Income Tax Rules 2026: How Salaried Employees Can Save Up to ₹1.41 Lakh
The Draft Income Tax Rules 2026, released by the Government of India through the Income Tax Department, aim to simplify compliance and provide better tax-saving opportunities for salaried individuals. These proposed rules are expected to come into effect from 1 April 2026, after public consultation and final approval.
If implemented in their current form, taxpayers—especially salaried employees—may be able to reduce their annual tax outgo by up to ₹1.41 lakh through structured tax planning.
Let’s understand the key highlights.
1. Major Changes in HRA (House Rent Allowance)
One of the most significant updates is related to HRA exemption under the old tax regime.
Previously, only residents of four metro cities (Delhi, Mumbai, Kolkata, Chennai) were eligible for 50% of basic salary as HRA exemption. Under Draft Income Tax Rules 2026:
- Additional major cities may now qualify for higher HRA benefits.
- Salaried employees living in rented homes in selected urban areas can claim larger exemptions.
- This directly reduces taxable income.
Note: HRA benefits apply only under the Old Tax Regime.
This single change can significantly increase annual tax savings for urban salaried professionals.
2. PAN Rule Changes – Simplified but Stricter Where Needed
The draft rules also propose modifications in PAN (Permanent Account Number) requirements.
Key Highlights:
- Higher cash transaction limits before PAN becomes mandatory.
- PAN compulsory for high-value property purchases.
- PAN required for certain luxury spending above prescribed limits.
- Better monitoring of large financial transactions.
These changes aim to reduce compliance burden for small transactions while tightening oversight on large-value dealings.
3. Increased Tax-Free Perquisites for Employees
Another major relief comes in the form of improved limits for tax-free employee benefits:
- Higher daily exemption on meal vouchers.
- Increased exemption limit on employee gifts.
- Updated valuation norms for company-provided cars and facilities.
These adjustments align benefits with current inflation levels and allow salaried individuals to optimize their salary structure more efficiently.
When structured properly, perquisite exemptions can significantly reduce overall taxable income.
4. Simplified Compliance and Fewer Forms
The Draft Income Tax Rules 2026 also focus on:
- Streamlining income tax forms
- Reducing redundant compliance requirements
- Making tax filing more transparent and digital-friendly
This means fewer errors, faster processing, and reduced compliance stress for taxpayers.
5. How Can You Save ₹1.41 Lakh?
The estimated ₹1.41 lakh potential tax saving comes from combining:
- Enhanced HRA benefits
- Increased meal voucher exemptions
- Optimized salary restructuring
- Efficient use of old tax regime deductions
- Better compliance planning
The exact savings depend on:
- Your annual salary
- City of residence
- Rent paid
- Salary structure
- Choice of tax regime
Proper tax planning with these proposed rules can significantly reduce taxable income.
Old vs New Tax Regime: Which One Benefits More?
While the new tax regime offers lower tax rates, it does not allow most exemptions like HRA and perquisites.
If Draft Income Tax Rules 2026 increase exemption benefits under the old regime, many salaried individuals may find the old regime more attractive again.
A detailed comparison based on your income level is essential before choosing.
Implementation Timeline
- Draft released for public feedback
- Final rules expected after consultation
- Likely effective from April 1, 2026
Until officially notified, these remain proposed changes.
Conclusion
The Draft Income Tax Rules 2026 represent a strategic move toward simplifying taxation while enhancing benefits for salaried individuals. With better HRA rules, updated PAN norms, and increased employee benefit exemptions, taxpayers may significantly lower their tax burden.
If implemented effectively, structured planning under these rules could help eligible individuals save up to ₹1.41 lakh annually.
Now is the right time to review your salary structure and tax strategy before the financial year 2026 begins.