Tax-Efficient CTC & Salary Structuring
Tax-efficient CTC structuring means splitting the same cost-to-company into components the law treats kindly — basic pay near 50%, rent routed through HRA, LTA and Section 80C, and tax-free benefits such as group health insurance and employer NPS. Done well it can cut an employee’s tax by ₹40,000–₹1,00,000 a year without adding a rupee to your wage bill.
General guidance, not tax advice · Figures for FY 2025-26 (AY 2026-27)
The short answer
Same CTC, less tax — by paying it in the right components
Two employees can be on an identical ₹18,00,000 CTC and take home very different amounts, purely because of how the package is split. Fully taxable salary is the most expensive way to pay someone. Move slices into exempt allowances (HRA, LTA), deductible investments (Section 80C), and tax-free benefits — chiefly employer-paid group health insurance and employer NPS — and the employee’s effective tax falls while your cost stays flat. Model any structure with the CTC calculator.
First, know which regime your employee is on
Structuring only pays off if it matches the tax regime the employee actually files under. From FY 2025-26 the new regime is the default: it offers lower slabs and a ₹75,000 standard deduction, with income up to ₹12,00,000 effectively tax-free after the Section 87A rebate — but it strips out almost every exemption, including HRA, LTA, Section 80C and Section 80D.
The old regime keeps a smaller ₹50,000 standard deduction but lets employees claim the full menu of exemptions and deductions. So HRA-, LTA- and 80C-heavy structuring rewards old-regime employees, while new-regime employees benefit from lower slabs instead.
Two levers, though, survive in both regimes — the employer’s NPS contribution under Section 80CCD(2), and an employer-paid group health premium, which is not a taxable perquisite whichever regime the employee picks. Those are the components worth building into every offer, because they never depend on a regime choice you cannot control.
The tax-efficient building blocks of CTC
A well-designed salary structure is assembled from these components. Each has its own rule and ceiling, and each behaves differently across the two regimes — so read the last column before you promise a saving.
Indicative figures for FY 2025-26 (AY 2026-27), for general guidance only, not tax advice. Metro HRA at 50% currently applies to Delhi, Mumbai, Kolkata and Chennai; Bengaluru, Hyderabad, Pune and Ahmedabad join from FY 2026-27. Confirm current rules before structuring pay.
The one-line version
A raw hike is taxed and quickly forgotten. A tax-free health benefit is felt exactly when it matters.
Worked example 1 — HRA on an old-regime salary
Take an employee with ₹9,00,000 basic pay in a metro, receiving ₹4,50,000 HRA and paying ₹3,00,000 rent a year. HRA exemption under Section 10(13A) is the least of three figures:
Actual HRA received
50% of basic (metro)
Rent − 10% of basic
The lowest is ₹2,10,000, so that much HRA is exempt. For an employee in the 30% bracket, that shields roughly ₹65,520 of tax (30% plus 4% cess) — from a component that costs the employer nothing extra to include. The remaining ₹2,40,000 of HRA is taxed as normal salary.
HRA exemption applies under the old regime only, and requires rent to be genuinely paid (with a landlord PAN where annual rent exceeds ₹1,00,000).
The smartest component: group health insurance
Most salary components only trim tax for old-regime employees. Group health insurance is different: an employer-paid group mediclaim premium is not a taxable perquisite in the employee’s hands — in either regime — and the employer can claim it as an allowable business expense under Section 37(1). It is one of the very few ways to add real value to a package that is efficient on both sides of the payslip.
On top of that, employees who fund their own cover can claim Section 80D — up to ₹25,000 for self, spouse and children, plus up to ₹25,000 for parents (₹50,000 where a senior citizen is insured), to a maximum of ₹1,00,000 under the old regime, including ₹5,000 of preventive health check-ups. So a structure that pairs an employer group plan with an optional 80D-eligible top-up covers both regimes at once.
This is the wedge finance leaders miss: a benefit that lowers tax and lifts retention at the same time, while the equivalent cash raise does neither efficiently.
Worked example 2 — ₹50,000 as a hike vs a health benefit
You have ₹50,000 to reward an employee in the 30% bracket. The same rupees do very different work depending on how you deliver them.
Option A — salary hike
A ₹50,000 salary increase is fully taxable. At 30% plus 4% cess the employee loses ₹15,600 and keeps about ₹34,400 — and it is just as easily matched by a competing offer.
Option B — group health premium
The same ₹50,000 spent on an employer-paid group health premium reaches the employee as a tax-free perquisite — the full value in cover — and is a deductible expense for you. No tax leakage on either side.
Illustrative only. Actual tax depends on the employee’s regime, slab and total income. The point holds across brackets: a taxable hike always arrives net of tax, an employer-paid group health premium arrives in full.
Design the package, not just the number
The headline CTC an employee sees is far less important than what survives tax. Keeping basic near 50% keeps you compliant with the labour-code wage rule and funds HRA and gratuity; layering in a group health benefit and employer NPS lifts real, tax-free value on top.
That is where a raise becomes retention. The cash portion competes on price; the benefit portion competes on something a rival struggles to copy — how protected the employee and their family actually feel.
Why a health benefit outperforms a raw raise
The same money, delivered as a tax-free benefit rather than taxable cash, does more for the employee and buys you more loyalty. Three reasons it consistently wins:
A hike is taxed; a benefit often is not
Add ₹50,000 to salary in the 30% bracket and the employee keeps roughly ₹34,400 after tax and cess. Route the same ₹50,000 into an employer-paid group health premium and it lands as a tax-free perquisite — full value, no deduction from their pay.
It works in both tax regimes
HRA, LTA and Section 80C only help employees who opt for the old regime. An employer-paid group health premium is not a taxable perquisite under either regime, so it lowers the effective cost of a benefit for every employee, whichever regime they pick.
Benefits retain; cash walks
A salary increase is quickly normalised and easily matched by a competing offer. Health cover — cashless hospitalisation, OPD, day-1 protection for the whole family — is felt at the moment it matters most and is far harder for a rival to replicate line for line.
Want the full CFO case? Read the ROI of employee benefits, or check your employer duties in the 2026 compliance guide.
How Onsurity fits into the structure
Onsurity makes the group-health component of a tax-efficient package easy to run. Cover is a monthly subscription you can cancel anytime, so the benefit line in your CTC flexes as you add or remove staff — no annual lump sum locked in. Because the premium is employer-paid, it reaches every employee as a tax-free perquisite, in either regime, and stays a deductible business expense for you.
The value bundled in is what makes it feel like more than a line item: cashless treatment at 10,000+ network hospitals, day-1 cover options, and OPD, teleconsultation and wellness at no extra premium — all run from the TeamSure dashboard. Employees who want to extend cover to parents can do so and claim Section 80D on what they fund themselves, so the same structure works across both tax regimes.
Frequently asked questions
What does tax-efficient CTC structuring actually mean?
It means splitting the same cost-to-company into components the Income Tax Act treats favourably, instead of paying everything as fully taxable salary. Keeping basic pay near 50% of CTC, routing rent through HRA, using LTA and Section 80C, and loading tax-free benefits such as employer-paid group health insurance and NPS can cut an employee’s tax bill by tens of thousands a year — at no extra cost to the employer.
Does salary structuring still help under the new tax regime?
Partly. The new regime — the default from FY 2025-26 — removes HRA, LTA, Section 80C and Section 80D, keeping only the ₹75,000 standard deduction and the employer NPS deduction under Section 80CCD(2). But an employer-paid group health insurance premium is not a taxable perquisite in either regime, so it stays tax-efficient for every employee regardless of the regime they choose.
Is employer-paid group health insurance taxable for the employee?
No. A premium an employer pays under a group health (mediclaim) scheme for its employees is treated as a staff-welfare benefit, not a perquisite, so it is not added to the employee’s taxable income — in either tax regime. The employer can also claim the premium as an allowable business expense under Section 37(1), making it efficient on both sides.
How much can an employee save under Section 80D?
Under the old regime, Section 80D allows up to ₹25,000 for premiums covering self, spouse and dependent children, plus up to ₹25,000 for parents — rising to ₹50,000 where the insured is a senior citizen. The maximum is ₹1,00,000 when both the taxpayer and their parents are senior citizens. Preventive health check-ups of up to ₹5,000 sit within these limits.
What is the ideal basic-to-CTC ratio?
Under the Code on Social Security, 2020 wage definition, basic pay (with allowances that count as wages) must be at least 50% of total remuneration. Setting basic around 50% keeps you compliant, funds HRA and gratuity, and avoids the excess allowances being added back to the wage base — which would silently raise your PF, ESI and gratuity liabilities.
Can better benefits really improve retention and reduce tax at once?
Yes — that is the core of smart structuring. Cash raises are taxed and quickly matched by competitors, while an employer-paid health benefit reaches the employee tax-free and is felt most at a moment of genuine need. You lower the effective cost of the reward and buy loyalty that a rupee-for-rupee salary bump rarely delivers.
Turn your benefits line into a retention tool
Beyond the statutory minimum, give your team real cover with Onsurity. Get a group health quote and see the tax-free, per-employee cost of building a benefit into your CTC on a monthly subscription rather than an annual lump sum.
Get a group health quote