Mitali
India is replacing from the Income-tax Act, 1961 to a new Income-tax Act, 2025 , which will start from 1st April 2026 (AY 2026-27).
To operationalise the new Act, the government has released draft rules to explain how the new law will work.
There are two tax regimes: the old regime (with exemptions and deductions) and the new regime (simpler slabs without exemptions).
Old regime suits those claiming allowances like HRA, especially families or big-city residents; new regime fits those not claiming deductions with lower flat rates.
The releases draft rules are not just procedural but may change the exemptions and allowances calculations.
Because of these changes, the old tax regime may become more beneficial for some people.
Why the draft rules bring the old regime “back into focus”
Many allowances under the old regime had not been revised for decades, making them meaningless due to inflation.
Children’s Education Allowance
| Earlier | Draft Rules |
| ₹100 per month per child | ₹3,000 per month per child |
| Max 2 children | Max 2 children |
Annual exemption per child rises from ₹1,200 → ₹36,000.
Hostel Expenditure Allowance
| Earlier | Draft Rules |
| ₹300 per month per child | ₹9,000 per month per child |
HRA Exemptions
HRA exemption now covers 50% for additional major cities beyond the four metros (Delhi, Mumbai, Kolkata, Chennai).
Simplification of Rules, Forms and Compliance
- Rules reduced from 511 to 333.
- Number of compliance forms cut from 399 to 190.
Relaxed PAN Quoting Thresholds for Transactions
| Transaction Type | Threshold |
| Cash deposits/withdrawals (bank/post office) | Above ₹10 lakh per year |
| Motor vehicles | Amount above ₹5 lakh |
| Immovable property (sale, purchase, gift, JDA) | Exceeding ₹20 lakh |
| Hotel stays | Billing above ₹1 lakh |
| Insurance premiums | Mandatory from the start (previously only above ₹50,000) |
Conclusion
The new tax rules are not final yet.
Taxpayers, professionals, businesses can submit their feedback until 22 February 2026.
After that, the government (CBDT) will finalise and notify the final rules, likely by March 2026.
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