The new Income Tax (I-T) Act is set to come into effect tomorrow, on 1 April 2026, with the new financial year 2026-27 and is likely to impact salaried employees, especially under the Old Tax regime.
The new rules provide higher exemptions for an additional four new cities besides increasing allowances for children’s education and hostel expenditure, meal cards, gift coupons and conveyance, among others.
Notably, there are no changes in the income tax slabs from 1 April. This is because during Budget 2026, there was no announcement of a change in the income tax slabs under both old and new income tax regimes. In the subsequent notifications of the Income Tax Act, 2025, and Income Tax Rules, 2026, there was also no mention of a change in the tax slabs.
Here’s how new I-T Act could impact your corporate perks:
- The exemption for children’s education allowance has increased from ₹100 per month to ₹3,000 per month, per child.
- Hostel Expenditure Allowance has also been raised from ₹300 per month to ₹9,000 per month, per child.
- House Rent Allowance (HRA) limit has been expanded to include four additional cities — Ahmedabad, Bengaluru, Hyderabad and Pune, for 50% exemption from previous 40% for the tax computation under the old regime. The list already included Chennai, Delhi, Kolkata and Mumbai.
- Exemption limit for free food and non-alcoholic beverages provided by an employer to an employee (i.e. corporate meal cards such as Pluxee and Sodexo) has been increased to tax-free status up to ₹200 per meal, under the Old Tax regime, from the previous ₹50 per meal limit.
- Exemption for corporate gift cards, gift certificates or coupons has been increased up to ₹15,000 each year under the Old Tax regime.
- The exemption for the allowance granted to employees working in any transport system has been enhanced from ₹10,000 per month or 70% of the allowance, whichever is lower, to ₹25,000 per month or 70% of the allowance, whichever is lower.
- Further, corporate loans with no interest or interest rates below the market rate will be taxed, based on the difference between the State Bank of India’s lending rate and the actual rate charged, subject to certain exceptions.
- Corporate loans less than ₹2 lakh and those taken for medical emergencies remain tax-free. This is increased from previous small loan limit of ₹20,000.
Has any cost or taxes been increased?
Yes, there is also an increase in taxes for the use of corporate vehicles for work and personal activities. Tax of ₹8,000/month will be applicable on cars with engines up to 1.6 litre; and ₹10,000/month for bigger vehicles under both Old and New Tax regimes.
CA Nitin Kaushik explained, “If your employer provides a 1.8L engine SUV for mixed use, the taxable perquisite value is spiking from roughly ₹2,400 to ₹7,000 per month. Add a chauffeur, and you’re looking at another ₹3,000 monthly hit (up from ₹900). For a senior executive, this simple shift could add over ₹1.2 Lakh to your taxable income annually, effectively canceling out any minor slab benefits.”
Further, the Centre has hiked Securities Transaction Tax (STT) for the equity derivatives segment that will impact futures and options (F&O) traders. This tax is levied on every purchase and sale of securities, such as equity shares, futures and options on recognised stock exchanges.
STT on futures will be increased to 0.05% from 0.02%, and on options transactions will be raised to 0.15% from 0.1%, from 1 April.
And any amount received from the buyback of shares will be taxed as capital gains from 1 April. 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.
Changes to Tax Collected at Source
The Budget rationalised Tax Collected at Source (TCS) to ease compliance, reduce refund delays, and address confusion among taxpayers, with effect from April.
- TCS rates on alcoholic drinks is increased from 1% to 2%.
- TCS rate on overseas tour packages has been reduced from the current 5% and 20% to 2%.
- TCS rates on remittance under Liberalised Remittance Scheme (LRS) for overseas tour package have been reduced to a single flat rate of 2% without threshold from the existing dual rate of 5% and 20%.
- TCS rate for remittance under LRS for education and medical treatment has been reduced from 5% to 2%.
Labour Codes may also impact in-hand salary
Further, your take-home salary is also likely to be reduced if the new labour laws come into effect in the new financial year. Under the ‘wages’ section of the four new labour codes brought in by the government, companies will now have to pay at least 50% of your salary as the basic wage component. This means that your provident fund contribution will increase, effectively reducing in-hand salary.
- The law requires companies to make a minimum monthly provident fund (PF) contribution of ₹1,800 for employees earning ₹15,000 or more. Any contribution above ₹1,800 is purely the company’s choice, and the new law doesn’t change that minimum.
- Notably, in practice, many companies contribute 12% of an employee’s basic pay to PF, so if they raise basic pay, it could increase the PF contribution and, ultimately, the monthly take-home salary.
- For the catch-all “special allowance”, “supplementary allowance” or “flexi-benefit”, the new labour code directs for this to be included in wages. Most companies that plan to increase their basic pay will likely cut this allowance to maintain the same overall pay.
Disclaimer: This article is for informational purposes only and should not be construed as tax advice. Readers are advised to consult a qualified tax professional or refer to official Income Tax Department resources before filing their returns.