Personal Finance News
Final Income-tax Rules 2026 notified: HRA to New vs Old regime, what salaried employees must know
4 min read | Updated on March 20, 2026, 14:09 IST
SUMMARY
The Central Board of Direct Taxes (CBDT) has notified the final Income-tax Rules 2026. Replacing Income-tax Rules 1962, the new rules will be effective from April 1, 2026, and serve as a guide for taxation of your income from FY 2026-27 onwards.
CBDT has notified Income-tax Rules 2026. | Image source: Shutterstock
The Central Board of Direct Taxes (CBDT) has notified the final Income-tax Rules 2026. Replacing Income-tax Rules 1962, the new rules will be effective from April 1, 2026, and serve as a guide for taxation of your income from FY 2026-27 onwards.
This article explains some of the key provisions of the new rules that salaried salaried employees must know:
House Rent Allowance (HRA)
The new rules have expanded the higher House Rent Allowance (HRA) tax exemption under the old tax regime to more cities. The new cities to which this benefit has been extended include Hyderabad, Pune, Ahmedabad and Bengaluru. It was already available in Mumbai, Kolkata, Delhi and Chennai.
Individuals in these cities will be allowed to claim HRA exemption of up to 50% of their salary, while those living in other locations will be eligible for a lower limit of 40%.
As per Rule 279 of the Income-tax Rules, 2026, the amount of HRA that can be claimed as tax-exempt will be the least of the following:
-
Actual HRA received during the relevant period;
-
Excess of rent paid over 10% of the employee’s salary; or
-
50% of salary for employees posted in Mumbai, Kolkata, Delhi, Chennai, Hyderabad, Pune, Ahmedabad and Bengaluru, and 40% of salary for all other locations.
The HRA benefit is not available in the new tax regime.
Children's education, hostel and other allowances
The new rules have increased the children’s education allowance from ₹ 100 to ₹3,000 per month per child (for a maximum of two children). Similarly, the hostel expenditure allowance has also been increased from ₹300 to ₹ 9,000 per month per child. Both the allowances are available across India.
Rule 280 says the following about these two allowances:
-
Children Education Allowance: ₹3000 per month per child up to a maximum of two children.
-
Any allowance granted to an employee to meet the hostel expenditure on his child: ₹9000 per month per child up to a maximum of two children
Please note that these allowances are available only under the old tax regime. Moreover, you can claim them only if these allowances are a part of your pay package.
Proof required for deductions
Under Income-tax Rules 2026, you are required to submit evidence for claiming various deductions under the old tax regime.
| Nature of claim | Evidence or particulars required |
|---|---|
| House rent allowance | Name, address and Permanent Account Number (PAN) of the landlord or landlords, where the aggregate rent paid during the tax year exceeds ₹100,000; and relationship with the landlord, if any |
| Leave travel concession or assistance | Evidence of expenditure |
| Deduction of interest under the head "Income from house property" | Name, address and Permanent Account Number (PAN) of the lender |
| Deduction under Chapter VIII | Evidence of investment or expenditure |
Car perquisite valuation
The Income-tax Rules 2026 have revised the taxable perquisite value of motor cars used by employees partly for official and partly for personal purposes. The following are the key changes:
| Situation | Engine capacity | Perquisite value |
|---|---|---|
| 1. Car owned/hired by employer; used partly for official and partly for personal purposes; expenses paid by employer | ≤ 1.6 litres | ₹5,000/month + ₹3,000 (chauffeur) |
| > 1.6 litres | ₹7,000/month + ₹3,000 (chauffeur) | |
| 2. Car owned/hired by employer; used partly for official and partly for personal purposes; expenses paid by employee | ≤ 1.6 litres | ₹2,000/month + ₹3,000 (chauffeur) |
| > 1.6 litres | ₹3,000/month + ₹3,000 (chauffeur) | |
| 3. Car owned by employee; used partly for official and partly for personal purposes; expenses paid by employer | ≤ 1.6 litres | Actual expenditure incurred by employer minus ₹5,000/month (+ ₹3,000/month if chauffeur is provided) |
| > 1.6 litres | Actual expenditure incurred by employer minus ₹7,000/month (+ ₹3,000/month if chauffeur is provided) |
New vs Old Tax Regime
Related News
About The Author
Next Story
