Government Introduces Revised Income Tax Act for Fiscal Year 2026, Effective April 1

Income-tax Rules, 2026: Key Provisions and Deductions

The Government of India has published the Income-tax Rules, 2026, in the Official Gazette, marking a significant step towards implementing the Income-tax Act, 2025. This new framework replaces the existing taxation structure and introduces changes to key deductions and exemptions.

Key Deductions and Exemptions under the New Tax Regime

• Meal Vouchers: Up to ₹200 per meal is not taxable, allowing for a maximum annual exemption of ₹44,000 (one meal per day) or ₹88,000 (two meals per day) based on 22 working days per month.
• Car Allowance: Employers can calculate the car allowance as the actual expenditure incurred minus ₹5,000 per month (plus ₹3,000 per month if a chauffeur is provided) for engine capacity up to 1.6 litres, and ₹7,000 per month (plus ₹3,000 per month if a chauffeur is provided) for engine capacity above 1.6 litres.
• Gifts: Gifts up to ₹15,000 on ceremonial occasions or otherwise are not taxable, with no value of perks.
• Standard Deduction: Salaried individuals and pensioners can claim a flat deduction of ₹75,000 from their income.
• Employer’s Contribution to NPS: Contributions made by an employer to an employee’s National Pension System (NPS) Tier-I account are deductible up to 14% of basic salary (basic + DA) for central government employees and 10% for others.
• Interest on Home Loan: Interest paid on a home loan for a let-out or deemed let-out property can still be claimed as a deduction, with a set-off of loss against other income capped at ₹2 lakh.
• Family Pension Deduction: Individuals receiving family pension can claim a deduction of ₹25,000 or one-third of the pension received, whichever is lower.
• Agniveer Corpus Fund: Contributions made by individuals enrolled under the Agnipath Scheme to the Agniveer Corpus Fund qualify for deduction.
• Transport Allowance: Transport allowances provided to employees who are blind or orthopedically handicapped continue to be tax-exempt.
• Voluntary Retirement Compensation: Amounts received on voluntary retirement or separation are exempt up to the prescribed limit.
• Gratuity: Eligible gratuity received by employees remains tax-free within specified limits.
• Leave Encashment: Leave encashment received at the time of retirement or superannuation is exempt up to a defined threshold.

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