Draft Income Tax Rules 2026: The draft Income-tax Rules 2026 have created strong interest among salaried taxpayers across India. Proposed changes to allowances like children’s hostel allowance and HRA may significantly impact tax planning and take-home salary for many families.
Many people are also asking whether these increased deductions will be available under the new tax regime. The draft rules mainly focus on revising limits that were unchanged for decades, but clarity is still evolving regarding their application across tax regimes.
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Draft Income Tax Rules 2026 Explained
The government has proposed new income tax rules to modernize allowance limits based on rising education and housing costs. These draft provisions aim to make salary-based exemptions more relevant to current financial realities.
The changes are not final yet and may be modified after public feedback. However, the proposals already show a clear intention to revise long-standing tax benefits for salaried employees, especially those supporting families.
Proposed Increase In Children Hostel Allowance
The draft rules suggest a significant increase in children’s hostel allowance. Earlier, the exemption limit was just ₹300 per month per child, which remained unchanged for many years.
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The proposed revision may raise it to around ₹9,000 per month per child. If implemented, this change could reduce taxable income for families with children studying away from home.
Draft Income Tax Rules 2026 Overview
| Key Aspect | Details |
|---|---|
| Draft Name | Draft Income-tax Rules 2026 |
| Major Proposal | Increase in children’s hostel allowance and revised HRA benefits |
| Hostel Allowance Earlier Limit | ₹300 per month per child |
| Proposed Hostel Allowance | Around ₹9,000 per month per child |
| Education Allowance Proposal | Up to ₹3,000 per month per child |
| HRA Update | More cities may qualify for higher exemption category |
| Main Beneficiaries | Salaried taxpayers using old tax regime |
| Impact On New Tax Regime | Limited benefits as exemptions usually not allowed |
| Status | Draft stage, open for feedback |
| Expected Implementation | Likely from April 2026 after final approval |
Revised HRA Benefits And City Category Changes
The draft rules may expand the list of cities eligible for higher HRA exemption limits. Cities like Bengaluru, Pune, Hyderabad, and Ahmedabad may get benefits similar to metro cities.
This revision could help employees living in high-rent cities reduce their taxable income. Higher HRA exemptions can increase take-home salary by lowering the amount of income subject to tax.
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Applicability In Old Tax Regime
Most of the proposed allowance benefits are mainly linked to the old tax regime. This regime allows deductions and exemptions related to salary components like HRA and education allowances.
The increased hostel allowance and revised HRA benefits are expected to provide major relief to families choosing the old tax system. This may make the old regime more attractive again for certain taxpayers.
Impact On New Tax Regime Taxpayers
The new tax regime offers lower tax rates but removes many deductions and exemptions. Because of this structure, most allowance-based benefits are not available under this system.
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As per current draft indications, the increased hostel allowance and HRA changes may not apply to the new tax regime. Final clarity will come only after official rules are notified.
Why Government Is Revising Allowance Limits
Many allowance limits were set decades ago and no longer match today’s expenses. Education and housing costs have increased sharply, making old exemption limits less useful.
By increasing these limits, the government aims to provide meaningful tax relief. The changes also reflect a move to align tax rules with current economic conditions and family expenses.
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Possible Financial Relief For Salaried Families
If the proposed limits are approved, families paying for hostel facilities and rent could see notable tax savings. Reduced taxable income can directly improve take-home salary.
For individuals earning around ₹15 lakh annually, experts estimate significant yearly savings under the old regime. These benefits depend on salary structure and eligibility for specific exemptions.
Draft Stage And Public Feedback Process
The rules are still in draft form and open for suggestions from the public and experts. This stage allows the government to review concerns and improve the final version.
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After collecting feedback, the final notification will confirm exact limits and applicability. Only then will taxpayers get full clarity about how the changes will work in real situations.
Future Of Old Versus New Tax Regime Choice
The proposed changes may influence how people choose between the old and new tax systems. Families with children and rental expenses may find the old regime more beneficial.
The new regime will still appeal to those who prefer simpler tax filing without deductions. Final decisions will depend on income level, expenses, and confirmed rules after implementation.
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