Income Tax Regulations to Take Effect April 1: Seven Key Provisions Notified

Income Tax Rules, 2026: Key Provisions and Compliance Highlights

Effective Date: April 1, 2026

The Central Board of Direct Taxes (CBDT) has introduced the Income Tax Rules, 2026, which aims to standardize the taxation of non-cash benefits and allowances offered to salaried employees.

Allowances and Perquisites

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House Rent Allowance (HRA)

• Cities with Higher HRA Exemption Brackets: Mumbai, Delhi, Kolkata, Chennai, Hyderabad, Pune, Ahmedabad, and Bengaluru
• HRA Exemption: Up to 50% of salary for residents in these cities, and up to 40% for residents in other locations
• Tax-Exempt Portion of HRA: The least of the following:
  • HRA exemption is not available under the new tax regime

Children's Education, Hostel, and Other Allowances

• Children's Education Allowance: Rs 3,000 per month per child, up to a maximum of two children (Rule 280 of the Income-tax Rules, 2026)
• Hostel Expenditure Allowance: Rs 9,000 per month per child, up to a maximum of two children (Rule 280 of the Income-tax Rules, 2026)

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Car Perquisite Valuation

• Revised Structure:
  • Car owned or hired by employer; expenses borne by employer (partly official, partly personal use):
    • Engine capacity up to 1.6 litres: Rs 5,000 per month + Rs 3,000 for chauffeur
    • Engine capacity above 1.6 litres: Rs 7,000 per month + Rs 3,000 for chauffeur
  • Car owned or hired by employer; expenses borne by employee (partly official, partly personal use):
    • Engine capacity up to 1.6 litres: Rs 2,000 per month + Rs 3,000 for chauffeur
    • Engine capacity above 1.6 litres: Rs 3,000 per month + Rs 3,000 for chauffeur
  • Car owned by employee; expenses borne by employer (partly official, partly personal use):
    • Engine capacity up to 1.6 litres: Actual expenditure incurred by the employer minus Rs 5,000 per month (plus Rs 3,000 per month if a chauffeur is provided)
    • Engine capacity above 1.6 litres: Actual expenditure incurred by the employer minus Rs 7,000 per month (plus Rs 3,000 per month if a chauffeur is provided)

Household Services and Utilities

• Personal Attendants: Taxable value will be the actual salary paid by the employer for services such as sweepers, gardeners, or watchmen, after deducting any amount recovered from the employee
• Utilities: Taxable value will be the amount paid to the service provider if utilities are sourced from external providers, or the cost of production per unit if supplied from the employer’s own resources

Gifts and Vouchers

• Taxable Value: Gifts and vouchers with a total value exceeding Rs 15,000 during a financial year become taxable

Meals

• Tax-Exempt: Free food and beverages provided during working hours remain tax-exempt when offered through paid vouchers, subject to a limit of Rs 200 per meal

Proof Required for Deductions

• HRA: Name, address, and PAN of the landlord(s) where total rent paid during the year exceeds Rs 1,00,000, along with disclosure of any relationship with the landlord
• Leave Travel Concession (LTC/LTA): Proof of actual travel expenditure
• Interest Deduction under 'Income from house property': Name, address, and PAN of the lender