12,10,000; slab tax is ₹61,500 but tax is limited to ₹10,000, plus 4% cess, so ₹10,400.

The rebate applies against slab-rate tax only; it does not reduce tax on special-rate income such as capital gains.

What the tax is at each level

Tax with cess. “Old regime” columns assume total deductions as shown, including the ₹50,000 standard deduction.

Salary New regime Old regime, deductions ₹2,00,000 Old regime, deductions ₹4,50,000 Total deductions needed for old regime to equal new
₹7,00,000 0 0 0 Not needed
₹10,00,000 0 ₹75,400 ₹23,400 New regime tax is nil
₹12,75,000 0 ₹1,40,400 ₹80,600 New regime tax is nil
₹15,00,000 ₹97,500 ₹2,10,600 ₹1,32,600 About ₹5.9 lakh
₹20,00,000 ₹1,92,400 ₹3,66,600 ₹2,88,600 About ₹7.6 lakh
₹30,00,000 ₹4,75,800 ₹6,78,600 ₹6,00,600 About ₹8.5 lakh
₹50,00,000 ₹10,99,800 ₹13,02,600 ₹12,24,600 About ₹8.5 lakh
₹1,00,00,000 ₹29,25,780 ₹31,48,860 ₹30,63,060 About ₹8.5 lakh

Reading the table: at ₹20 lakh you need roughly ₹7.6 lakh of total deductions and exemptions in the old regime before it beats the new regime. A typical set (standard deduction ₹50,000, ₹1,50,000 under section 123, ₹50,000 own NPS, ₹25,000 health insurance, some HRA and home loan interest) can reach it only if rent or loan interest is high. Above ₹30 lakh the break-even settles at about ₹8.5 lakh because both regimes reach the top 30% slab.

What works in the new regime

  1. Employer’s NPS contribution. The employer’s contribution to the notified pension scheme is deductible up to 14% of salary (basic plus dearness allowance) in the new regime (section 124(1) and (2)). It also counts toward the ₹7.5 lakh combined limit for employer contributions to PF, NPS and superannuation. This is the single most useful structuring lever, and it has to be set up with the employer before the contribution is made.
  2. Exempt items that are not barred. Gratuity and leave encashment on retirement, and many perquisites within the Rule 15 limits, stay tax free in both regimes.
  3. Do not restructure pay into HRA or LTA for tax. In the new regime the HRA exemption and similar allowance exemptions are not available, so these allowances are taxed like the rest of salary. Look at the employer-side components (NPS, tax-free perquisites) instead.
  4. Plan for the rebate edge. Between ₹12,75,000 and about ₹13.45 lakh of salary, each extra ₹1 of salary costs ₹1 of tax at the margin because of the marginal relief. An NPS contribution that brings income back under ₹12 lakh removes the tax entirely.

What works in the old regime

If you choose the old regime, build up these in this order:

  • Section 123 (earlier 80C), up to ₹1,50,000 in total: employee PF, tuition fees for two children, home loan principal, five-year bank or post office deposits, life insurance premiums and others listed in Schedule XV.
  • HRA exemption if you pay rent and receive HRA, or the rent deduction if you receive none.
  • Interest on a home loan on a self-occupied house.
  • Own NPS contribution up to ₹50,000 (section 124(3)), above the section 123 limit.
  • Health insurance premium, education loan interest and donations to eligible funds.

See our posts on these deductions for the limits. Do not invest only to save tax: a lock-in product bought for a deduction is only worth it if you need the product.

High salaries: ₹50 lakh to ₹1 crore

  • Surcharge starts when income is above ₹50 lakh, at 10% of the tax. Marginal relief means the tax and surcharge together cannot exceed the tax at ₹50 lakh plus the income above it.
  • At ₹1 crore of salary the new regime has taxable income of ₹99,25,000, so the 10% surcharge applies; from ₹1 crore the rate rises to 15%.
  • The old regime’s top surcharge is 37% above ₹5 crore, but for most salaried people the gap is the ₹8.5 lakh break-even above, not the surcharge.
  • Income other than salary (capital gains, interest, business) adds to total income and can push you across a surcharge line.

A quick way to decide

  1. List your actual deductions: employee PF, section 123 investments, rent paid and HRA received, home loan interest, own NPS, health insurance.
  2. Add ₹50,000 standard deduction. If the total is below the break-even for your salary in the table, choose the new regime.
  3. If above, compute both exactly. The break-even is a guide; the surcharge, other income and the age of the taxpayer change it.
  4. Read the option rules in section 202 before you file, and tell your employer early which regime to use for TDS so that the tax deducted during the year is close to your final tax.

Frequently asked questions

How much salary is tax free in the new regime?

Up to ₹12,75,000 for a salaried person, for tax year 2026-27. The ₹75,000 standard deduction reduces it to ₹12,00,000 of income, and section 156(2) gives a rebate of the tax or ₹60,000, whichever is less.

What if my income is a little above ₹12 lakh?

Marginal relief applies. The tax cannot exceed the amount by which income is above ₹12,00,000. At an income of ₹12,10,000 the tax is limited to ₹10,000 plus cess.

Which regime is better for a ₹20 lakh salary?

For most people the new regime, unless total deductions (standard deduction, section 123 investments, HRA, home loan interest, own NPS and others) are above about ₹7.6 lakh. Compute both with your own figures.

Is the old regime ever better?

Yes, when deductions and exemptions are large, for example HRA with a high rent, home loan interest and the full section 123 limit together.

What still works in the new regime?

The ₹75,000 standard deduction, the employer’s contribution to NPS (up to 14% of salary under section 124), exemptions such as gratuity and leave encashment, and the perquisite limits.

When does surcharge apply?

When income is above ₹50 lakh: 10% up to ₹1 crore, 15% up to ₹2 crore and 25% above that. In the old regime it is 37% above ₹5 crore. Marginal relief applies at each threshold.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

CTC, Gross Salary, Basic Salary and Take-Home Pay Explained (Tax Year 2026-27)

Posted on by CA Meet Dhrangadhariya

Last updated: 23 July 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • CTC (cost to company) is what the employer spends on you in a year; gross salary is the pay before deductions; basic salary is the fixed core of it; take-home is what reaches your bank.
  • “Salary” for income tax is wider than the payroll word: section 16 includes wages, pension, gratuity, commission, perquisites, leave encashment and more.
  • Basic plus dearness allowance (if the terms provide) is the base for gratuity and the HRA exemption, so a low basic changes more than the payslip.
  • Employer’s PF, NPS and superannuation contributions are tax free up to ₹7.5 lakh a year in total; the new regime gives a ₹75,000 standard deduction.

A job offer quotes a CTC, the payslip shows a gross salary, and the bank credit is much smaller. These terms are payroll language, not tax law, and employers use them a little differently. This post fixes the meaning of each, shows how they fit together, and explains what the Income-tax Act, 2025 calls salary.

The four numbers

Term Meaning
CTC (Cost to Company) The total yearly cost of you to the employer: pay, allowances, variable pay, the employer’s PF contribution, the gratuity provision, insurance and other benefits
Gross salary The pay credited or due to you before any deduction: basic, HRA, allowances, variable pay
Basic salary The fixed core of gross salary, without allowances, bonus or perquisites
Take-home (net) pay Gross salary less your PF contribution, professional tax, TDS and other deductions

Gross salary is roughly CTC less the employer’s PF and the gratuity provision, because those are costs to the employer that you do not receive as monthly pay. Check your offer letter, since some employers show variable pay and benefits differently.

What “salary” means for income tax

Under section 16 of the Income-tax Act, 2025, “salary” includes:

  • wages,
  • any annuity or pension,
  • any gratuity,
  • any fees or commission,
  • perquisites,
  • profits in lieu of, or in addition to, salary or wages,
  • any advance of salary,
  • any payment for leave not availed of (leave encashment),
  • the taxable annual accretion to a recognised provident fund and certain transferred balances,
  • the employer’s contribution to the notified pension scheme (NPS).

Tax is then charged on the net salary after the deductions in section 19: the standard deduction (₹75,000, or the salary if less, under the new regime; ₹50,000 under the old regime), professional tax (old regime only) and the retirement and exempt items such as gratuity.

Some payments in the CTC are not in your taxable salary at all. The employer’s contribution to a recognised provident fund, the notified pension scheme and an approved superannuation fund is a perquisite only to the extent the total is above ₹7,50,000 in a year (section 17(1)(h)).

Why basic salary matters more than it looks

Basic salary, together with dearness allowance if the terms of employment provide for it, is the base used for several things:

  • Provident fund: the usual contribution is a percentage of basic plus dearness allowance.
  • Gratuity: worked out on the last drawn monthly wages, which include basic and dearness allowance (see our post on gratuity).
  • HRA exemption (old regime only): the least of the HRA received, the rent paid less 10% of salary, and 50% of salary in Mumbai, Kolkata, Delhi, Chennai, Hyderabad, Pune, Ahmedabad and Bengaluru (40% elsewhere). Here “salary” means basic pay plus dearness allowance if the terms provide, and excludes all other allowances and perquisites (Rule 279).

A low basic with a large special allowance cuts the PF and gratuity base and the HRA exemption, while a high basic increases all three but also raises your PF deduction and reduces your monthly take-home. Neither is right for everyone; there is no legal percentage of CTC.

Worked example (tax year 2026-27, new regime)

CTC is ₹21,00,000 a year.

Component Amount (₹)
Basic 8,40,000
HRA 3,36,000
Special allowance 6,32,800
Variable pay 1,50,000
Gross salary 19,58,800
Employer’s PF (12% of basic) 1,00,800
Gratuity provision 40,400
CTC 21,00,000

Tax under the new regime (section 202):

  • Gross salary 19,58,800 less standard deduction 75,000 = taxable income ₹18,83,800. (Professional tax is not deductible in the new regime, and the employer’s PF is within the ₹7.5 lakh limit.)
  • Tax: 5% on ₹4,00,000 to ₹8,00,000 = 20,000; 10% on ₹8,00,000 to ₹12,00,000 = 40,000; 15% on ₹12,00,000 to ₹16,00,000 = 60,000; 20% on ₹16,00,000 to ₹18,83,800 = 56,760. Total ₹1,76,760.
  • Add 4% cess of ₹7,070 = ₹1,83,830. No rebate applies as income is above ₹12 lakh.

Take-home pay:

Item Amount (₹)
Gross salary 19,58,800
Less: employee’s PF (12% of basic) 1,00,800
Less: professional tax (assumed) 2,400
Less: income tax with cess 1,83,830
Take-home for the year 16,71,770
Per month about 1,39,314

The employer’s PF and gratuity are outside gross salary but inside CTC, which is why take-home looks far below the headline figure.

Practical points

  • Ask for the break-up of CTC in writing, including what is fixed, what is variable and what is a benefit that may never be paid out in cash.
  • Variable pay shown in CTC is paid only when targets are met. Count only the fixed part when you plan your monthly budget.
  • Reimbursements and perquisites should be checked against Rule 15 and the new limits (meals ₹200 a meal, gifts ₹15,000). See our post on perquisites.
  • If you can choose between regimes, compare both with your actual HRA, 80C and similar deductions.

Frequently asked questions

What is the full form of CTC?

Cost to Company. It is the total yearly cost of an employee to the employer: pay, allowances, bonus, employer’s PF, gratuity and any benefits.

What is the difference between CTC and gross salary?

CTC includes costs that are not paid to you as salary, such as the employer’s PF and the gratuity provision. Gross salary is what is paid to you before deductions, so it is CTC less those items.

How do I get from gross salary to take-home pay?

Deduct your own PF contribution, professional tax, TDS and any other deductions such as insurance or NPS that your employer recovers.

What percentage of CTC is basic salary?

There is no legal percentage. Employers commonly keep it around 40% to 50% of CTC. A higher basic raises PF, gratuity and the HRA exemption base, but also increases the pay that is fully taxable.

What does “salary” include for income tax?

Under section 16 of the Income-tax Act, 2025: wages, any annuity or pension, gratuity, fees or commission, perquisites, profits in lieu of salary, advance salary and leave encashment, along with certain provident fund and pension scheme items.

Is the standard deduction available in the new regime?

Yes, ₹75,000 or the salary, whichever is less, under the new regime. In the old regime it is ₹50,000 (section 19(1), serial 2).

Official sources

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Leave Travel Allowance (LTA): Exemption Limit, Rules, How to Claim and Eligibility

Posted on by CA Meet Dhrangadhariya

Last updated: 06 September 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • LTA is a tax-free reimbursement of the actual fare for travel within India, given by your employer for you and your family, in the old tax regime only.
  • The exemption is for two journeys in a block of four calendar years. The block 2022 to 2025 has ended and the new block is 2026 to 2029.
  • Only the fare is exempt: hotel, food, local travel and sightseeing are not. Travel abroad does not qualify.
  • Rail is limited to AC first class; where there is no rail or public transport, the rules set other limits, including ₹30 a km where no public transport exists.

Leave Travel Allowance (LTA), also called Leave Travel Concession (LTC), is an amount your employer gives you to travel with your family within India. The travel fare is exempt from tax, up to the limits in the rules, if you are in the old tax regime.

Where is it in the law?

For FY 2025-26 (assessment year 2026-27) LTA is exempt under section 10(5) of the Income-tax Act, 1961 and Rule 2B. From Tax Year 2026-27 it is in the Schedule III of the Income-tax Act, 2025 (Table Sl. No. 8), with the conditions in Rule 278 of the Income-tax Rules, 2026.

Who can claim?

An individual who gets travel concession or assistance from an employer (or a former employer, for travel after retirement or termination of service) for self and family, for travel to any place in India. Family includes the spouse, children, and dependent parents, brothers and sisters.

What is exempt?

Only the amount actually spent on the fare, subject to these limits:

  • By air: the fare for the class to which the employee is entitled (under the 1961 Act rule, the economy fare of the national carrier), by the shortest route.
  • By rail, or any other mode where the places are connected by rail: the AC first class rail fare by the shortest route.
  • Where the places are not connected by rail and a recognised public transport system exists: the first class or deluxe class fare by the shortest route.
  • Where no recognised public transport exists and no rates are prescribed: ₹30 per km for the shortest route.

Hotel, food, local conveyance, sightseeing and shopping are not exempt. The exemption cannot be more than what your employer gives you.

Two journeys in a block of four years

The exemption is for two journeys in a block of four calendar years. The blocks so far: 2018 to 2021, 2022 to 2025. The new block is 2026 to 2029, and the next is 2030 to 2033.

Carry-over of an unused journey

If you did not use the exemption in a block, the journey you first avail in the first calendar year of the next block is also exempt. It does not count against the two journeys of that new block. So for the block that ended in 2025, an unused journey can be claimed for a journey you make in 2026.

Children

The exemption is for not more than two surviving children. The limit does not apply to children born before 01/10/1998, or to additional children from multiple births after the first child.

Example

Ms Ankita travelled to Shimla in December 2025 with her husband and two children (four persons). The air fare was ₹10,000 each way per person, which equals the admissible fare. Her employer paid ₹50,000 as LTA.

  • Fare actually spent: ₹10,000 x 4 x 2 = ₹80,000.
  • LTA received: ₹50,000.
  • The exemption is the lower figure, ₹50,000, if she is in the old regime. Under the new regime nothing is exempt.

A trip to Dubai is not eligible, because the travel must be within India.

How to claim

  • Your employer sets a date for you to submit tickets, boarding passes or invoices and a declaration. The exempt amount then shows in Form 16.
  • If you did not claim it with your employer, you can still claim it when you file your return, in the exempt allowances part of the salary schedule. Keep your tickets and proofs.

LTA in the new tax regime

LTA is not available in the new regime. File your return on time under the old regime if you want it, because a person without business income chooses the old regime along with the return furnished by the due date.

Common mistakes

  • Claiming hotel, food or sightseeing costs.
  • Claiming travel outside India.
  • Claiming more than two journeys in a block, or for more than two children born after 01/10/1998.
  • Not keeping tickets and invoices.
  • Claiming the whole route when you visited several places: only the shortest route from the starting point to the destination counts.
  • Assuming that any holiday travel is covered. Some employers allow LTA only if you take leave and travel in that period, so follow your employer’s policy.

Frequently asked questions

How many LTA journeys are exempt?

Two journeys in a block of four calendar years. The current block runs from 2026 to 2029.

Can I claim LTA for foreign travel?

No. The exemption is only for travel to places in India.

What expenses are covered?

Only the fare for the travel. Hotel, food, local conveyance and sightseeing are not exempt.

Can I carry over an unused LTA journey?

Yes. If a journey was not availed in a block, one journey can be claimed in the first calendar year of the next block, in addition to the two journeys of that block.

Is LTA available in the new tax regime?

No. It is available only in the old tax regime.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

How to Reach the ₹1,50,000 Section 80C Limit Without New Investments

Posted on by CA Meet Dhrangadhariya

Last updated: 30 July 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • You may already be near the ₹1.5 lakh section 80C limit through payments you make anyway: EPF, life insurance premium, home loan principal, children’s tuition fees, and stamp duty on a house.
  • Add up these items first, then invest only the gap, if any.
  • Section 80C is available only in the old tax regime and is section 123 of the Income-tax Act, 2025 from Tax Year 2026-27.
  • Declare the items to your employer in Form 124 (earlier Form 12BB) so TDS is adjusted.

How to check your 80C position

1. Note your EPF contribution for the year
↓
2. Add home loan principal repaid and stamp duty if you bought a house
↓
3. Add children’s tuition fees (up to two children)
↓
4. Add life insurance premiums that qualify
↓
5. Subtract the total from ₹1,50,000 and invest only the balance

Every March someone suggests that you must invest in a tax-saving scheme to use up section 80C. Before you do, check what you have already paid during the year. Many ordinary payments qualify, and you may have used most of the ₹1,50,000 limit without any new investment.

Section 80C works only in the old tax regime. From Tax Year 2026-27 it is section 123 of the Income-tax Act, 2025, with the same ₹1.5 lakh limit.

Step by step

  1. Employees’ Provident Fund. Your own contribution to EPF during the year counts. Check your salary slip or EPF passbook. For many salaried people this alone is a large amount.
  2. Home loan principal. The principal part of your EMIs counts. Your lender’s certificate shows it.
  3. Stamp duty and registration. If you bought a house, the stamp duty and registration charges paid in that year count.
  4. Children’s tuition fees. Tuition fees for full time education of up to two children in India count, including playschool and preschool fees if they are tuition fees. Development fees, donations and transport do not.
  5. Life insurance premium. Premiums on a policy for yourself, your spouse or your children count. The premium should be within 10% of the sum assured for policies issued after 31/03/2012 (15% for a disabled person or specified diseases).
  6. Employee’s NPS contribution under section 80CCD(1) also counts within the same limit.
  7. Add them up and subtract the total from ₹1,50,000. The result is the balance of the limit.
  8. Invest only the balance, if any, in a product that suits your risk and your time horizon, such as PPF, ELSS, NSC, a 5 year tax-saver FD, Senior Citizens’ Savings Scheme or Sukanya Samriddhi Yojana.

Example

Priya’s EPF contribution is ₹72,000. She repaid ₹48,000 of home loan principal and paid ₹20,000 of tuition fees for one child. The total is ₹1,40,000, so only ₹10,000 of the limit is left. She does not need to invest ₹1.5 lakh in ELSS.

Who can claim?

Individuals (resident or non-resident) and Hindu undivided families can claim section 80C. Companies, firms and LLPs cannot.

How to claim

Give your employer a declaration in Form 124 (earlier Form 12BB) with proofs, so that less TDS is deducted. EPF is usually already known to the employer. If you did not declare it, you can claim the deduction when you file your return, as long as you are in the old regime and file on time.

What not to do

  • Do not buy a product only because the limit is unfilled. Choose it for the return, lock-in and risk.
  • Do not forget that a home loan principal or stamp duty claim is reversed if you sell the house within five years of getting possession.
  • Do not assume this works in the new tax regime. If you move to the new regime, 80C is lost altogether, so compare your total tax first.

Frequently asked questions

Can I reach the section 80C limit without investing?

Often, yes. EPF, life insurance premium, home loan principal, tuition fees and stamp duty can already add up to ₹1.5 lakh.

Do I need to invest more once the limit is reached?

No. The deduction is capped at ₹1.5 lakh, so extra investment under 80C does not reduce tax further.

Is my EPF counted?

Yes, your own contribution to the Employees’ Provident Fund counts.

Which tuition fees count?

Tuition fees for full time education of up to two children in India. Development fees and donations do not count.

Is 80C available in the new tax regime?

No. It is available only in the old tax regime.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

How to Save Tax Other Than 80C: Deductions and Exemptions for 2026-27

Posted on by CA Meet Dhrangadhariya

Last updated: 25 July 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • Besides section 80C, you can save tax through NPS (₹50,000 extra), health insurance (up to ₹1 lakh), home loan interest, education loan interest, donations, rent, disability and treatment deductions, and exempt life insurance maturity.
  • Most of these work only in the old tax regime. In the new regime the standard deduction (₹75,000) and the employer’s NPS contribution are the main benefits.
  • Each deduction now has a new section number in the Income-tax Act, 2025 from Tax Year 2026-27: for example 80D is section 126 and 80E is section 129.
  • Compare your tax under both regimes before you choose.

Section 80C is the best known deduction, but it is only one of many. If you are in the old tax regime, these other sections can reduce your tax further. From 01/04/2026 the Income-tax Act, 2025 applies, and each deduction has a new section number, shown below.

Deductions other than 80C

Deduction Limit Section in 1961 Act Section in 2025 Act
Own contribution to NPS ₹50,000, over and above 80C 80CCD(1B) 124(3)
Health insurance, preventive check-up, medical for senior citizens ₹25,000 self and family (₹50,000 if senior), ₹25,000 for parents (₹50,000 if senior); preventive check-up ₹5,000 within these 80D 126
Dependant with disability ₹75,000 or ₹1,25,000 80DD 127
Treatment of specified diseases ₹40,000 or ₹1,00,000 (senior citizen) 80DDB 128
Education loan interest Whole interest, 8 years 80E 129
First-time buyer home loan interest (loans of FY 2016-17) ₹50,000 80EE 130
Donations 100% or 50%, with a 10% limit for some 80G 133
Rent without HRA Up to ₹60,000 80GG 134
Contributions to political parties Whole amount, other than cash 80GGC 137
Savings account interest ₹10,000 80TTA 153
Deposit interest, senior citizens ₹50,000 80TTB 153
Person with disability ₹75,000 or ₹1,25,000 80U 154

Chapter VIII of the 2025 Act contains these deductions. The loan interest deduction for electric vehicles (80EEB) ended for loans sanctioned after 31/03/2023, and the additional affordable housing interest (80EEA) was for loans sanctioned up to 31/03/2022.

Other ways to save tax

  • Home loan interest: up to ₹2 lakh a year on a self-occupied house (section 24(b) of the 1961 Act, section 22 of the 2025 Act). On a let-out house the whole interest is deducted against the rent, with the loss set-off limited to ₹2 lakh a year.
  • Exempt allowances and HRA: HRA, LTA, children education allowance and others reduce taxable salary in the old regime.
  • Exempt insurance proceeds: the maturity amount of a life insurance policy is exempt if the premium conditions are met: for policies issued from 01/04/2012, premium up to 10% of sum assured (15% for special policies), and for policies issued on or after 01/04/2023 the total premium must be below ₹5 lakh a year, or below ₹2.5 lakh for unit linked policies.
  • Agniveer Corpus Fund: the whole contribution is deductible.

Employer contribution to NPS

If your employer contributes to your NPS account, the contribution is deductible up to 10% of salary (14% for Government employers) in the old regime. In the new regime the limit is 14% for all employers. This is the one major deduction that works in both regimes.

What works in the new tax regime?

  • Standard deduction: ₹75,000 for salary and pension (₹25,000 for family pension).
  • Employer’s NPS contribution, up to 14% of salary.
  • Interest on a let-out house against its rent.
  • Contribution to the Agniveer Corpus Fund.
  • Travel, daily charges and conveyance allowances, and the disabled employee’s transport allowance.

Old or new regime?

Add up all deductions and exemptions you can claim. If they are large enough (for example HRA, 80C, 80D and home loan interest together), the old regime can still cost less. If they are small, the new regime usually wins. Do this calculation every year, since you choose with your return, and a person without business income must choose the old regime along with the return furnished by the due date.

Frequently asked questions

What can I claim over and above section 80C?

NPS (₹50,000 under 80CCD(1B)), health insurance (80D), education loan interest (80E), donations (80G), rent without HRA (80GG), home loan interest, savings interest (80TTA or 80TTB) and disability related deductions.

What is the limit under section 80D?

₹25,000 for self, spouse and children (₹50,000 if a senior citizen) and the same again for parents, so up to ₹1,00,000 in total when both are senior citizens.

Which of these work in the new tax regime?

Mainly the standard deduction of ₹75,000, the employer’s contribution to NPS, and interest on a let-out house against its rent. Most other deductions need the old regime.

What are the new section numbers?

80D is section 126, 80E is 129, 80G is 133, 80GG is 134, 80TTA and 80TTB are 153, and 80CCD(1B) is 124(3) in the Income-tax Act, 2025.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Landlord’s PAN for HRA Exemption: When It Is Mandatory

Posted on by CA Meet Dhrangadhariya

Last updated: 06 September 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • You must give your landlord’s PAN to your employer if the rent you pay in the year is more than ₹1,00,000 (about ₹8,333 a month).
  • If the landlord has no PAN, a declaration from the landlord with name and address is accepted.
  • Form 124 (earlier Form 12BB) asks for the landlord’s name, address, PAN, Aadhaar, relationship and rent paid; Aadhaar is not mandatory unless your employer asks.
  • The HRA exemption is only for the old tax regime. Rent paid to a spouse is not accepted, and rent to parents needs them to report the income.

If you claim the HRA exemption and pay a high rent, you must give your employer the landlord’s PAN. The rule is meant to make sure the rent is real and that the landlord reports it as income.

The rule

  • If the rent you pay in the year is more than ₹1,00,000 (about ₹8,333 a month), the landlord’s PAN must be given. The Income Tax Department’s FAQ on Form 124 says the PAN must be furnished if the annual rent exceeds ₹1,00,000.
  • If the rent is ₹1,00,000 or less, the PAN is not required, but you still give the landlord’s name and address.
  • Aadhaar is not mandatory unless your employer specifically asks for it.

If the landlord has no PAN

Get a declaration from the landlord that they do not have a PAN, stating their name and address, as allowed by CBDT Circular 8/2013 dated 10/10/2013. Give it to your employer with your other documents. The declaration should be from the landlord, not from you.

Where do you give it?

In Form 124, the statement to your employer. Up to FY 2025-26 this was Form 12BB. For HRA it asks for:

  1. Name of the landlord.
  2. Address.
  3. PAN.
  4. Aadhaar number.
  5. Relationship with the landlord, if any.
  6. Rent paid to the landlord.

A copy of the rent agreement is the supporting document. Form 124 is given to your employer. It is not uploaded on the income tax portal.

Other conditions for the HRA exemption

  • You must be getting HRA from your employer and be in the old tax regime.
  • You must actually pay rent for a house that you do not own.
  • Rent paid to your spouse is not accepted. If you pay rent to your parents, they must own the house and show the rent as income in their return.
  • The exemption is the lowest of the HRA received, 50% (eight metro cities) or 40% of salary, and rent paid less 10% of salary.

Documents to keep

  • Rent agreement.
  • Rent receipts or, better, bank proof of payment each month.
  • Landlord’s PAN or the landlord’s no-PAN declaration.
  • Salary slips showing HRA.

If you do not give the proof

  • Your employer can refuse the exemption and deduct higher TDS.
  • You can still claim the exemption in your return if you have the proof, and get a refund of the excess TDS.
  • A claim without proof may be questioned by the department.

TDS on rent is a separate matter

The tenant’s own duty to deduct tax at source on rent is different from the HRA rule. Under the Income-tax Act, 2025 (section 393, Table Sl. No. 2), a tenant who is not a specified person, such as an individual or HUF who is not liable to a tax audit, deducts tax at 2% on rent where it is ₹50,000 or more for a month or part of a month. A specified person (an audited individual or HUF, or other person) deducts 2% for machinery, plant or equipment and 10% for land, building or furniture, on the same threshold. The 1961 Act equivalents are sections 194-IB and 194-I. Check your own status with a professional.

Frequently asked questions

When is landlord PAN required for HRA?

When the rent you pay in the year is more than ₹1,00,000, that is above about ₹8,333 a month.

What if the landlord does not have a PAN?

Give your employer a declaration from the landlord that they do not have a PAN, along with their name and address.

Is Aadhaar required?

Form 124 asks for the landlord’s Aadhaar, but it is not mandatory unless your employer specifically asks for it.

Can I claim HRA without giving rent proof?

Your employer may refuse the exemption and deduct more TDS. You can still claim it in your return if you have the proof.

Is the HRA exemption available in the new tax regime?

No. It is available only in the old tax regime.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Can You Claim Both HRA and Home Loan Interest Deduction?

Posted on by CA Meet Dhrangadhariya

Last updated: 31 July 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • Yes, you can claim the HRA exemption and home loan interest together if you pay rent for a house you do not own and also have a home loan on another house.
  • The HRA rule needs that the house you live in is not owned by you and that you actually pay rent for it. It does not stop you owning a different house.
  • Interest on a self-occupied house is limited to ₹2 lakh; interest on a let-out house has no such cap on the interest itself.
  • Both claims need genuine proof and, for HRA, the old tax regime. In the new regime, HRA and self-occupied house interest are not allowed.

Many people think they must choose between HRA and a home loan. They do not. The two work on different houses and different heads of income, so they can be claimed together if you meet the conditions of each. Both are claimed in the old tax regime.

The HRA conditions

The HRA exemption is in section 10(13A) of the Income-tax Act, 1961 up to FY 2025-26, and in Schedule III (Table Sl. No. 11) of the Income-tax Act, 2025 from Tax Year 2026-27. It needs:

  • an HRA granted to you by your employer for rent,
  • the house you occupy is not owned by you, and
  • you actually pay rent for that house.

The exemption is the lowest of the HRA received, 50% (eight metro cities) or 40% of salary, and rent paid less 10% of salary (Rule 279 of the Income-tax Rules, 2026).

Nothing in these conditions stops you owning another house elsewhere.

The home loan conditions

Interest on a loan taken to buy or build a house is a deduction from house property income: section 24(b) of the 1961 Act, section 22(1)(b) of the 2025 Act.

  • For a self-occupied house the interest is limited to ₹2 lakh a year, if the house is bought or built within five years from the end of the year in which the loan was taken. Otherwise the limit is ₹30,000.
  • Interest paid before the house is completed is claimed in five equal parts from the year of completion.
  • For a let-out house the interest is deducted in full, but the loss from house property that you can set off against other income is limited to ₹2 lakh a year.
  • Principal repaid is a separate section 80C (section 123) deduction.

Four common situations

Situation HRA and interest together? Note
Own a house in another city and rent a house where you work Yes The usual case.
Own a house in the same city but rent another for a genuine reason, such as distance to work or a school Yes, if genuine Keep full proof of both.
Bought an under-construction flat and live on rent Yes Pre-completion interest is claimed in five equal parts after completion.
Rent out your own loan-financed house and live in a rented house elsewhere Yes The rent you receive is taxed as house property income, and the interest is deducted against it.

A house kept vacant, or used by your family, is generally treated as self-occupied for the interest limit.

Example

Aryan works in Gurgaon, pays rent of ₹10,000 a month and gets an HRA of ₹15,000 a month. His basic salary is ₹40,000 a month. He has a home loan for a house in Bengaluru where his parents live, with interest of ₹20,000 a month.

HRA exemption (monthly): the lowest of ₹15,000 (HRA received), ₹16,000 (40% of basic, as Gurgaon is not one of the eight metro cities) and ₹6,000 (rent ₹10,000 less ₹4,000, which is 10% of basic). So ₹6,000 a month, ₹72,000 a year, is exempt and ₹9,000 a month is taxable.

Interest: ₹2,40,000 a year, but for a self-occupied house the deduction is limited to ₹2,00,000.

New tax regime

In the new regime neither HRA nor interest on a self-occupied house is allowed. Interest on a let-out house is still allowed against the rent received.

Proof you need

  • Rent agreement, rent receipts or bank proof, and the landlord’s PAN if rent is above ₹1,00,000 a year.
  • The lender’s interest certificate, the loan agreement and the possession or completion papers.
  • The declaration to your employer in Form 124 (earlier Form 12BB).

Frequently asked questions

Can I claim HRA and home loan interest together?

Yes, if you live in a rented house that you do not own, pay rent, and have a home loan on a different house, in the old tax regime.

Can I claim both if the loan house is in the same city?

The law does not bar it, but the claim must be genuine, for example because the house is let out, too far from work or under construction. Keep full proof.

What is the limit on home loan interest?

₹2 lakh a year for a self-occupied house, if construction or purchase is completed within five years of the year the loan was taken. Otherwise ₹30,000.

Is this available in the new tax regime?

No. HRA and the interest on a self-occupied house are not allowed in the new regime. Interest on a let-out house is allowed.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Telephone and Internet Allowance: Is It Taxable?

Posted on by CA Meet Dhrangadhariya

Last updated: 28 September 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • When the employer reimburses or pays your telephone and mobile phone expenses, the payment is not taxed as a perquisite.
  • A fixed telephone or internet allowance paid in your salary, without bills, is part of salary and is taxable.
  • There is no separate rupee limit for the reimbursement in the rule, but it should be for official use and reasonable for your role.
  • The perquisite rule is the same in the old and new tax regimes.

With work from home and hybrid working, many employers pay for telephone and internet. Whether the payment is taxable depends on how it is paid: as a fixed allowance in your salary, or as a reimbursement of the bills you submit.

Reimbursement of bills

When the employer pays or reimburses the actual cost of your telephone or mobile phone bills, the benefit is not taxed as a perquisite. The perquisite valuation rules (rule 3 of the Income-tax Rules, 1962, and the corresponding rule in the Income-tax Rules, 2026) value “any other benefit or amenity” provided by the employer but exclude expenses on telephones, including a mobile phone.

  • Keep the bills in your own name, or as your employer asks.
  • The use should be for official work.
  • There is no limit in the rule on the reimbursement amount, but your employer will usually fix a reasonable cap by your role.

Fixed allowance

If the employer pays a fixed amount every month, for example ₹1,500 as “telephone and internet allowance”, with no bills, it is part of your salary and is taxed at your slab rate. The exemption for reimbursement is not available.

What about internet and broadband?

The rule is worded around telephones, including mobile phones. Employers commonly extend the same treatment to broadband and mobile data used for work. If you get a reimbursement for broadband, follow your employer’s policy and keep the bills and the employer’s certificate that it was for official use.

Old or new regime?

The same treatment applies in both regimes, because it is a perquisite valuation rule and not an exemption that the new regime withdraws.

Example

Ms K gets ₹1,200 a month fixed as “mobile and internet allowance”. It is taxable salary of ₹14,400 a year. Her colleague submits his actual mobile bills of ₹1,200 a month to the company, which reimburses them. The reimbursement is not taxed.

Tips

  • Prefer a reimbursement structure if your employer offers it, as it is the more tax-efficient route.
  • Do not claim a reimbursement for personal use or for bills you did not pay.
  • Keep copies of bills, as the employer or the department may ask for them.

Frequently asked questions

Is a telephone allowance taxable?

A fixed telephone allowance paid with your salary is taxable. A reimbursement of your actual phone bills by the employer is not taxed as a perquisite.

Is there a limit on tax-free reimbursement?

The rules do not set a rupee limit. It should be for official use and reasonable for your job.

Is internet or broadband covered?

The rules refer to expenses on telephones, including a mobile phone. Many employers treat broadband used for work in the same way, so check how your employer treats it and keep the bills.

Does it depend on the tax regime?

No. Perquisite valuation applies to both the old and the new regime.

Official sources

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.