The list of cities falling under the higher HRA exemption brackets has now expanded. Along with Mumbai, Delhi, Chennai, and Kolkata, Hyderabad, Pune, Ahmedabad, and Bengaluru will now be included in this list. Residents living in these cities will be able to claim HRA up to 50% of their salary.
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Income Tax New Rules: The Central Board of Direct Taxes (CBDT) has notified the Income Tax Rules, 2026. These rules change the allowances and perquisites for salaried taxpayers. The new tax rules will come into effect from April 1, 2026. They also change the tax rules for non-cash benefits such as rent-free accommodation and vehicles provided by employees.
1. New Rules for House Rate Allowance (HRA)
The list of cities falling under higher HRA exemption brackets has expanded. Mumbai, Delhi, Chennai, and Kolkata will now include Hyderabad, Pune, Ahmedabad, and Bengaluru. People living in these cities will be able to claim HRA up to 50% of their salary. Employees in other cities will be able to claim 40% exemption. HRA exemption is available only under the old income tax regime.
2. Changes in children’s education, hostel and other allowances
Allowances related to child expenses will now increase. The children’s allowance per child has been increased from ₹100 per month to ₹3,000 per month. This will apply to a maximum of two children. The hostel expense allowance has been increased from ₹300 per month to ₹9,000.
3. Changes in Car Perquisite Valuation
The rules for calculating the taxable value of vehicles provided by employers are changing. If the employer owns or rents a car, the taxable valuation will be ₹5,000 per month plus ₹3,000 per month (for chauffeurs) for vehicles with engine capacity up to 1.6 liters. For vehicles with engine capacity greater than 1.6 liters, the taxable valuation will be ₹7,000 plus ₹3,000 (for chauffeurs).
4. Household Services and Utilities
Personal Attendants: The taxable value for services such as sweepers, gardeners, or watchmen is the actual salary paid by the employer, after deducting any amount recovered from the employee. For gas, electricity, or water purchased from an external source, the taxable value is the amount paid to the service provider.
5. New Rules for Gifts and Vouchers
If their total value exceeds ₹15,000 in a financial year, they will become taxable.
6. Meals
Free food and beverages offered during working hours through gift vouchers will remain tax-free, subject to a limit of ₹200 per meal.
7. Proof for Deductions
According to the new Income Tax rules, old-regime taxpayers will need to provide supporting documents to claim deductions. For example, if a taxpayer claims HRA deduction, they must provide the landlord’s name, address, and PAN. This is necessary if the total rent paid exceeds ₹100,000 in a financial year. The tenant will also need to disclose their relationship with the landlord.
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