The proposed Draft Income Tax Rules 2026 could significantly increase the amount of salary components that are exempt from tax, potentially boosting take-home income for many salaried employees. If implemented, the new framework may nearly double the total exemption pool available under the old tax regime.
Exemption Pool Could Increase Sharply
Under the current rules, a salaried employee claiming various allowances and benefits can typically claim around Rs 6.9 lakh in exemptions. The draft rules propose increasing this pool to about Rs 12.08 lakh, which would substantially reduce taxable income for those who utilise these exemptions.
Impact on a Rs 30 Lakh Salaried Professional
For someone earning Rs 30 lakh annually, the proposed changes could translate into tax savings of nearly Rs 1.72 lakh per year, depending on how their salary structure is designed and which allowances they claim.
Allowance Limits May Be Updated
Many existing exemption limits have remained unchanged for decades and no longer reflect current living costs. The draft rules aim to revise several of these allowances, including:
Children’s education allowance
Hostel allowance for children
Meal and gift allowances
Transport and other employee benefits
Updating these limits could allow employees to claim higher tax-free benefits through employer-provided perks and reimbursements.
Old vs New Tax Regime
Salaried individuals will still be able to choose between the old tax regime, which offers multiple exemptions and deductions, and the new tax regime, which has lower tax rates but fewer deductions.
The draft rules are expected to particularly benefit taxpayers who structure their salary to include various allowances and reimbursements available under the old regime.
When the Rules Could Take Effect
The government released the draft rules for consultation and invited public feedback before final notification. If approved, the revised framework could come into force from FY 2026-27, potentially reshaping tax planning for salaried employees.
