For those opting for the new tax regime, the rebate under Section 87A is proposed to be increased to ₹60,000. This could reduce tax liability on annual incomes up to ₹12 lakh to zero.

In the budget presented on February 1, Finance Minister Nirmala Sitharaman announced that new rules would replace the decades-old income tax law. These proposed Income Tax Rules 2026 are set to be implemented from April 1, 2026. The draft is currently open for public comment until February 22, after which it will be finalized. Furthermore, tax experts believe that these changes will directly benefit salaried individuals. TDS deductions will be lower and take-home salaries will increase. In particular, the proposed changes to HRA, education, and hostel allowances will reduce taxable income. So, let us tell you today how much your salary will increase under the new income tax rules and how to understand the calculations in one click.

List of cities with 50% HRA exemption will expand

Previously, only those working in Delhi, Mumbai, Kolkata, and Chennai were eligible for HRA exemption of up to 50% of their basic salary. The new draft proposes to include Bengaluru, Hyderabad, Pune, and Ahmedabad in this category. Employees living in these cities will now be able to claim up to 50% HRA, while the 40% limit will remain in effect in other cities. Furthermore, the draft rules propose increasing the education allowance from ₹100 per child per month to ₹3,000 per month. The hostel allowance limit could be increased from ₹300 per child to ₹9,000 per month. This exemption will be available for a maximum of two children.

Relief on income up to ₹12 lakh

For those opting for the new tax regime, the rebate under Section 87A is proposed to be increased to ₹60,000. This could reduce the tax liability to zero on annual incomes up to ₹12 lakh. This will directly benefit the middle class, while the standard deduction for salaried employees will remain. There is discussion about increasing it from Rs 75,000 to Rs 1 lakh. Furthermore, there is a proposal to increase the tax exemption limit on gifts received from the company from Rs 5,000 to Rs 15,000.

Let's understand the whole calculation this way:

Suppose an employee's annual gross salary is Rs 30 lakh. Under the old rules, after including Rs 2,400 exemption on education allowance, Rs 7,200 exemption on hostel allowance, Rs 6 lakh HRA exemption on monthly rent of Rs 75,000, and Rs 50,000 standard deduction, the net salary would be Rs 23,40,400. After the additional exemption of Rs 4.05 lakh under Chapter VI-A, the taxable income would be Rs 19,35,400, resulting in a tax of approximately Rs 4,08,844. Thus, the annual take-home salary is approximately ₹23.47 lakh.

Under the new draft rules, there will be an exemption of up to ₹72,000 on education allowance, up to ₹206,000 on hostel allowance, and up to ₹750,000 on HRA. After these significant exemptions, taxable income could decrease to approximately ₹1507,000, resulting in tax deductions of approximately ₹275,184. This would result in annual tax savings of approximately ₹1.33 lakh, and the take-home salary could increase to approximately ₹24.81 lakh, resulting in an increase in monthly take-home pay. Experts estimate that these changes could increase the annual take-home salary of average salaried employees by ₹25,000 to ₹80,000. However, the benefits will depend on the tax regime you choose and your salary structure.