Allowances & Perquisites under OLD tax regime for 1.04.2026

The Income‑Tax Rules, 2026, notified by the Central Board of Direct Taxes  and effective from 1 April 2026, do introduce major revisions in the valuation and exemption limits of certain allowances and perquisites, mainly under the OLD tax regime. Central Board of Direct Taxes has notified the Income‑Tax Rules, 2026, modernizing long‑pending limits for allowances and perquisites to reflect current economic realities. Key Highlights:

• House Rent Allowance: 50% salary benefit extended to Bengaluru, Hyderabad, Pune & Ahmedabad—House Rent Allowance: 50% limit extended to more cities
• Children’s Education Allowance: INR 3,000 per month per child (up to 2 children)
• Hostel Allowance: INR 9,000 per month per child
• Interest‑free / concessional loans: Exempt up to ₹200,000
• Meal vouchers & gifts: Higher permissible limits
• Motor car & driver perquisites: Revised valuation norms (higher taxable value), Meal vouchers, gifts, and motor car perquisites: Valuation limits updated to realistic levels

These changes do not automatically reduce tax in all cases. Some perquisites (like a company car & driver) may result in a higher taxable salary. Effective from 1 April 2026.

Critical Insight: Allowances & Perquisites under Old vs New Regime

For 2026, changes clearly revive old-regime attractiveness for salaried employees. This blog implies that all limits are “new exemptions” or “extra tax‑free benefits,” which is not fully accurate:

1. Many figures shown are revised valuation rules for perquisites: Higher limits do not always mean lower taxes (especially for company car & driver perquisites). In fact, taxable value increases in some cases.
2. These benefits are largely relevant only under the OLD tax regime: house rent allowance, education allowance, meal coupons, etc. are not available under the new regime.
3. This is not a budget announcement: These are rule‑based changes under the Income‑Tax Act, 2025, replacing outdated limits last revised decades ago.

Income tax Strategic View for Financial Year 2026-27 under Old Regime

These changes are part of the transition from the Income Tax Rules, 1962, to the Income‑Tax Rules, 2026, notified on 20 March 2026. The govt. has significantly enhanced allowances under the Old Regime, like

• Children Education Allowance → INR  3,000/month
• Hostel Allowance → INR 9,000/month
• Meal Allowance → INR 200 per meal
• Gift Exemption → INR 15,000

These are not cosmetic changes; they can shift the decision entirely. Based on the latest changes:

• Under the New regime = default + simpler + lower tax
• However, under the old regime, it was a planning-based tax-saving tool
• As per recent developments, taxpayers must recalculate both before choosing. Tax planning under the OLD vs NEW regime becomes even more important from FY 2026‑27.

Section 3 – Definition of “Tax Year” | New Income Tax Act, 2025