Income Tax Draft Rules, 2026 update: Good news for income tax payers. The income tax department has proposed changes to various monetary allowances under the Income Tax Draft Rules, 2026. In the recent update, the central government shared the new Income Tax Draft Rules, 2026 to raise tax exemptions on different employee allowances. Many of these limits have not changed for decades, and some updates are expected this year. Here are all the details you need to know about the new Income Tax Draft Rules, 2026.
What are the HRA benefits expected under the Income Tax Draft Rules?
One major change expected under the new Income Tax Draft Rules, 2026, is in House Rent Allowance (HRA). The change suggests that cities like Hyderabad, Ahmedabad, Pune, and Bengaluru may now be treated as metro cities. This would be in addition to Mumbai, Delhi, Kolkata, and Chennai. As a result, employees in these cities could claim HRA exemption on 50% of their salary instead of 40%. This change would provide them with higher tax benefits.
What can be expected in transport allowance and children’s education allowance? According to a report by News 18, the draft also increases the exemption limits for transport allowance, children’s education allowance, hostel allowance, disability transport allowance, and underground allowance. For instance, the education allowance may go up from Rs 100 to Rs 3,000 per child each month, and the hostel allowance may rise from Rs 300 to Rs 9,000. Overall, the changes in the new Income Tax Draft Rules, 2026 aim to offer better financial support to employees.
Centre seeks inputs on proposed income tax rules and forms
In an update from the first week of February, reports stated that the government is gathering feedback from various groups on the rules and forms in the Income-tax Act, 2025, which will take effect on April 1, 2026.
To encourage broader participation before the final announcement of the Income Tax Rules and Forms, the proposed documents have been posted on the official website. The Finance Ministry mentioned this in a recent statement, according to a report by IANS.
“The corresponding Income-tax Rules and related Forms have been prepared after extensive consultation to match the provisions of the Income-tax Act, 2025. Stakeholders are invited to review these documents and provide suggestions, which will be collected and considered before the final notification,” said the CBDT in its announcement.
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