Starting April 1, the new Income Tax Act has come into effect, potentially having an impact on employees' in-hand salary. The new rules introduce higher exemptions for certain expenses, prompting companies to adjust salary components and allowances. These changes, including increased benefits for education, meals, gifts, and conveyance, may affect take-home pay, giving employees slightly higher disposable income.
To be clear, the income tax slabs remain unchanged even with the new rules. This is because no announcement regarding tax slab changes was made during the Budget 2026 presentation by Finance Minister Nirmala Sitharaman.
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What Changes?
Under the new I-T Act, children's education allowance has been increased from Rs 100 to Rs 3,000 per month per child. Additionally, hostel allowance has also been increased from Rs 300 to Rs 9,000 per month per child.
House Rent Allowance (HRA) with higher exemption now includes four additional cities. Employers in Ahmedabad, Bengaluru, Hyderabad, and Pune will now offer 50% exemption under the old tax regime. This is an increase compared to 40% allowance earlier. The list already included Chennai, Delhi, Kolkata and Mumbai.
Under the new rules, corporate meal cards such as Sodexo now have a tax-free limit of Rs 200 per meal, up from Rs 50 earlier, under the old tax regime. Corporate gift cards, certificates or coupons are now tax-exempt up to Rs 15,000 per year under the old tax regime.
The tax exemption for transport allowance has increased from Rs 10,000 per month (or 70% of allowance) to Rs 25,000 per month (or 70% of allowance), giving employees higher tax-free benefits for commuting. This rule is also applicable under the old tax regime.
Corporate loans with no or below-market interest will be taxed on the difference from the SBI lending rate, subject to certain exceptions. Loans under Rs 2 lakh or for medical emergencies will remain tax-free, up from the previous Rs 20,000 limit.
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Higher Taxes On Some Perks
In addition to these changes, some costs and taxes have also increased under the new IT rules. For instance, using corporate vehicles for work and personal use, will now attract a higher taxable perquisite value. For cars with engines upto 1.6 litres, this taxable value stands at Rs 8,000. For larger vehicles with engines above 1.6 litres, the taxable perquisite value is set at Rs 10,000 per month.
Explaining the new rules, CA Nitin Kaushik told Livemint: “If your employer provides a 1.8L engine SUV for mixed use, the taxable perquisite value jumps from roughly Rs 2,400 to Rs 7,000 per month. Add a chauffeur, and you're looking at another Rs 3,000 monthly hit (up from Rs 900 earlier)." This means that the enhanced taxable perquisite for using corporate vehicles will result in higher taxable income, which could impact senior company executives.
Additionally, the Centre has also raised the Securities Transaction Tax (STT) for equity derivatives. STT on futures will rise from 0.02% to 0.05%, and on options from 0.1% to 0.15%, which is set to affect F&O traders. The rules also mandate that amounts received from share buybacks will now be taxed as capital gains. Further, promoter shareholders will have to pay a “differential buyback tax” with an effective rate of 22% for corporate promoters and 30% for non-corporate promoters.
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