New Income Tax Rules have come into effect from April 1, bringing key changes in exemptions, allowances, and perquisites. While the old tax regime gets a boost with higher tax-free benefits like HRA and education allowance, the new regime remains simpler with limited deductions. Experts say taxpayers now need to focus more on salary structuring to maximise savings rather than just choosing between regimes.
New Income Tax Rules kick in April 1: Old vs new tax regime—Who gains more? (AI-generated image)
New Income Tax Rules, 2026 have come into effect from today, April 1, marking a significant shift in how salaried individuals structure their income and plan taxes. Notified by the tax department last month, these rules align with the new Income-tax Act, 2025 and aim to simplify taxation while subtly pushing taxpayers towards smarter salary structuring rather than just regime selection.
While the core debate of old vs new tax regime continues, what has clearly changed is the way exemptions, perquisites, and allowances are treated—impacting take-home salary more directly than before.
Shift in focus: From tax-saving to salary optimisation
According to Sudhir Kaushik, Co-founder & CEO, Taxspanner, the biggest change is philosophical.
“The income tax changes effective April 1, 2026 highlight a clear shift from just choosing a tax regime to optimising salary structures. Both old and new regimes have been made more attractive by expanding the scope of flexi benefits linked to employment duties.”
This means taxpayers can now increase tax efficiency without increasing their CTC, simply by restructuring components of salary.
He adds: “For instance, meal benefits alone can unlock up to Rs 1,05,600 as tax-free salary across both regimes, making compensation design a key tax planning tool.”
What has changed in exemptions and allowances?
The new rules significantly enhance several exemptions—especially under the old tax regime—while selectively allowing benefits in the new regime.
Key changes include:
-Children education allowance increased sharply from Rs 100/month to Rs 3,000/month per child
-Hostel allowance raised from Rs 300/month to Rs 9,000/month per child
-Free meal exemption increased to Rs 200 per meal (earlier Rs 50)
-Gift exemption limit tripled to Rs 15,000 per year
-Interest-free loan threshold increased to Rs 2 lakh
-Transport allowance cap increased significantly
These changes directly improve tax-free components of salary under employer-provided benefits.
HRA boost: More cities get metro treatment
Another important update is the expansion of metro cities for HRA calculation. Earlier limited to Delhi, Mumbai, Kolkata, and Chennai, the list now includes Ahmedabad, Bengaluru, Hyderabad and Pune.
This widens the scope for higher HRA exemptions, particularly benefiting salaried employees in major urban centres.
Perquisite rules tightened: Higher taxable value
While exemptions have increased, some perquisites have become more expensive from a tax perspective.
For example:
Taxable value of employer-provided cars has increased significantly
Valuation rules for accommodation and other benefits have been refined
The rules also provide detailed valuation methods for housing, cars, loans, and utilities to ensure uniform taxation.
Old vs new regime: What actually changes?
Despite these updates, one key principle remains unchanged:
Old regime: Continues to offer deductions and exemptions
New regime: Remains largely deduction-free, with limited exceptions
Deductions and rebates available under the old regime continue, while the new regime does not allow most deductions except specific cases. However, the gap between the two regimes is now narrowing due to enhanced tax-free benefits in salary components.
Jignesh Shah, Partner Direct Tax, Bhuta Shah & Co, says, “The deductions as well as rebates available under the Old Regime as per the Income Tax Act, 1961 and Old IT Rules are retained same under the Income Tax Act, 2025 (New IT Act, 2025) and New IT Rules. No deductions are available in the New Regime under the New IT Act, 2025 except for certain specific payments.”
Who benefits more?
Experts suggest that the decision is no longer straightforward.
Sudhir Kaushik explains: “The old tax regime has been further strengthened through enhancements like education allowance and expanded HRA coverage, while the new regime continues to offer simplicity with selective benefits.”
He adds a key takeaway: “For taxpayers earning above Rs 12 lakh, evaluating salary structure, deductions, exemptions, and flexi benefits is now critical to maximise tax efficiency.”
What should taxpayers do now?
With the new rules in force, taxpayers need to rethink their approach:
Don’t just compare tax slabs—evaluate your salary structure
Check employer-provided benefits like meals, HRA, and reimbursements
Assess whether deductions (old regime) outweigh simplicity (new regime)
High-income earners must actively optimise components, not just choose a regime
Summing up…
The April 1 tax changes do not radically alter tax rates—but they quietly redefine how tax savings work.
The real shift is this: From “Which regime is better?” to “How can I structure my income better?”
And for many taxpayers, that may make all the difference in their final tax outgo.
Disclaimer: This article is for informational purposes only and does not constitute professional tax advice. Tax laws and regimes are subject to frequent changes by the government. Readers should verify details with official Income Tax Department notifications or consult a Chartered Accountant before making any financial decisions.
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