New income-tax rules may revive interest in old regime for high-income salaried taxpayers

Subscribe to enjoy similar stories. As part of the Income Tax Rules, 2026, notified last week, the government has proposed three key changes that may tilt the needle towards the old tax regime again. First, the children’s education allowance exemption is to be increased sharply from a token ₹100 per month per child to ₹3,000 per month per child.

Second, the hostel expenditure allowance exemption is to be enhanced from ₹300 per month per child to ₹9,000 per month per child. Third, Bengaluru, Pune, Hyderabad and Ahmedabad could be classified as metro cities for house rent allowance (HRA) purposes, making residents eligible for a 50% HRA exemption and bringing the exemption limit for residents of these cities on par with Delhi, Mumbai, Kolkata and Chennai. Individually, each change appears incremental.

Combined, however, they could prompt a section of salaried individuals to reconsider the old tax regime again in the upcoming financial year, particularly those in high-rent urban centres with school- or college-going children.

The proposals are open for public consultation till 22 February and are expected to come into effect starting 1 April. Under the revised framework, a salaried individual can now claim up to ₹36,000 annually per child as education allowance ( ₹3,000 per month), capped at two children—translating to ₹72,000 per year for families with two school- or college-going children. For hostel expenditure, the exemption now extends to ₹9,000 per month per child, or ₹1.08 lakh annually per child, again for up to two children.