Zero Tax on Rs 20 Lakh CTC: Step-by-Step Guide on New Tax Regime FY 2026-27

The new tax regime offers beneficial slab rates but limited tax-saving deductions. However, with a prudent tax strategy, the tax payable can be brought to zero, even for a salary level of ₹ 20 lakhs, under the new regime.

Tax Saving Options under a Salary level of Rs 20 lakhs

Car Leasing Option

When your employer provides a car leasing policy, and you opt for it, the zero tax option for an income level of ₹ 20 lakhs is available under the new regime as well. 

Through the car leasing policy, the employer leases a car from a car leasing company, and deducts the lease rent from your gross salary. This way, even when the car is technically owned by the car leasing company or the employer, you can be the beneficial owner and enjoy tax benefits from them. The perquisite value of the car is provided below:

Usually, the perquisite value mentioned above will be used in tax calculation, since the car provided by the employer is often used for both official and personal purposes, and expense here is fully met by employer. When driver is not provided, ₹3,000 is ignored.

However, since the employer provides you with a car, it is treated as a perquisite, and gets added to your taxable salary. Since the perquisite addition is far less than the lease deduction, this option is very tax-savvy. 

Meal Coupon Exemption

As per the provisions of the Income Tax Act 2025, meal coupon exemptions can be claimed under the new tax regime. Since the proviso restricting the exemption is absent from the new act, it is interpreted that the meal coupon exemption is available under the new regime, unlike under the old act. When you have opted for Sodexo or Pluxee meal cards, you can claim an exemption of up to ₹ 200 per meal under the new act. The annual exemption can come up to ₹ 1,05,600.

Employer’s Contribution to Provident Fund and NPS

While the employer’s contribution to the National Pension System is eligible for deduction, for up to 14% of basic pay under the new regime, the employer’s contribution to the provident fund can also be exempted from taxation. Usually, the employer can contribute up to 12% of the basic pay to the provident fund, which can be claimed as an exemption

Tax Calculation Illustration

Mr A has a total CTC of ₹ 20 lakhs, which includes car leasing from his employer, meal cards and contributions to the provident fund and pension schemes. The following are the quantum of deductions and exemptions.

• Meal coupon exemption – ₹1,05,600
• Exemption on employer’s contribution to PF – ₹1,20,000
• Car lease payments – ₹4,20,000
• Deduction against employer’s contribution to pension scheme – ₹1,40,000. 

The tax under the new regime for tax year 2026-27 is calculated as follows.

Final Word

Right deduction, right choice of tax regime, and well-formulated tax strategy can significantly reduce tax outgo and may even result in zero tax in some cases. 

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