Your in-hand salary may change this April, and it is not just due to inflation. Marking the start of the Financial Year 2026-27, the new Income Tax Rules, taking effect from 1st April 2026, are here with some prominent changes.
These modifications, which range from updated TDS computations to more stringent reporting of benefits and deductions, are intended to streamline the tax system while boosting transparency. But what does that actually mean for you?
In this blog, we break down the major changes and explain how they could impact your monthly income and overall tax planning strategy.
Tax Slabs Remain Unchanged
A noteworthy point is that there are no changes to the slab rates under the new Union Budget proposal for 2026, be it in the old or new tax regime. The subsequent notifications under the Income Tax Act, 2025, and Income Tax Rules, 2026 have also been maintained the same.
Higher Exemptions on Allowance
A substantial increase in exemptions on various employee benefits under the old tax regime offers salaried professionals great tax relief.
The HRA (House Rental Allowance) has been broadened. Cities like Ahmedabad, Bangalore, Hyderabad, and Pune have joined the tier-I cities like Delhi and Mumbai in the higher 50 per cent exemption bracket from the previous 40 per cent.
An increase from ₹100 to ₹3000 (per child) per month is denoted in the children’s education allowance. Similarly, the hostel allowance has been raised from ₹300 to ₹9000 (per child) per month.
Allowances for employees in the transport sector have been enhanced from ₹10,000 per month (or 70% of the allowance) to ₹25,000 per month, or 70%, whichever is lower.
The tax cap for the employer-provided means has been boosted, with meal cards from companies such as Pluxee and Sodexo now exempt ₹200 instead of the earlier ₹50 per meal.
Corporate gift cards, coupons, and vouchers now have an exemption bracket of ₹15,000 p.a.
Changes in Corporate Loans and Prerequisites
The tax rules for employer-provided tax have been revised: Interest-free or subsidised loans will be taxed depending on the gap between the standard State Bank of India lending rates and rates offered to the employee. Though the same is subject to certain conditions.
That said, loans for medical emergencies and those below ₹2 Lakhs (increased significantly from the previous ₹20,000) will remain tax-free.
Boost in Tax on Cars Provided by the Company
The tax burden for employer-provided vehicles has gone up in both the new and old regimes.
An employee using a company car up to 1.6 litres will be taxable of ₹8,000 per month, while on vehicles above that engine limit will be taxed at around ₹10,000 per month. Additionally, a chauffeur, along with the vehicle, will attract a higher taxable value.
Higher Trading Costs for Stock Market Players
A shake-up is seen for the stock traders as the government has increased the STT ( Security Transaction Tax). The futures tax has more than doubled (going from 0.02 to 0.05 per cent), and the options tax has also seen a hike (1 per cent from 0.15 per cent).
New Tax Rule on Share Buybacks
In FY 2026, income received from buybacks will be taxed as capital gains for the investors.
Also, company promoters (major shareholders) will have to pay extra tax on such buybacks, depending on their category.
Changes in Tax Collected at Source
The government has simplified TCS with the following changes:
TCS for alcohol has gone from 1 to 2 per cent.
Foreign tour packages have become cheaper due to a decrease in TCS to 2 per cent from earlier higher rates.
Additionally, sending money abroad for travel, education, and medical needs will now be charged a 2 per cent TCS.
Labour Law Changes May Reduce Your Salary in Hand
New labour rules might also affect your in-hand salary.
Companies may now have to make at least 50% of the compensation as “basic pay.”
Since the provident fund (PF) is calculated on basic pay, this means your PF contribution could go up.
Higher PF equals more savings for the future, but less in-hand salary each month.