Quick answer: A flexible benefit plan (FBP) lets employees move part of their CTC from taxable special allowance into tax-efficient components. Typical choices are employer NPS, meal vouchers and bill-backed reimbursements. Under the new tax regime in the Income-tax Act, 2025, only some options still save tax. HRA and LTA help only employees on the old regime.
- Employer NPS stays deductible under the new regime, up to 14% of basic plus DA, under section 124.
- Employer contributions to PF, NPS and superannuation above ₹7.5 lakh a year in total are taxed as a perquisite.
- The Income-tax Rules, 2026 lifted the meal limit from ₹50 to ₹200 per meal and the gift limit from ₹5,000 to ₹15,000 a year.
- An FBP is a payroll design choice. No law requires one.
How does an FBP work in practice?
You fix a pool inside CTC, usually carved out of special allowance. Each employee declares, at the start of the tax year, how much goes to each component.
Unused amounts are normally paid out as taxable salary. Some plans run quarterly windows. Others lock the choice for the year.
The plan only works if proofs come in on time. So set a cut-off well before January, when TDS is trued up.
What still saves tax under the new regime in 2026?
Fewer items than before. Section 202 of the Income-tax Act, 2025 strips most allowances from new-regime employees, so the menu shrinks.
| FBP component | New regime | Old regime |
|---|---|---|
| Employer NPS (up to 14% of basic) | Deductible | Deductible, 10% cap |
| Meal vouchers (₹200 a meal) | Exempt on Taxmann’s reading | Exempt |
| Official travel and conveyance, to the extent spent | Exempt under Rule 280 | Exempt |
| Leave travel allowance | Taxable | Exempt within rules |
| Children’s education allowance | Taxable | ₹3,000 a month per child |
On meal vouchers, Taxmann’s opinion on the 2026 meal rule notes the old proviso denying new-regime employees was dropped. That is a reading, not a circular. Watch for CBDT guidance.
Let’s say our Pune engineer on ₹18 lakh CTC moves ₹1,20,375 into employer NPS (14% of basic) and ₹52,800 into meal vouchers (₹200 × 22 days × 12). Taxable income falls from ₹16,44,643 to ₹14,71,468.
New-regime tax drops from ₹1,34,086 to ₹1,04,749. That is ₹29,337 a year back in the employee’s pocket, with no change to your CTC.
Does an FBP affect the 50% wage rule?
It can. Employer pension contributions sit among the exclusions in section 2(y) of the Code on Wages, as do reimbursements for special expenses.
Our engineer’s excluded pay, counting HRA, employer PF and NPS, comes to ₹5,86,286, against a 50% threshold of ₹8,77,822. Safe. But a low basic plus a rich FBP can tip you over the 50% wage rule. Test it whenever you restructure.
How does Remunance run flexible benefit plans for your India staff?
Remunance offers benefits administration as part of its EOR service, so the FBP pool, declarations and proofs sit inside the same payroll that files TDS. We build the menu around each employee’s regime choice, so nobody pays for LTA they can’t use. Our guide to employee benefits in India covers the wider package. To redesign your India pay for the new regime, book a free benefits consultation.
What else do people ask about FBP in salary?
Is FBP useful in the new tax regime?
Partly. Employer NPS, bill-backed official expenses and, on Taxmann’s reading, meal vouchers still save tax. HRA, LTA and most allowances do not.
What happens to unused FBP balance?
Usually it is paid out as taxable salary at the year-end or in the last payroll, depending on the plan rules.
Is FBP part of CTC?
Yes. The pool is carved from the existing CTC, so the total cost to you stays the same.