On 20 March 2026 the CBDT notified the Income-tax Rules, 2026, effective 1 April 2026. They rewrote the exemption limits on almost every allowance and perquisite in a salary package — some of which had not moved in decades. Meal cards went from ₹50 a meal to ₹200. Children's education allowance went from ₹100 a month to ₹3,000.
There is a catch large enough to change how you use all of it, and most summaries skip it. This guide covers what each limit is now, which allowances survive, what documentation each one needs, and the one condition that decides whether any of it is worth putting in a salary package at all.
What Changed on 1 April 2026
These are the revised limits under the Income-tax Rules, 2026. The old figures in the middle column are what most payroll templates and salary guides still carry.
| Allowance or perquisite | Old limit | Limit from 1 April 2026 |
|---|---|---|
| Free meals during working hours | ₹50 per meal | ₹200 per meal |
| Children's education allowance | ₹100 per month per child | ₹3,000 per month per child |
| Children's hostel allowance | ₹300 per month per child | ₹9,000 per month per child |
| Gifts and vouchers from employer | ₹5,000 per year | ₹15,000 per year |
| Motor car, engine ≤ 1.6L or electric, no chauffeur | ₹1,800 per month | ₹5,000 per month |
| Transport allowance, transport-operation employees | ₹10,000 per month | ₹25,000 per month |
| Cities where HRA exemption is 50% of Basic | 4 cities | 8 cities |
The scale of some of these is easy to miss. Children's education allowance rose thirty-fold. A meal card that was worth roughly ₹26,400 a year in exempt value is now worth up to about ₹1,05,600. These are not indexation tweaks; they are the first serious revision in a very long time.
The Catch — Almost None of This Applies in the New Regime
These exemptions are available under the old tax regime. The new regime under Section 115BAC, which has been the default since FY 2023-24, does not allow HRA exemption, children's education or hostel allowance, or the great majority of Section 10(14) allowances — and the Rules, 2026 did not change that.
So before you spend any time optimising an allowance structure, answer one question: is this employee actually in the old regime? For most salaried people at most income levels, they are not, because the new regime's ₹12,00,000 rebate threshold and ₹75,000 standard deduction beat the old regime's deductions unless those deductions are unusually large.
The practical rule: an allowance-heavy package is worth building for employees whose old-regime claims — HRA exemption, Section 80C, 80D and home-loan interest — together exceed roughly ₹4 to ₹5 lakh. Below that, the allowances buy nothing and simply complicate the payslip. Test it properly with the income tax calculator rather than assuming.
One point where commentary genuinely differs: the meal benefit sits in the perquisite valuation rules rather than in a Section 10 exemption, and a minority view holds that this route survives in the new regime. The mainstream professional reading, and the safer one to build payroll on, is that it does not. If it matters to your structure, get it confirmed in writing before you rely on it.
Meal Cards After the ₹200 Rule
Food provided by an employer during working hours is not treated as a taxable perquisite up to ₹200 per meal from 1 April 2026, against ₹50 before.
Worked at two meals a day across roughly 22 working days a month, that is about ₹8,800 a month, or ₹1,05,600 a year, of value that does not enter taxable salary — for an old-regime employee.
The conditions have not changed and they still bite:
- It covers meals during working hours — not a general food allowance paid in cash.
- Roughly two meals per working day. Weekends and holidays do not count.
- Paid in cash instead of a card or canteen, it is fully taxable salary. The delivery method is what makes the difference.
- The employer reports it in Form 12BA and Form 16.
For an HR team, this is the single largest change in the Rules by rupee value, and the one most worth revisiting in an existing flexible benefit menu — for the portion of your workforce still in the old regime.
HRA — Four More Cities Now Get 50%
Under Section 10(13A) the HRA exemption is the least of three figures: HRA received, rent paid minus 10% of Basic, or a percentage of Basic that depends on the city. That percentage is 50% in the listed cities and 40% everywhere else.
The Rules, 2026 doubled that list from four cities to eight. Previously only Delhi, Mumbai, Kolkata and Chennai qualified. Now these eight do:
Delhi · Mumbai · Kolkata · Chennai · Bengaluru · Hyderabad · Pune · Ahmedabad
For an employee in Bengaluru, Hyderabad, Pune or Ahmedabad paying substantial rent, the ceiling on their exemption rose by a quarter overnight. Anyone whose exemption was previously capped by the 40% limit rather than by rent paid should have their declaration re-examined.
Two things that have not changed and still decide most outcomes. A low rent, not the city, is usually what caps the exemption — the rent-minus-10%-of-Basic arm bites first in most cases. And none of it applies in the new regime. Work out the actual figure with the HRA exemption calculator.
Children's Education and Hostel Allowance
These two had been frozen at figures set when they were meaningful and left untouched until they were not. ₹100 a month per child for education covered nothing. It is now ₹3,000 a month per child. Hostel allowance moved from ₹300 to ₹9,000 a month per child.
Both are limited to a maximum of two children. For a parent with two children in a hostel, the combined exempt value is now up to ₹2,88,000 a year against ₹7,200 before — a genuine change rather than a rounding of the old number.
Old regime only, like the rest. But for an employee with school-age children who is already in the old regime because of a home loan, this is now a component worth putting in the structure rather than ignoring.
What Works in Both Regimes
A short list, and worth knowing precisely because it is short.
Employer NPS under Section 80CCD(2) — deductible in both regimes, up to 14% of Basic for employees whose employer contributes at that rate. This is the one substantial lever that survives in the new regime, and it costs the employer nothing extra when funded from within the existing CTC.
Standard deduction — ₹75,000 in the new regime against ₹50,000 in the old. Automatic; nothing to structure.
Allowances for the actual performance of official duties under Section 10(14)(i) — travel on tour, daily allowance on tour, conveyance incurred in performing duties. These are reimbursements of genuine business expense rather than pay, and survive in both regimes. They must be actually incurred and supported.
Gratuity and employer PF — exempt within their own limits regardless of regime, and unaffected by the Rules, 2026.
That is close to the whole list. It is why a new-regime employee's package has very little to optimise, and why the honest advice to most of them is to take the cash.
Building a Flexible Benefit Menu That Actually Helps
Most flexible benefit plans were designed before the new regime became the default, and they still present every employee with the same menu of old-regime components. That wastes the employee's time and the payroll team's.
A menu that reflects FY 2026-27 does three things:
- Ask the regime first. Put the regime declaration ahead of the component selection, not after it. An employee in the new regime should see a short menu, not a long one.
- Refresh the limits. Any FBP still offering meal cards at ₹50 a meal or education allowance at ₹100 a month is leaving exempt value unclaimed for the employees who can use it.
- Separate reimbursements from allowances. Official-duty reimbursements under 10(14)(i) work for everyone. Lifestyle allowances work only for old-regime employees. Presenting them in one undifferentiated list is what produces wrong declarations and year-end corrections.
If you are designing the underlying package rather than the flexible layer on top of it, the salary structure format guide covers Basic percentages, the annexure and statutory compliance.
Documentation Each Claim Needs
An exemption disallowed at assessment for want of paperwork costs the employee the full tax and the payroll team the argument.
| Component | What must be retained |
|---|---|
| HRA | Rent receipts, rent agreement, and the landlord's PAN where annual rent exceeds ₹1,00,000 |
| Meal card | Nothing from the employee — the employer reports it in Form 12BA |
| Children's education / hostel | School or hostel fee receipts, limited to two children |
| Leave Travel Allowance | Tickets and boarding passes for travel within India; travel cost only, not hotel or food |
| Official-duty conveyance and tour | Bills, tour approvals, evidence the expense was actually incurred |
| Gifts and vouchers | Employer records; aggregate across the year against the ₹15,000 limit |
Two recurring failures worth naming. Rent paid to a parent is claimable, but it needs a genuine arrangement — money actually transferred, and the parent declaring the rental income. And LTA is claimable twice in a block of four calendar years, not twice a year; the block, not the financial year, is what governs it.
Frequently Asked Questions
What is the new meal card exemption limit in India?
₹200 per meal from 1 April 2026, up from ₹50, under the Income-tax Rules, 2026 notified on 20 March 2026. At two meals a day across about 22 working days a month, that is roughly ₹8,800 a month or ₹1,05,600 a year of value outside taxable salary. It applies to meals provided during working hours through a card or canteen, not to cash paid as a food allowance.
Which cities get 50% HRA exemption now?
Eight: Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Pune and Ahmedabad. The Income-tax Rules, 2026 added the last four, doubling the list from the original four. Every other city remains at 40% of Basic. The city percentage is only one of the three limbs of the calculation, and a low rent usually caps the exemption before the city limit does.
Are these allowance exemptions available under the new tax regime?
No, for almost all of them. HRA, children's education and hostel allowance, and most Section 10(14) allowances are unavailable under Section 115BAC, and the Rules, 2026 did not change that. What survives in both regimes is employer NPS under Section 80CCD(2), the standard deduction, official-duty reimbursements under Section 10(14)(i), and gratuity and employer PF within their own limits.
How much is the children's education allowance exemption now?
₹3,000 per month per child, up from ₹100, and hostel allowance is ₹9,000 per month per child, up from ₹300. Both are capped at two children. For a parent with two children in a hostel, the combined exempt value is up to ₹2,88,000 a year. Available in the old regime only.
Is a cash food allowance treated the same as a meal card?
No. Cash paid as a food allowance is fully taxable salary. The exemption attaches to food provided by the employer during working hours — through a meal card, a canteen or vouchers. The delivery method, not the amount, is what decides the treatment.
Do I need the landlord's PAN to claim HRA?
Yes, where annual rent exceeds ₹1,00,000. Below that, rent receipts and a rent agreement are generally sufficient. Rent paid to a parent is claimable, but the arrangement must be real: money actually transferred, and the parent declaring the rental income in their own return.
How often can LTA be claimed?
Twice within a block of four calendar years, not twice a year. It covers the cost of travel within India for the employee and family, and not hotel or food. An unused claim can be carried into the first year of the next block in limited circumstances. Old regime only.
What is the gift and voucher exemption from an employer?
₹15,000 a year in aggregate from 1 April 2026, up from ₹5,000. It is an aggregate across the year rather than per occasion, so festival vouchers, anniversary gifts and similar items count together against the one limit.
Should an employee in the new regime bother with allowance structuring?
Mostly no. With the ₹12,00,000 rebate threshold and a ₹75,000 standard deduction, the new regime already beats the old for most salaried people unless their old-regime claims are unusually large. The old regime tends to win only once HRA exemption, Section 80C, 80D and home-loan interest together exceed roughly ₹4 to ₹5 lakh. Run both before deciding.
Do employers have to update their flexible benefit plans for these changes?
There is no obligation to, but a plan still offering meal cards at ₹50 a meal or education allowance at ₹100 a month is leaving exempt value unclaimed for every old-regime employee on it. The more useful change is sequencing: ask for the regime declaration before presenting the component menu, so new-regime employees are not asked to choose between benefits that will not help them.
Calculators
- Income tax calculator — run old and new regime side by side before choosing
- HRA exemption calculator — all three limbs, with the city percentage applied
- Salary breakup calculator — the full structure, component by component
- In-hand salary calculator — what a package actually pays
- PF / EPF calculator · Professional Tax calculator
Sources, Legal References and Disclaimer
Revised limits are those in the Income-tax Rules, 2026, notified by the Central Board of Direct Taxes on 20 March 2026 and effective 1 April 2026. Provisions referred to: Section 10(13A) (HRA); Section 10(14)(i) and 10(14)(ii) (special allowances); Section 17(2) and the perquisite valuation rules (meals, motor car, gifts); Section 80CCD(2) (employer NPS); Section 115BAC (the new regime and the exemptions it withdraws).
The position that these enhanced limits apply under the old regime only reflects the mainstream professional reading at the time of writing. A minority view treats the meal benefit differently on the basis that it sits in perquisite valuation rather than in a Section 10 exemption. Where a structure depends on that point, obtain written confirmation.
This is general guidance and not tax advice. Exemption limits, conditions and documentation requirements change, and the treatment of any component depends on the facts of the arrangement. Confirm with a qualified tax professional before relying on any figure here.
Last verified against the Income-tax Rules, 2026: September 2026.