New Income Tax Rules 2026: Salary Set to Rise as HRA and Allowance Limits Increased

Kokila Chokkanathan
The Income Tax Department of India has announced new tax rules for 2026, which are expected to benefit salaried employees by increasing the house Rent Allowance (HRA) and other allowances, potentially boosting take-home salary.

Key Changes in Income Tax Rules

Higher HRA Exemption:

The limit for claiming House Rent Allowance (HRA) under Section 10(13A) has been increased, enabling employees to save more on taxes.

Employees living in metro and non-metro cities will see different exemption ceilings, benefiting those paying higher rents.

Enhanced Standard Deduction and Allowances:

Other allowances such as conveyance, medical, and special allowances have also been revised upward.

This adjustment reduces taxable income and increases monthly net salary.

Tax Slabs:

No major changes in the tax slabs themselves, but increased exemptions and limits effectively reduce the taxable portion of salary.

Example: Impact on Salary

Suppose an employee earns a basic salary of Rs 50,000 per month:

  • Previous HRA exemption: Rs 12,000
  • New HRA exemption (2026 rules): Rs 16,000
  • Effect: Reduced taxable income → higher take-home salary
Additional benefits from increased standard and special allowances will further enhance the net monthly income.

Benefits for Employees

Higher Take-Home Salary: More exemptions mean less tax deducted from salary.

Tax Planning Made Easier: Employees can plan investments and expenses efficiently.

Encourages Renting Legally: Increased HRA benefits those paying rent and maintaining proper documentation.

Relief for Middle-Class Employees: Especially helpful for salaried individuals with high rent or family expenses.

Important Notes

  • Employees must submit rent receipts and necessary proofs to claim higher HRA exemption.
  • Other allowances must comply with Income Tax Department guidelines.
  • These rules are applicable from the financial year 2026-27 onward.
Conclusion

The new income tax rules for 2026 are set to provide a tangible boost to salaried employees, particularly through increased HRA and allowance limits. Proper documentation and understanding of the exemptions can help employees maximize take-home pay and reduce tax liability.

 

Disclaimer:

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of any agency, organization, employer, or company. All information provided is for general informational purposes only. While every effort has been made to ensure accuracy, we make no representations or warranties of any kind, express or implied, about the completeness, reliability, or suitability of the information contained herein. Readers are advised to verify facts and seek professional advice where necessary. Any reliance placed on such information is strictly at the reader’s own risk.

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