Clipped from: https://www.financialexpress.com/money/new-i-t-rules-extend-hra-to-more-cities-raise-perks-limits-4179161/
The CBDT has notified the Income-tax Rules 2026, replacing the 1962 framework. Key changes effective April 1 include a 30x increase in children’s education allowance, the inclusion of EVs in perquisite norms, and the extension of 50% HRA benefits to Bengaluru, Hyderabad, Pune, and Ahmedabad.
Income Tax Rules 2026: Centre Hikes Education Allowance to ₹3,000 and Expands 50% HRA to 4 Cities
The Centre has revised the exemption limits for allowances and perquisites for employees under the tax rules to better reflect current economic conditions and inflation. According to the Income-tax Rules 2026 notified by the Central Board of Direct Taxes (CBDT) on Friday electric vehicles (EVs) have been included within the concessional valuation slab under perquisite norms for employer-provided motor cars.
Also, children’s education allowance will rise from Rs 100/month per child to Rs 3,000 (up to two children), and hostel expenditure allowance will increase from Rs 300 per month per child to Rs 9,000. Hostel expenditure allowance will increase from Rs 300 per month per child to Rs 9,000 per month per child (up to two children).
The new rules under the Income-tax Act, 2025 willl take effect from April 1. They replace the Income-tax Rules, 1962, introducing a streamlined framework for direct tax compliance in India.
Capital gains taxation has been simplified with clear guidelines for debenture conversions, income disclosure schemes, and cross-border restructuring. A defined regulatory framework for zero coupon bonds, and meaures for tighter oversight over dividend payouts have also been introduced.
Beyond the Metros
House rent allowance (HRA) exemption at 50% of salary will extend to four more cities—Bengaluru, Hyderabad, Pune, and Ahmedabad—in addition to Mumbai, Delhi, Kolkata, and Chennai.
Other updates include higher thresholds for meal perquisites (up to Rs 200 per meal), revised valuation methods for car benefits and interest-free loans, and adjustments to education-related perquisites.
The rules also emphasize pre-filled ITRs, clearer guidelines for capital gains holding periods in specific scenarios, and alignment with digital governance for faster processing and reduced paperwork. The rules also reduce the SFT reporting threshold for receipt of insurance premium payments, from Rs 10 lakh to Rs 5 lakh where PAN is available, and from Rs 5 lakh to Rs 2.5 lakh where PAN is not available as compared to draft rules. This significantly expands the reporting net for insurers, and customers can expect more policies to appear in their AIS, strengthening tax trail transparency and tightening compliance.
Amit Maheshwari, Managing Partner, AKM Global said: “Under the revised Table II, EVs are now treated at par with cars having engine capacity not exceeding 1.6 litres for the purpose of valuing perquisites when the vehicle is used partly for official duties and partly for personal purposes. With this inclusion, the monthly taxable perquisite value for an EV used partly for official and partly for personal purposes will be Rs 5,000 per month (plus Rs 3,000 if a chauffeur is provided) where the employer bears the running and maintenance expenses; or Rs 2,000 per month (plus Rs 3,000 if chauffeur is provided) where the employee bears the cost of personal use running and maintenance,” Maheshwari said. This amendment was necessary because earlier rules linked perquisite valuation solely to an enginecapacity threshold, an attribute irrelevant for electric vehicles, he said.
On HRA expansion, Maheshwari said the government has chosen not to include other high-rent, high-density employment hubs such as Noida, Gurugram and Navi Mumbai. The expectation was that the rapid urbanisation and high rental costs in NCR extensions and satellite cities would justify their inclusion, he said, adding that the government’s approach appears to focus on cities whose economic and taxpayer concentration has reached Tier 1 levels over the past decade.
SureshKumar S, Partner, Deloitte India, said employees under new regime should also benefit from the recalibrated and realigned limits for various employee perquisites and exemptions. “Employee-owned car used for official purpose – Enhanced benefit available under the new regime as well. Food coupon is now available under new tax regime as well,” he said.
Digital Governance
The new rules significantly reduce complexity by cutting the total number of rules from 511 to 333 and forms from around 399 to 190. This rationalization eliminates redundancies, simplifies language, removes obsolete provisions, and incorporates tables and formulas for clarity. Forms have been redesigned with standardized fields, improved pre-fill capabilities, automation features, and better compatibility for digital processing on the Income Tax portal.
Richa Sawhney, Partner – Tax, Grant Thornton Bharat, said the utilities of the new forms are anticipated to be released in a phased manner, giving priority to the time sensitive ones. Issuance of a master circular, consolidating all circulars that remain applicable as of April 1, would further enhance clarity for taxpayers.
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