The new Income Tax (I-T) framework takes effect on April 1, 2026, marking the start of FY2026–27. The changes are expected to impact salaried employees—particularly those opting for the old tax regime—by
altering exemptions, allowances and the taxation of certain perks.
No Change in Tax Slabs
There is no change in income tax slabs from April 1. The Union Budget 2026 did not propose any revision in slab rates under either the old or new tax regimes, and subsequent notifications under the Income Tax Act, 2025, and Income Tax Rules, 2026, have also maintained the status quo.
Higher Exemptions for Allowances
Several exemptions linked to employee benefits have been significantly enhanced under the old tax regime.
The children’s education allowance has been increased from Rs 100 per month to Rs 3,000 per month per child. Similarly, the hostel expenditure allowance has been raised from Rs 300 per month to Rs 9,000 per month per child.
House Rent Allowance (HRA) rules have also been expanded, with Ahmedabad, Bengaluru, Hyderabad and Pune now qualifying for the higher 50 percent exemption category, up from 40 percent earlier. These cities join Chennai, Delhi, Kolkata and Mumbai in the higher exemption bracket.
Tax-free limits for employer-provided meals have also been increased. Meal cards such as those from Pluxee and Sodexo will now be tax-exempt up to Rs 200 per meal, compared to Rs 50 earlier.
The exemption limit for corporate gift cards, vouchers and coupons has been raised to Rs 15,000 annually.
Further, the allowance for employees working in transport systems has been enhanced from Rs 10,000 per month (or 70 percent of the allowance) to Rs 25,000 per month (or 70 percent, whichever is lower).
Corporate Loans and Perquisites Get Tweaked
Interest-free or concessional corporate loans will now be taxed based on the difference between the lending rate of State Bank of India and the rate charged to employees, subject to certain conditions.
However, loans below Rs 2 lakh and those taken for medical emergencies remain tax-exempt. This threshold has been significantly raised from Rs 20,000 earlier.
Higher Tax on Company-Provided Cars
Tax on employer-provided vehicles has increased under both tax regimes.
Employees using cars with engine capacity up to 1.6 litres will now face a taxable perquisite of Rs 8,000 per month, while larger vehicles will attract Rs 10,000 per month.
For instance, if an employee is provided a 1.8-litre SUV for mixed use, the taxable value could rise from about Rs 2,400 to Rs 7,000 per month. Adding a chauffeur increases the taxable value further, potentially adding over Rs 1.2 lakh annually to taxable income.
STT Hike to Impact Market Participants
From April 1, the government has also increased Securities Transaction Tax (STT) on equity derivatives.
STT on futures has been raised to 0.05 percent from 0.02 percent, while on options it has been increased to 0.15 percent from 0.1 percent. This will raise transaction costs for futures and options (F&O) traders.
Buybacks to Be Taxed as Capital Gains
From the new financial year, income received from share buybacks will be taxed as capital gains in the hands of investors.
Additionally, promoter shareholders will have to pay a differential buyback tax—22 percent for corporate promoters and 30 percent for non-corporate promoters.
Changes in Tax Collected at Source (TCS)
The government has rationalised Tax Collected at Source (TCS) rates to simplify compliance.
TCS on alcoholic beverages has been increased from 1 percent to 2 percent. On the other hand, TCS on overseas tour packages has been reduced to 2 percent from the earlier range of 5–20 percent.
Similarly, remittances under the Liberalised Remittance Scheme (LRS) for overseas travel, education and medical treatment will now attract a flat 2 percent TCS, replacing the earlier higher rates.
Labour Codes May Reduce Take-Home Pay
Separately, the implementation of new labour codes could also impact take-home salaries.
Under the revised wage definition, companies may be required to allocate at least 50 percent of total compensation as basic pay. This would increase provident fund contributions and reduce in-hand salary.
While the statutory minimum PF contribution remains Rs 1,800 per month for employees earning Rs 15,000 or more, many companies contribute 12 percent of basic pay. Any increase in the basic component could therefore lead to higher PF deductions.
At the same time, allowances such as special or flexi benefits may be adjusted downward to maintain overall compensation levels.
While tax slabs remain unchanged, the new rules significantly reshape how allowances, perks and benefits are taxed. For many salaried individuals—especially under the old regime—the changes could alter both tax liability and take-home pay from April 1.
