With the new Income-tax Act, 2025 set to take effect from April 1, the Central Board of Direct Taxes (CBDT) has notified the Income-tax Rules, 2026 to align with the updated law. The new rules are expected to significantly reshape the tax landscape for salaried individuals by revising long-standing thresholds for exemptions and perquisite valuation.

Aarti Raote, Partner at Deloitte India, said the rules mark a “significant change” as they revisit limits that had remained unchanged for years.

A key highlight is the expansion of metro cities for House Rent Allowance (HRA) calculations. Earlier, only Mumbai, Delhi, Chennai, and Kolkata qualified for the higher 50% salary-based exemption. The new rules extend this benefit to Ahmedabad, Bengaluru, Pune, and Hyderabad, allowing more taxpayers to claim higher exemptions.

However, Raote flagged a new compliance condition: the rented accommodation must now be located at the employee’s place of employment. This requirement could pose challenges for employees claiming HRA for homes where their families reside, as employers will need to verify rental documents against the base work location.

Perquisite norms updated after decades

The rules also revise the valuation of perquisites to reflect current costs. The taxable value of employer-provided cars has been increased to ₹5,000–₹7,000 per month (from ₹1,800–₹2,400), while the valuation for drivers has risen to ₹3,000 per month from ₹900. This could increase the tax burden for employees availing such benefits.

Higher exemptions ease household burden

The revised rules also significantly enhance several exemption limits:

1) Meal vouchers exemption increased to ₹200 per meal (from ₹50), now applicable under both old and new tax regimes.

2) Children’s Education Allowance raised to ₹3,000 per month per child (up to two children), from ₹100 earlier.

3) Children’s Hostel Allowance increased to ₹9,000 per month per child (up to two children), from ₹300.

These changes are expected to provide meaningful relief amid rising education and living costs.

Raote noted that the changes align perquisite valuation with current standards, meaning the overall tax impact will vary depending on the mix of benefits availed by employees.

Structural shift in salaried taxation

Deepashree Shetty of BDO India described the reforms as a structural shift towards market-aligned valuation of benefits and exemptions. 

She highlighted that the expanded metro definition for HRA will enable higher exemptions of up to 50% of salary for taxpayers in the newly included cities.

Other key changes include a sharp increase in Children’s Education Allowance to ₹3,000 per month per child (from ₹100) and Children’s Hostel Allowance to ₹9,000 per month (from ₹300), easing the burden of rising education costs.

The rules also extend meal voucher benefits to taxpayers under both old and new tax regimes and align car perquisite valuation with electric vehicles.

What are the mixed impacts on taxpayers

Overall, the new rules modernise India’s tax framework with updated thresholds and broader relief but also introduce stricter compliance requirements and higher tax exposure in certain areas, making the net impact dependent on individual benefit structures.

Broader tax changes at a glance

Shetty added that Tax Collected at Source (TCS) has been simplified to a flat 2% for most transactions, reducing upfront cash flow constraints, especially for foreign travel and education remittances. However, the increase in Securities Transaction Tax (STT) on futures and options is expected to raise trading costs.

Shrey Jain, CEO of Stocko by InCred Money, said, "The increase in STT announced in the Budget and becoming effective from April 1 did come as a surprise to some market participants. Hike will impact retail and high-frequency traders as their transaction cost will go up substantially. Transaction cost changes may influence certain trading strategies at the margin; the broader participation trend remains intact." 

Buyback taxation has also shifted to a capital gains regime, which may benefit smaller investors, although a flat 12% surcharge could raise the overall tax outgo, according to Jain.