The Centre’s draft Income Tax Rules, 2026, released last week, propose a set of revisions that may revive interest in the old tax regime among salaried taxpayers. While the new regime has gained traction due to lower slab rates and fewer compliance requirements, the latest proposals aim to sweeten the old structure by sharply enhancing select exemptions.

The changes are currently open for public feedback until 22 February and, if finalised, will take effect from 1 April.

Bigger Relief On Education, Hostel And HRA

The most striking revision is the steep increase in children’s education allowance. The exemption, earlier capped at just Rs 100 per month per child, is proposed to rise to Rs 3,000 per month per child. This translates to Rs 36,000 annually per child, up to a maximum of two children, Rs 72,000 per year for eligible families.

Similarly, the hostel expenditure allowance could jump from Rs 300 per month per child to Rs 9,000 per month per child. That means an annual exemption of Rs 1.08 lakh per child, again limited to two children.

Another potentially game-changing move is the proposed metro classification of Bengaluru, Pune, Hyderabad and Ahmedabad for HRA purposes. If implemented, residents of these cities would qualify for a 50 per cent basic pay cap for HRA exemption—bringing them at par with Delhi, Mumbai, Kolkata and Chennai.

“These benefits are only available in the old regime and not in the new regime, so yes, these will definitely play an increased role now in making the choice," said Mayank Mohanka, founder of TaxAaram India and partner at S.M. Mohanka & Associates, in a report from Mint.

When Does The Old Regime Make Sense?

For individuals earning between Rs 14 lakh and Rs 24 lakh annually, deductions typically need to range from about Rs 5.18 lakh to Rs 7.87 lakh for the old regime to compete with the new one. At Rs 25 lakh and above, deductions exceeding Rs 8 lakh may tip the balance.

A Bengaluru-based employee earning Rs 30 lakh annually, paying Rs 60,000 in monthly rent and supporting two children, one in school and one in a college hostel, illustrates the impact. Under the revised allowances, total deductions could rise to Rs 9.8 lakh, potentially resulting in tax savings of Rs 39,000 compared to the new regime, assuming all exemptions are fully claimed.

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