New Income Tax Bill: Employees in Bengaluru, Hyderabad, Pune, and Ahmedabad will benefit from a 50% house rent allowance exemption under the new Income Tax Rules 2026. The taxable value of company-provided cars is also proposed to be increased from ₹8,000 to ₹10,000 per month.
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New Income Tax Bill: The new income tax rules, which come into effect on April 1st, will significantly benefit residents of select cities. The Central Board of Direct Taxes (CBDT) has released a draft of the Income Tax Rules, 2026, increasing tax exemptions for those living in Bengaluru, Hyderabad, Pune, and Ahmedabad. Under the new Income Tax Rules, 2026, the number of cities eligible for a 50% House Rent Allowance (HRA) exemption has been expanded for salaried individuals opting for the old tax regime.
Which cities previously received the benefit?
Currently, the 50% HRA exemption is only available to employees working in Delhi, Mumbai, Kolkata, and Chennai, while the limit for other cities is 40%. The draft proposes adding Bengaluru, Hyderabad, Pune, and Ahmedabad to these cities. Consequently, salaried individuals opting for the old tax regime in these cities will also be able to avail of the 50% HRA exemption.
That’s not all! There are even more benefits.
Furthermore, the draft Income Tax Rules 2026 proposes to increase the notional taxable value of cars provided by employers for partial personal use. The notional taxable value is now set at ₹8,000 per month for cars with a 1.6-liter engine capacity and ₹10,000 per month for cars above that capacity. The current limit is ₹2,700 per month and ₹3,300 per month for cars with higher capacity.
Furthermore, the draft proposes to increase the tax-free limit for employer-provided meals fourfold to ₹200 per meal. Similarly, the annual exemption on employer gifts is proposed to be increased from ₹5,000 to ₹15,000.
At the same time, the scope of tax-free employee loan has also been increased in the draft rules and it has been proposed to increase the exemption limit from Rs 20,000 to Rs 2 lakh.
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