The government’s Draft Income Tax Rules 2026 have brought a pleasant surprise for salaried taxpayers who prefer the old tax regime. These proposed rules—likely effective from 1 April 2026—enhance key exemptions under the old system, making it more attractive relative to the newer tax regime.
Even though the new regime continues to offer low tax rates, updated exemptions like higher HRA and education allowances may push many taxpayers to favour the old regime again.
Why Old Tax Regime Is Becoming More Attractive
Salaried employees who previously chose the new tax regime due to simplicity might now reconsider the old regime because of these enhanced exemptions:
📌 1. Higher house Rent Allowance (HRA) Benefits
Under the draft rules:
- Certain additional cities like Bengaluru, Hyderabad, Pune, and Ahmedabad may now be eligible for 50% HRA exemption instead of 40%, giving larger tax deductions for rent paid.
This change especially helps professionals living in high‑rent urban areas.
📌 2. Big Increase in education & Hostel Expense Exemptions
Previously, the education allowance exemption was only ₹100 per month per child, and hostel allowance was ₹300 per month. The draft proposal now suggests:
- Education allowance: ₹3,000 per month per child
- Hostel allowance: ₹9,000 per month per child
These are substantial increases that can reduce taxable income if you have school‑going children.
These higher exemptions apply only if taxpayers choose the old tax regime.
How Much Tax You Can Save
According to tax experts’ analysis:
➡️ Combined benefits from higher HRA and education/hostel exemptions may help high‑income earners save up to ₹1.4 lakh or more in taxes under the old regime compared to before.
However, whether you’ll actually save more depends on your income level, city of residence, and how many tax deductions you qualify for.
Old Regime vs New Regime: Which Is Better?
🧮 New Tax Regime
✔ Lower slabs for most incomes
✔ Simple, no exemptions/deductions required
✔ Especially good for middle‑income earners with few deductions
💡 Old Tax Regime
✔ Higher exemptions for HRA, children’s education, hostel fees
✔ Still allows deductions under sections like 80C (investments), 80D (health insurance)
✔ May be better for higher‑income taxpayers with large deductions or rent payments
The revised exemptions under the draft rules make the old tax regime a strong competitor again—especially for those whose HRA and school/college expenses are significant.
Important Points Before You Decide
📌 You can switch between old and new tax regimes at the time of filing your tax return each year.
📌 Decide based on actual deductions and exemptions you can claim—what saves tax for one person may not for another.
📌 Higher HRA and education allowances only apply if you choose the old tax regime.
Summary: What’s Changing from april 2026
Feature
Old Tax Regime (Draft 2026 Rules)
New Tax Regime
HRA exemption
Up to 50% for more cities
Not available
Children’s education
₹3,000/month
Not available
Hostel expenses
₹9,000/month
Not available
Simplicity
More complex but valuable
Simple, low slabs
Who benefits most
High‑income with deductions
Middle class with few deductions
Final Takeaway
The government’s latest draft tax rules are making the old tax regime more appealing again, especially through enhanced HRA and education exemptions effective from April 2026. Populations in metro cities and taxpayers with school‑age children may find notable savings under the old regime—if they plan wisely.
Disclaimer:
The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of any agency, organization, employer, or company. All information provided is for general informational purposes only. While every effort has been made to ensure accuracy, we make no representations or warranties of any kind, express or implied, about the completeness, reliability, or suitability of the information contained herein. Readers are advised to verify facts and seek professional advice where necessary. Any reliance placed on such information is strictly at the reader’s own risk.
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