Salary Hike: In-Hand Salary to Increase from April 1, New Tax Rules Explained

New Income Tax Rule: If you’re working, there’s some great news for you. According to the Central Government’s proposed New Income Tax Act 2026, your tax obligations are about to lessen. This means that the TDS taken from your monthly salary will be lower, resulting in more cash flow for you. Let’s take a look at five significant changes that could enhance your salary.

5 significant changes that will boost your take-home pay

Income up to Rs 12 lakh now tax-exempt (New Tax Regime)

The government has broadened the relief options for those opting for the new tax regime. The rebate under Section 87A has been raised to Rs 60,000. Consequently, individuals with annual incomes up to Rs 12 lakh will not have to pay any taxes at all. This change will save middle-income earners anywhere from Rs 25,000 to Rs 50,000 each year.

Significant Change in HRA Regulations (For Old Tax Regime)

A groundbreaking adjustment has been made to the HRA (House Rent Allowance) regulations for those adhering to the Old Tax Regime. In addition to Delhi, Mumbai, Kolkata, and Chennai, cities like Bengaluru, Hyderabad, Pune, and Ahmedabad have now been classified as metro cities. Employees residing in these locations can now claim HRA up to 50% of their basic salary (previously 40%). This will greatly lower their taxable income.

Substantial increase in children’s education and hostel allowance

The long-standing allowance limit has finally been updated to align with inflation. The previous limit of just Rs 100 per month is set to rise to Rs 3,000 per month (per child). The Hostel Allowance limit is also being increased from Rs 300 per month to Rs 9,000 per month. For employees with children in school, the potential tax savings could exceed Rs 50,000 each year.

Standard Deduction

The standard deduction benefit for salaried employees will continue in both regimes. There is talk that it could be increased from the current Rs 75,000 to Rs 1,00,000, which would directly reduce your taxable income by Rs 25,000.

Office gifts are now tax-free up to Rs 15,000

Until now, gift vouchers from the company exceeding Rs 5,000 were subject to tax. The new draft rules have raised this limit to Rs 15,000. This means you’ll have less tax concerns on Diwali bonuses or rewards.

What will be the impact on your salary?

According to experts, these changes could increase the annual take-home pay of an average salaried employee by Rs 25,000 to Rs 80,000. However, this will depend on the tax regime you choose and your salary structure.