Old tax regime: How salaried parents of hostel‑going kids can save around ₹90,000 in FY2026-27

The recently proposed draft Income-tax Rules 2026 are set to benefit salaried parents if they are in the old tax regime. The draft rules have proposed to increase the children's education allowance and hostel allowance to ₹3000 and ₹9000 per month, respectively.

As these allowances are allowed for up to two children, salaried parents with two hostel-going children can claim up to ₹2.88 lakh deductions on education and hostel allowances alone:

• A) Education allowance for 2 children/per year: ₹3000 x 2 x12 = ₹72,000

• B) Hostel allowance for two children: ₹9000 x 2 x 12 = ₹2,16,000

• Total allowance: A + B = ₹2,88,000

For someone in the highest 30% tax slab, this allowance could lead to a tax saving of nearly ₹90,000. Let us understand:

• Tax slab: 30%

• Cess: 4% of 30% = 1.2%

• Effective tax rate: 30% + 1.2% = 31.2%

• Tax saving = 31.2% of ₹2.88 lakh = ₹89,800

Please note that the above is just an illustration to show you how the higher allowances for children's education and hostel expenses can help salaried parents save taxes if the draft rules are implemented. However, in a real-life situation, the actual amount of tax-saving may depend on a lot of factors, such as:

• Your total income and tax liability

• Your eligibility for these allowances

• Your choice of tax regime

• Whether you actually have hostel-going kids

Practical difficulties

The children's education and hostel allowances are not simple deductions that you can claim on your own. There are some practical difficulties because of which many parents may not be able to claim these allowances.

For instance, these allowances should be a part of your salary package provided by the employer. In reality, many employers do not provide these allowances. Even in the case of employers who provide these allowances, not many employees these days prefer to send their kids to hostels.

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