New rules under Income-Tax Act increase allowances, change perks, revise PF, impacting salaried employees take-home pay
New Income Tax Rules: The new Income-Tax Act 2025 has come into effect from April 1, 2026, along with the start of the financial year 2026-27. The new rules are expected to affect salaried employees, especially those who follow the old tax regime, as several allowances and corporate perks have been revised.
However, there is no change in income tax slabs from April 1. The government did not announce any change in tax slabs during the Union Budget 2026 India presented by Nirmala Sitharaman. Later notifications under the Income Tax Act, 2025 and Income Tax Rules, 2026 also did not mention any revision in tax slabs for both old and new tax regimes.
Despite no change in tax slabs, several changes in allowances, corporate benefits, taxes and labour laws may increase or decrease your in-hand salary.
Table of contents
- New rules under Income-Tax Act increase allowances, change perks, revise PF, impacting salaried employees take-home pay
- Higher Children’s Education Allowance
- Hostel Allowance Increased
- HRA Exemption Expanded To More Cities
- Corporate Meal Card Benefits Increased
- Corporate Gift Benefits Increased
- Transport Allowance Increased
- Corporate Loans To Be Taxed
- Company Car Use Becomes Costlier
- Securities Transaction Tax Increased
- Share Buyback Tax Changes
- Changes In Tax Collected At Source (TCS)
- Labour Codes May Reduce Take-Home Salary
- No Change In Tax Slabs
- Overall Impact On Salaried Employees
Higher Children’s Education Allowance
The exemption for children’s education allowance has been increased significantly.
Earlier: ₹100 per month per child
Now: ₹3,000 per month per child
This means employees with children may receive more tax-free income under the old tax regime.
Hostel Allowance Increased
The government has also increased hostel expenditure allowance.
Earlier: ₹300 per month per child
Now: ₹9,000 per month per child
This will benefit employees whose children stay in hostels, as a higher amount will now be tax-free.
HRA Exemption Expanded To More Cities
House Rent Allowance (HRA) exemption has been expanded to four additional cities:
- Ahmedabad
- Bengaluru
- Hyderabad
- Pune
These cities will now get 50% HRA exemption under the old tax regime. Earlier, only the following cities were included:
- Delhi
- Mumbai
- Chennai
- Kolkata
Employees living in these eight cities may now receive higher tax-free HRA benefits.
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Corporate Meal Card Benefits Increased
According to reports, the exemption for free food and non-alcoholic beverages provided by employers has been increased.
Corporate meal cards such as Sodexo and Pluxee may now be tax-free up to ₹200 per meal, compared to the earlier ₹50 per meal.
This change may increase tax-free salary benefits for employees receiving meal cards.
Corporate Gift Benefits Increased
According to reports, the exemption for corporate gift cards, gift certificates or coupons may be increased to ₹15,000 per year under the old tax regime.
This may allow employers to provide higher tax-free gift benefits to employees.
Transport Allowance Increased
According to reports, the exemption for employees working in transport systems may be increased.
Earlier: ₹10,000 per month or 70% of allowance
Now: ₹25,000 per month or 70% of allowance
This change may increase tax-free income for eligible employees.
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Corporate Loans To Be Taxed
The new rules state that corporate loans with no interest or lower-than-market interest will now be taxed. The tax will be calculated based on the difference between the State Bank of India lending rate and the actual interest charged.
However, some loans will remain tax-free:
- Corporate loans below ₹2 lakh
- Loans taken for medical emergencies
Earlier, the tax-free loan limit was ₹20,000, which has now been increased to ₹2 lakh.
Company Car Use Becomes Costlier
Taxes on company vehicles used for personal and official purposes have increased.
- ₹8,000 per month tax for cars up to 1.6-litre engine
- ₹10,000 per month tax for cars above 1.6-litre engine
- If a chauffeur is provided, an additional ₹3,000 per month will be added to taxable income.
Tax expert Nitin Kaushik said that if an employer provides a 1.8-litre SUV for mixed use, the taxable value may increase from around ₹2,400 to ₹7,000 per month. With chauffeur charges, taxable income may increase further.
According to him, this change may add more than ₹1.2 lakh annually to taxable income for senior executives.
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Securities Transaction Tax Increased
The government has increased Securities Transaction Tax (STT) for equity derivatives.
Futures: 0.02% increased to 0.05%
Options: 0.10% increased to 0.15%
This change will increase trading costs for futures and options traders.
Share Buyback Tax Changes
From April 1, any money received from buyback of shares will now be taxed as capital gains.
Promoter shareholders will also have to pay differential buyback tax:
Corporate promoters: 22%
Non-corporate promoters: 30%
Changes In Tax Collected At Source (TCS)
The government has revised Tax Collected at Source rates to simplify compliance and reduce refund delays.
TCS Increased:
Alcoholic drinks: 1% increased to 2%
TCS Reduced:
- Overseas tour packages reduced to 2% from 5% and 20%
- Overseas remittance under Liberalised Remittance Scheme reduced to flat 2%
- Education remittance abroad reduced from 5% to 2%
- Medical treatment abroad reduced from 5% to 2%
Labour Codes May Reduce Take-Home Salary
New labour laws may also affect in-hand salary.
Under the new labour codes, companies must pay at least 50% of salary as basic pay. This may increase provident fund contributions.
Higher PF contribution means lower in-hand salary but better retirement savings.
The law requires companies to contribute at least ₹1,800 monthly to provident fund for employees earning ₹15,000 or more.
Many companies currently contribute 12% of basic salary. If basic pay increases, PF contribution will also increase.
To balance salary costs, companies may reduce special allowances or flexible benefits.
No Change In Tax Slabs
Although several rules have changed, income tax slabs remain unchanged under both old and new tax regimes.
The changes mainly affect salary structure, allowances and corporate perks rather than tax rates.
Overall Impact On Salaried Employees
Some employees may see higher take-home salary due to increased allowances and exemptions. However, others may see lower in-hand salary due to:
- Higher provident fund contributions
- Increased taxable corporate perks
- Salary restructuring under labour codes
The final impact will depend on salary structure, employer policies and tax regime selected by employees.
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