In a major relief for salaried employees in India’s booming IT hubs, the Central Board of Direct Taxes (CBDT) has unveiled draft Income Tax Rules for 2026. The proposal expands the list of ‘metro’ cities eligible for 50% House Rent Allowance (HRA) exemption under the old tax regime, now including Bengaluru, Hyderabad, Pune, and Ahmedabad alongside Delhi, Mumbai, Kolkata, and Chennai.
Currently, only employees in the four largest metros enjoy the higher 50% HRA cap, while others are limited to 40%. This change levels the playing field for professionals in these fast-growing cities, where rental costs have skyrocketed amid rapid urbanization and job growth.
The draft also tweaks perquisite valuations. For employer-provided cars for partial private use, the notional taxable value rises sharply: Rs 8,000 per month for engines up to 1.6 liters (previously Rs 2,700) and Rs 10,000 for larger ones (up from Rs 3,300). This reflects updated economic realities and aims to curb tax evasion through undervalued perks.
On a positive note, tax-free meal allowances jump fourfold to Rs 200 per meal, gift exemptions rise from Rs 5,000 to Rs 15,000 annually, and tax-free employee loans expand from Rs 20,000 to Rs 2 lakh. These adjustments balance stricter car rules with broader relief for everyday benefits.
Tax experts hail the HRA expansion as a game-changer for middle-class workers in Tier-1 and emerging metros, potentially saving thousands in annual tax outgo. The draft is open for public feedback, signaling the government’s push for a fairer, more inclusive tax structure ahead of 2026 implementation.
As urban India grapples with housing affordability, this move underscores policy efforts to align tax benefits with real-life expenses, fostering economic equity across regions.