With the Income-tax Act, 2025 set to be implemented from April 1, 2026, salaried individuals will see substantial changes in their taxation. From in-hand salary to exemptions for employer-provided gifts and house rent allowance (HRA), the new law brings an overhaul in the tax structure for this segment.
Tax experts say that changes in perquisite valuation and allowance exemptions will have a tangible impact on the tax outgo. “The taxable value of employer-provided cars has been significantly increased -- from ₹2,700/₹3,300 per month to ₹8,000/₹10,000 per month depending on engine capacity-- resulting in a higher taxable salary,” said Gaurav Makhijani, Partner at Makhijani Gera & Associates LLP.
The government has also revised perquisite rules under the Income-tax Rules, 2026 to include electric vehicles (EVs) at par with small cars. EVs used partly for personal purposes will attract a taxable value of Rs 5,000 or Rs 2,000 per month, depending on maintenance and chauffeur costs.
Reliefs provided
However, some relief has also been provided. The exemption for employer-provided gifts has been enhanced from Rs 5,000 to Rs 15,000 per annum, offering some respite to the salaried class. The new regime also proposes simpler perquisite valuation and higher tax-free limits on benefits. Exemptions now include employer-provided gifts up to Rs 15,000, meals up to Rs 200 per meal, and medical loans up to Rs 2 lakh.
There is also a substantial increase in several allowance exemptions. For instance, the Children Education Allowance and Hostel Expenditure Allowance limits have been significantly enhanced. The education allowance has been raised from Rs 100 per month per child (up to two children) to Rs 3,000 per month per child (up to two children). Similarly, the hostel expenditure allowance has been increased from Rs 300 per month per child to Rs 9,000 per month per child, for up to two children.
Another major relief comes in terms of HRA. When HRA was introduced in 1964, it aimed to meet employees’ rent-related expenses. The Income-tax law had recognised only four cities—Chennai, Kolkata, Mumbai, and New Delhi—as ‘metro cities’, where employees could claim HRA up to 50% of their basic salary. For other cities, the limit was 40%.
While the Government of India recognised cities such as Bengaluru, Coimbatore, Hyderabad, Kochi, Madurai, and Thiruvananthapuram as metros in 1993, the higher HRA benefit was not extended to them. Under the Income-tax Act, 2025, Bengaluru, Hyderabad, Pune, and Ahmedabad have now been added to the list, allowing employees in these cities to claim HRA up to 50% of their basic salary.
More disclosures
“HRA-related Form No. 124 explicitly seeks the relationship with the landlord. This means taxpayers will now have to disclose who they are paying rent to and under what capacity. This will help the tax department analyse patterns and identify cases where rent may be paid to parents, siblings, or close relatives for tax savings,” said Prabhakar K S, Founder & CEO, Shree Tax Chambers.
The form also mandates submission of a rent agreement and PAN (Aadhaar not required) if the annual rent exceeds Rs 1 lakh. In case of non-compliance, employers are required to deduct TDS without allowing HRA claims.