New Income Tax rules, 2026 notified: From HRA to company car to meal card, top six prominent changes which will impact salaried taxpayers

The Income Tax Rules, 2026 has been notified by the government on March 20, 2026 and under these new rules there are many prominent rules, some of which have changed. For example: house rent allowance (HRA) rules have changed and now higher HRA includes many more cities like Hyderabad, Pune, Ahmedabad and Bengaluru that qualifies for higher HRA tax exemption.

Here are top six prominent changes in Income Tax Rules, 2026

Some of the prominent Income Tax Rules, 2026 are:

• Motor Car Perquisite (Company Vehicle)
• Interest-Free or Concessional Loans to Employees
• Meal and Refreshment Benefits
• Children Education and Hostel Allowances
• More House Rent Allowance (HRA) benefit for new cities
• More tax benefits for gifts / festival vouchers

Also read: Good news for salaried employees in these cities as they can get higher HRA exemption; disclosure of relationship with landlord a must as Income Tax Rules 2026 notified

Table showing the impact of some of the new changes as per tax rules 2026

CA Avinash Kumar Rao, Partner at Mohindra & Associates says that a key highlight is the enhanced focus on employee-centric benefits such as expanded HRA scope, higher monetary limits for children education allowance, hostel rental allowance and higher meal benefits, and interest-free loans which will directly aid salaried individuals in optimising their tax liability.

At the same time, improved measures such as valuation of car perquisites & mandatory disclosure of relationship with landlord (if any) are also done.

Benefit Name	Old Limit (1962 Rules)	New Limit (2026 Rules)	Practical Impact
House Rent Allowance (HRA)	50% (4 metro cities)	50% (8 cities incl. Bengaluru, Hyderabad, Pune, Ahmedabad)	Higher exemption → lower taxable salary
Children Education Allowance	Rs 100/month/child	Rs 3,000/month/child	Significant tax-free benefit
Hostel Expenditure Allowance	Rs 300/month/child	Rs 9,000/month/child	Significant tax-free benefit
Interest-Free Loan	Rs 20,000 exemption	Rs 2,00,000 exemption	Most small loans non-taxable
Meal / Food Coupons	Rs 50 per meal	Rs 200 per meal	Higher take-home salary
Gifts / Festival Vouchers	Rs 5,000 per annum	Rs 15,000 per annum	Higher take-home salary
Transport Allowance	70% capped at Rs 10,000	70% capped at Rs 25,000	Higher tax exemption
Motor Car (≤1.6L)	Rs 1,800 + Rs 900	Rs 5,000 + Rs 3,000	Higher taxable value
Motor Car (>1.6L)	Rs 2,400 + Rs 900	Rs 7,000 + Rs 3,000	Aligned with market
Driver Perquisite	Rs 900/month	Rs 3,000/month	Reflects actual cost

Source: CA Avinash Kumar Rao

According to Rao, the tax rules, 2026 bring greater clarity in definitions and streamlined compliance through rationalised forms, thereby reducing litigation and interpretational ambiguity. The legacy Form 26AS and Form 16 will also be replaced with Form 168 and Form 130 along with other forms.

Rao says that the new tax rules, 2026 strike the right balance between taxpayer relief and reporting discipline, making the overall framework more efficient, transparent and aligned with modern payroll practices.

Sudhakar Sethuraman, Partner, Deloitte India, says that measures such as inclusion of major cities for HRA benefit, structured reporting of digital assets, expanding the limit of children education and hostel allowance and revised perquisite valuation norms for motor cars, concessional loans and gifts from employer are implemented in the final tax rules, 2026.

Motor car perquisite (old and new tax regime both)

The Income Tax Rules for 2026 have changed the definition of taxable value of motor vehicles. There are multiple changes with respect to the valuation of taxable perks when your employer provides you with a car. These changes will apply to both old and new tax regimes, as this pertains to valuation of perks related to salary income, regardless of the chosen tax regime.

For example, in the categories where the perquisite value has been hiked, employees would have to pay more income tax on the perks as their value will be added to the employee’s salary income and then taxed accordingly.

For example, take the case when an employer has given a car to be used by you (the employee) for both office and personal use and you pay for the car’s fuel and maintenance. If the car’s engine size is less than 1.6 litre, then earlier the taxable perk value for you was Rs 600 per month, now it is Rs 2,000 per month.

For reference purposes, Hyundai Creta’s naturally aspirated MPi petrol engine’s size is 1.5 litre (1497 cm3). Volkswagen Virtus’s turbo petrol engine’s size is 1 litre (999 cc) and 1.5 litre (1498 cc), depending on the variant.

Also read: India notifies Income Tax Rules, 2026: What's in it

Interest-free or concessional loans to employees (old and new tax regime both)

The tax-free loan perquisite for employees has been hiked to Rs 2 lakh. Rule 15 (5A) of Income Tax Rules say:

“a) No value would be charged if such loans are made available for medical treatment in respect of diseases specified in rule 18 or where the amount of loans is not exceeding ₹2,00,000 in the aggregate, and

(b)where the benefit relates to the loans made available for medical treatment referred to in clause (a), the exemption so provided shall not apply to so much of the loan as has been reimbursed to the employee under any medical insurance scheme.”

Sodexxo/Pluxxee meal voucher (only old tax regime)

The Income Tax Rules, 2026 has increased the tax exemption for meal card, voucher, etc provided by employers, however it is only available under old tax regime.

(a) free food and non-alcoholic beverages provided by such employer during working hours at office or business premises or through paid vouchers usable only at eating joints, to the extent the value thereof in either case does not exceed ₹200 per meal; or

(b) tea or snacks provided during working hours; or (c) free food and non-alcoholic beverages during working hours provided in a remote area or an off-shore installation.

Gaurav Jain, Partner, Direct Tax, Forvis Mazars in India, says that the tax exempt limit shall be as under: Rs 200 per meal × typically 2 meals/day × 22 working days = Rs 8,800/month or Rs 1,05,600/year.

Jain from Forvis Mazars in India says that employees will save tax on the increased amount exempted from perquisites.

• Current exemption: Rs 26,400 per year (Rs 50 per meal)
• Proposed exemption: Rs 1,05,600 per year (Rs 200 per meal)
• Higher incremental tax exemption: Rs 1,05,600 − Rs 26,400 = Rs 79,200 per year

This means if you fall in the 30% slab rate bracket, then you can potentially save about Rs 24,710 tax.
According to Jain, if your taxable income is reduced by this additional Rs 79,200 then in a 30% tax slab bracket (plus cess @ 4%)= 31.2% the calculations are→ Tax on Rs 79,200= 79,200 * 31.2% = Rs 24,710 (approximate). In lower slabs, savings will be proportionately lower.

HRA for salaried (only old tax regime)

Under this new tax rule, 2026 the income tax exemption for house rent allowance (HRA) which only salaried taxpayers get is the same as the draft tax rules, 2026. Under the new tax rules, 2026 Hyderabad, Pune, Ahmedabad and Bengaluru are added as new cities which qualify for higher income tax exemption for HRA. Earlier Mumbai, Kolkata, Delhi, Chennai qualified for higher HRA tax exemption.

Jayesh Sanghvi, Tax Partner, EY India, says that the new Income Tax Act, 2025 was meant to simplify and modernise India’s direct tax system, and the notified tax rules, 2026 are where that intent becomes practical for taxpayers.

Sanghvi says that along with a cleaner rulebook, the increase in everyday exemptions such as higher HRA eligibility for four more cities and significantly enhanced education and hostel allowances, will be felt immediately by salaried households.

Sanghvi says: "By reducing complexity, cutting interpretational friction, and making common benefits easier to claim, these rules help ensure that the transition to the new framework is smoother for both taxpayers and the department. In that sense, this notification is not just procedural it is the operational backbone of the reform."

Also under the Income Tax Rules, 2026, you need to disclose your relationship with the landlord in Form 124.

Income Tax Rules, 2026: Rule 279 HRA

HRA tax exemption is least of the following:

• Actual amount of HRA received,
• The amount of actual house rent paid by the salaried person for renting a residential accommodation minus one-tenth of the salary
• 50% or 40% of the amount of salary

SI No.	Location of the residential accomodation	Percentage of salary
	Mumbai, Kolkata, Delhi, Chennai, Hyderabad, Pune, Ahmedabad and Bengaluru	50%
	Any other place	40%

Children Education and Hostel Allowances (only old tax regime)

The table below shows the new limits as written under the Income Tax Rules, 2026:

Allowance	Old Limit	New Limit
Children Education	Rs 100/month/child	Rs 3,000/month/child
Hostel Expenditure	Rs 300/month/child	Rs 9,000/month/child