Salary Tax Changes from 1 April 2026: Standard Deduction ₹75,000, Higher Allowances & Expanded HRA Explained
Posted by Gaurav Verma | 31 March 2026
- Standard deduction rises to ₹75,000 under the new tax regime → effective zero tax up to ₹12.75 lakh for salaried taxpayers.
- Children Education Allowance jumps to ₹3,000/month/child and Hostel Allowance to ₹9,000/month/child (max 2 children).
- HRA exemption at 50% now available in 8 major cities (including Bengaluru, Pune, Hyderabad & Ahmedabad).
- Old tax regime becomes more attractive for many due to higher allowances.
- Form 16 is replaced by Form 130 from FY 2026-27.
From 1 April 2026 (Tax Year 2026-27), the new Income-tax Act, 2025 and Income-tax Rules, 2026 come into force. While tax slabs remain unchanged, salaried employees will see meaningful relief through higher deductions, revised allowance limits and expanded HRA benefits. These changes are expected to reduce taxable income and improve take-home pay for millions.
Here is a clear, practical summary of all salary-related income tax changes effective 1 April 2026.
1. Standard Deduction Increased to ₹75,000 (New Regime)
Salaried individuals and pensioners can now claim ₹75,000 as standard deduction in the new tax regime (up from ₹50,000).
Combined with the rebate under Section 87A, this makes income up to ₹12.75 lakh effectively tax-free.
2. Major Increase in Tax-Free Allowances (Old Regime)
The new Rules 2026 have substantially raised exemption limits on common allowances. These apply under the old tax regime and will directly lower your taxable salary.
| Allowance | Old Limit | New Limit (w.e.f. 01.04.2026) | Max Children | Annual Tax-Free Benefit Increase (for 2 children) |
|---|---|---|---|---|
| Children Education Allowance | ₹100/month/child | ₹3,000/month/child | 2 | ₹69,600 |
| Hostel Allowance | ₹300/month/child | ₹9,000/month/child | 2 | ₹2,07,600 |
| Free Food / Meal Vouchers | ₹50/meal | ₹200/meal | – | – |
| Non-cash Gifts / Vouchers | ₹5,000/year | ₹15,000/year | – | – |
Action tip: Ask your HR to restructure your salary components from April 2026 to fully utilise these higher limits.
3. Car Perquisite Valuation Updated (Leased Cars)
• Engine capacity < 1.6L → ₹5,000/month + ₹3,000 (driver)
• Engine capacity > 1.6L → ₹7,000/month + ₹3,000 (driver)
The increase is modest and still remains reasonable compared to actual costs.
4. HRA Exemption Expanded to 8 Cities (50% Benefit)
From 1 April 2026, the 50% HRA exemption (instead of 40%) now covers:
Delhi, Mumbai, Chennai, Kolkata, Bengaluru, Pune, Hyderabad, Ahmedabad.
If you live and work in any of these 8 cities, you can claim significantly higher HRA exemption.
Compliance note: Tax authorities may require landlord PAN and rent agreement in select cases. Keep your documents ready.
5. New Form Numbers for Salaried Taxpayers
- Form 16 → Form 130 (Salary TDS Certificate)
- Form 12BB → Form 124 (Declaration of deductions/allowances)
- Form 16A → Form 131
- Form 26AS → Form 168
Your employer will issue Form 130 for FY 2026-27 onwards.
Real-Life Example: How Much Will You Save?
Mr. Rajesh (Salary ₹12 lakh p.a., lives in Bengaluru, 2 school-going children, claims HRA + allowances)
| Particulars | Old Limits (Before 1 Apr 2026) | New Limits (From 1 Apr 2026) | Tax Saving |
|---|---|---|---|
| Standard Deduction | ₹50,000 | ₹75,000 | ₹7,500 |
| Children Education + Hostel Allowance | ₹8,400 | ₹2,88,000 | ₹83,700 |
| HRA Exemption (50% in Bengaluru) | Limited | Higher | ₹18,000 |
| Total Annual Tax Saving | – | – | ₹1,09,200 |
Even after paying the same basic salary, Rajesh’s take-home pay increases by over ₹9,000 per month.
Old vs New Tax Regime – Which One Should You Choose?
- New Regime → Simpler, higher standard deduction, but no major deductions/exemptions. Best if your deductions are low.
- Old Regime → Now far more attractive because of the sharp increase in allowances, expanded HRA and other exemptions. Ideal for those with HRA, children’s education/hostel, car facility or home loan.
Quick tip: Run your numbers on our free Income Tax Calculator (link coming soon on gauravverma.com) to see which regime saves you more.
What Should You Do Before 1 April 2026? (Action Checklist)
- Discuss salary restructuring with HR for the new allowance limits.
- Update your investment and allowance declarations in the new Form 124.
- Compare Old vs New regime for FY 2026-27.
- Keep rent agreements and landlord PAN ready for HRA claims.
These changes are genuinely taxpayer-friendly and reflect the government’s focus on simplifying compliance while giving real relief to the salaried class.
Need a personalised tax-saving plan for FY 2026-27?
Drop your salary structure or queries in the comments below or contact me directly through the form on gauravverma.com. I will personally review and suggest the best strategy for you.
More detailed guides coming soon:
→ Step-by-step HRA claim checklist
→ New Form 130 explained
→ Full Old vs New regime comparison calculator
Sources: Income-tax Act, 2025 & Income-tax Rules, 2026 (notified by CBDT)
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