New tax regime update: Will child education & hostel allowances get bigger tax benefits? What you need to know

Under New Income Tax Rules, 2025, there have been major increases in tax benefits like child education allowance and child hostel allowance. The government has raised child education allowance from Rs 100 per month to Rs 3,000 per month, and the child hostel allowance has jumped from Rs 300 per month to Rs 9,000 per month. The revised rates are per child for a maximum of two children. But do taxpayers under the new tax regime also get these benefits? Let’s find out-

What are the changes related to child education allowance and child hostel allowance under the new income tax rules?

Abhishek Soni, founder and CEO, Tax2Win explains, under the new income tax rules, the exemption limits have been significantly increased:


●Child education allowance: from Rs 100 to Rs 3,000 per month per child

●Child hostel allowance: from Rs 300 to Rs 9,000 per month per child

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Revised limits of child education allowance, hostel allowance

Allowance Type	Limit	Basis	Old Limit	New Limit
Child education allowance	Maximum 2 children	Per month per child	₹ 100	₹ 3,000
Child hostel allowance	Maximum 2 children	Per month per child	₹ 300	₹ 9,000

Are taxpayers under the new tax regime also eligible to get tax benefits on child education allowance, child hostel allowance?

Sanjay Kumar, director, Nangia Global, explained to ET Wealth Online that these allowances continue to be available only under the old tax regime, as the new tax regime generally does not permit most exemptions and deductions. Therefore, taxpayers opting for new regime would not be eligible for these enhanced benefits.

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Who can get tax benefits of child education and child hostel allowances under the old tax regime?

Soni says only salaried employees can claim these two allowances. It is only available for up to two children and must be part of your salary structure.

Kumar says children's education allowance applies to expenses incurred towards the education of children, while the hostel allowance comes into play when the child stays in a hostel and related expenses are incurred.

How new allowance rates can cut the tax outgo in a financial year for a taxpayer following the old tax regime.

Giving an example, Soni says, suppose you have 2 children:

●Education allowance: Rs 3,000 × 2 × 12 = Rs 72,000

●Hostel allowance: Rs 9,000 × 2 × 12 = Rs 2,16,000

Total exemption = Rs 2,88,000

“This amount reduces your taxable salary, which can lead to significant tax savings, especially for mid- to high-income taxpayers,” explains Soni.

Kumar reveals that for a taxpayer in the 30% tax bracket, a Rs 2,88,000 enhanced limit could translate into a tax saving of approximately Rs 83,520, excluding surcharge and cess.

Below is the comparative table of tax liability under various scenario (As per Sanjay Kumar)

Particulars	Old regime under old IT Rules 1961	Old regime under new IT Rules 2026	New regime under new IT Rules 2026
Basic Salary + DA	17,50,000	17,50,000	17,50,000
Less: Standard Deduction	-50,000	-50,000	-75,000
House Rent Allowance (HRA)	7,00,000	7,00,000	7,00,000
Less: Exemption	-4,25,000	-4,25,000	-
Child Education Allowance	2,00,000	2,00,000	2,00,000
Less: Exemption	-2,400	-72,000	-
(up to INR 100 / INR 3,000 per month)
Child Hostel Allowance	2,20,000	2,20,000	2,20,000
Less: Exemption	-7,200	-2,16,000	-
(up to INR 300 / INR 9,000 per month)
Other Allowances	6,30,000	6,30,000	6,30,000
Gross Total Income	30,15,400	27,37,000	34,25,000
Less: Deduction under Chapter VIII
- 80C/ 123 - Investment in PFF	-1,50,000	-1,50,000	-
- 80CCD(1) / 124 - Employee contribution to NPS	-50,000	-50,000	-
- 80D / 126 - Medical insurance premium	-75,000	-75,000	-
Total Income	27,40,400	24,62,000	34,25,000
Tax liability before surcharge and cess	6,34,620	5,51,100	6,07,500

How can an employee make these allowances part of their salary?

Soni says an employee cannot claim it separately. It must be:

●Included by the employer in the salary structure (CTC)

●Shown as “Child Education Allowance” / “Hostel Allowance” in salary breakup

If your salary doesn’t include these components, you can request your HR to restructure your salary to include these components.

Kumar explains employees should communicate their intention to claim these allowances at the beginning of the financial year, particularly during the annual compensation restructuring or tax declaration process and provide the required details.

“Employees should maintain and submit supporting documents such as proof of children's school enrolment, fee receipts or hostel accommodation documents as may be required by the employer for payroll records and tax withholding purposes,” says Kumar.