Income Tax Rule 2026 – Big Relief for Salaried Individuals! Major Benefits in HRA and Allowances, More Tax Savings Now

Income Tax Rule 2026: Taking a major step towards simplifying and making the tax system in India more transparent, the Government of India has formulated the new Income Tax Act 2025. This law is scheduled to come into effect on April 1, 2026. Along with this, the draft Income Tax Rules 2026 have also been released, which are open for public comment until February 22, 2026. These changes aim to simplify the tax filing process, update outdated allowance limits in line with inflation, and provide additional relief to the salaried class.

The tax filing process will be easier and faster

Under the new rules, tax return forms are being simplified and made user-friendly. Much basic information will be standardized, eliminating the need to enter the same data repeatedly. The amount of pre-filled information will increase, reducing the likelihood of errors and saving time. The language of the forms is also being simplified to make it easier for ordinary taxpayers to understand. The centralized processing system is expected to speed up tax refunds and processing.

Both Old and New Tax Regimes Will Remain Applicable

Both the old and new tax regimes will continue to apply in the new system. The increased exemptions and deductions in the old tax regime will still be beneficial for many taxpayers, especially those with large allowances or investment-based exemptions. The new tax regime, on the other hand, has lower tax rates, but most exemptions are no longer available.

Major Relief in Tax Exemptions on Gifts and Vouchers

The tax exemption limit on gifts, vouchers, or tokens received from the employer has been increased to ₹15,000 annually. Previously, this limit was only ₹5,000. This will reduce the tax burden on small benefits received by employees.

Major Changes in HRA Rules

Significant changes have been made to the House Rent Allowance (HRA). Previously, an HRA exemption of up to 50 percent of salary was available only in metropolitan cities like Delhi, Mumbai, Kolkata, and Chennai. Now, this benefit has been extended to rapidly developing cities like Bengaluru, Hyderabad, Pune, and Ahmedabad. The 40 percent limit will remain in other cities.

Relief on Food Allowance and Office Amenities

The tax-free limit on free food or non-alcoholic beverages provided during office hours has been increased to ₹200 per meal, up from ₹50 previously. This will provide relief to corporate employees in meeting daily expenses.

Change in Tax Value on Company Cars

The tax value for using a company car has also been updated. The new value for small-engine cars is ₹5,000 per month. If a driver is also provided, an additional value will be added. This value has been increased for larger cars. This is intended to balance the tax structure with current costs.

Significant increase in children’s education and hostel allowances

The children’s education allowance has been increased to ₹3,000 per month per child. The hostel allowance has been increased to ₹9,000 per month per child. Furthermore, the tax-free limit on employer-provided education facilities has also been increased.

Major relief on medical expenses

The tax-free limit on loans from employers for the treatment of serious illnesses has been increased to ₹2 lakh. This will significantly help employees in medical emergencies.

Relief and simplified tax system for the middle class

These changes are aimed at mitigating the impact of inflation and restoring the original value of old allowances. This will benefit salaried and middle-class individuals, especially through tax savings. Furthermore, the simplified tax filing process is expected to improve tax compliance.