What are flexible benefit plans (FBP) in India?

A Flexible Benefit Plan (FBP) is a salary structuring mechanism used by Indian employers to redirect part of an employee's Cost to Company (CTC) into components that can qualify for tax exemption under the Income Tax Act. Common FBP components include House Rent Allowance (HRA), Leave Travel Allowance (LTA), meal vouchers, telephone and internet reimbursement, fuel and car reimbursement, and books and periodicals allowance. Most FBP exemptions apply only under the old tax regime.

What is a flexible benefit plan?

An FBP lets employees allocate a portion of their CTC across a menu of benefit heads at the start of the financial year. Each head has its own tax rule: some are exempt when supported by bills, some are exempt up to a cap, and some are taxable. The employee's take-home salary changes depending on the allocation and whether bills are submitted to substantiate the claim. Unclaimed amounts get paid out at year-end and are taxed as ordinary salary.

What are the common components of an FBP in India?

A typical FBP menu in 2026 includes:

• HRA: Exempt under Section 10(13A), based on Rule 2A's monthly computation. Old regime only.
• LTA: Exempt for 2 domestic travel trips in a 4-year block. Current block is 1 January 2026 to 31 December 2029. Old regime only.
• Meal vouchers: Exempt up to Rs 200 per meal, capped at approximately Rs 1.05 lakh per year. Available under both old and new regimes from 1 April 2026 (Rule 15(5)(a) of the Income-tax Rules, 2026).
• Telephone and internet reimbursement: Exempt when supported by bills. Old regime only.
• Fuel and car reimbursement: Capped by engine capacity under Rule 3(2). Old regime only.
• Books and periodicals allowance: Exempt against submitted bills. Old regime only.
• Uniform allowance: Exempt for uniforms required as part of employment duties.

How does an FBP affect an employee's tax?

Under the old tax regime, correctly structured and utilised FBP components can reduce an employee's taxable income by Rs 40,000 to Rs 1.5 lakh per year, depending on CTC and how many components the employee actually spends on. Under the new tax regime, most FBP exemptions do not apply, and the tax benefit narrows to meal vouchers (up to Rs 1.05 lakh) and employer NPS contribution under Section 80CCD(2).

Do FBPs work under the new tax regime?

Mostly no. The new tax regime, default from AY 2026-27, disallows most exemptions including HRA, LTA, telephone reimbursement, fuel, and books allowances. Meal vouchers were extended to the new regime from 1 April 2026 under Rule 15(5)(a) of the Income-tax Rules, 2026, and employer NPS contribution remains eligible under Section 80CCD(2). For employees with limited old-regime deductions, the new regime often results in lower tax overall despite losing FBP benefits.

What happens if an employee does not submit FBP bills?

Unclaimed FBP amounts get treated as ordinary taxable salary and are added back in the March payroll. Employees must submit bills within the timeline set by the employer's payroll team, typically monthly or in a single year-end window. Missing bills means paying tax on the full FBP amount at the applicable slab rate.

How does an FBP interact with group health insurance?

Group health insurance premium paid by the employer is exempt for the employee under Section 17(2) of the Income Tax Act, and this exemption applies under both old and new regimes. FBP components are structured as taxable-unless-exempt heads, while employer-paid group health premium is exempt by default. The two sit in different parts of the salary structure and do not affect each other.

How Plum approaches this

Plum works with employers on the health insurance portion of the benefit stack, which sits above the FBP structure and applies uniformly across old and new tax regimes. Across Plum's group book, claims NPS runs at 79 and cashless pre-authorisation clears in a median of 45 minutes. Plum places group cover from a minimum of 7 employees, working with partner insurers including ICICI Lombard, HDFC ERGO, Bajaj Allianz, Star Health, Niva Bupa, and Aditya Birla Health Insurance, and coordinates with the employer's payroll team to keep group health premium correctly reflected in employee salary statements.

Frequently asked questions

Can an employee change FBP allocation mid-year?

Typically no. Most employers require FBP declarations at the start of the financial year, with limited windows for changes.

Is FBP mandatory for employers?

No. FBP is a salary design choice, and employers can offer a fixed salary structure without a flexi component.

Do meal vouchers work under the new tax regime?

Yes, from 1 April 2026, under Rule 15(5)(a) of the Income-tax Rules, 2026, meal voucher exemption of Rs 200 per meal (up to about Rs 1.05 lakh per year) is available under both old and new regimes.

How is the LTA block year calculated?

LTA is exempt for 2 domestic travel trips per 4-year calendar block. The current block runs from 1 January 2026 to 31 December 2029.

Does FBP reduce provident fund contribution?

PF is calculated on basic salary, so FBP restructuring that reduces basic salary can lower PF contributions. Most FBP designs preserve basic salary and restructure other components.

Should an employee choose old or new regime with FBP?

Depends on the employee's HRA claim, LTA usage, and other deduction eligibility. Employees with significant rent, LTA use, and 80C investments often come out ahead on the old regime with FBP; others benefit more from the new regime.