Draft Income Tax Rules 2026: ₹30 Lakh Salary Earners May Save Up to ₹1.72 Lakh in Taxes

India’s proposed Draft Income Tax Rules 2026 could bring significant relief for salaried taxpayers by increasing the exemption limits on several allowances. If these proposals receive final approval, many employees may see their taxable income reduce substantially, resulting in notable tax savings.

According to the draft rules released by the Income Tax Department

, exemption limits for multiple allowances such as House Rent Allowance (HRA), children’s education allowance, hostel allowance, and food allowance may be increased.

Experts say that under the proposed rules, a salaried employee earning around ₹30 lakh annually could potentially save up to ₹1.72 lakh in taxes.

The new rules, once approved, are expected to be implemented from the financial year 2026–27

Higher Tax Exemptions for Multiple Allowances

One of the biggest highlights of the draft rules is the increase in tax-free limits for several allowances that have remained unchanged for years.

Some of the proposed revisions include:

Children’s Education Allowance: Proposed increase from ₹100 per month to ₹3,000 per month per child (up to two children).
Hostel Allowance: Proposed increase from ₹300 per month to ₹9,000 per month per child.
Food Allowance and other allowances: Higher exemption limits are also being considered.
HRA Benefits: Cities such as Bengaluru, Hyderabad, Pune, and Ahmedabad may be included in the category of cities eligible for higher HRA exemption.

If these changes are approved, salaried individuals will be able to claim larger deductions from their salary components

, reducing their taxable income.

Example: How a ₹30 Lakh Salary Could Benefit

To understand the potential tax savings, consider a salaried employee with an annual salary of ₹30 lakh who receives multiple allowances as part of their compensation package.

These allowances may include:

House Rent Allowance (HRA)
Employer’s contribution to NPS
Children’s education allowance
Hostel allowance
Leave Travel Allowance (LTA)
Food allowance
Gift allowance

Under the proposed rules, the exemption limits for these components could increase significantly.

Estimated Annual Exemptions Under Draft Rules Allowance Possible Annual Exemption

HRA (Metro Cities)	₹5–6 lakh
Children’s Education Allowance (2 children)	₹72,000
Hostel Allowance (2 children)	₹2,16,000
Food Allowance	₹50,000+
Leave Travel Allowance (LTA)	Up to ₹1,00,000
Other allowances	₹1–2 lakh

With these exemptions combined, the total tax-free component could reach approximately ₹12.08 lakh.

Comparison of Tax Liability

The draft rules could significantly impact how tax is calculated under the old tax regime.

Here is a comparison based on estimates:

Tax System Total Exemptions Estimated Tax Liability

Current Old Tax Regime	₹6.91 lakh	₹3.77 lakh
Draft Old Tax Regime	₹12.08 lakh	₹2.22 lakh
New Tax Regime	Limited exemptions	₹4.10 lakh

Based on this comparison, a salaried taxpayer earning ₹30 lakh annually could potentially save around ₹1.72 lakh in taxes

if the draft rules are implemented and the old tax regime is used.

When the Old Tax Regime Could Be More Beneficial

Tax experts note that the benefits of these proposed changes will depend on whether taxpayers can actually utilize the allowances and deductions available under the old tax regime.

For example, the old tax regime becomes advantageous if the taxpayer can claim benefits such as:

HRA exemption
Investments under Section 80C
Health insurance deductions
Leave Travel Allowance (LTA)
Other eligible allowances

However, if an individual does not have access to many of these exemptions or prefers a simpler tax calculation, the new tax regime may still remain a convenient option.

Possible Impact on Tax Planning

If the draft rules are approved, they could significantly reshape tax planning strategies for salaried individuals in India.

Employees may increasingly structure their compensation packages to include allowances with higher tax exemptions

, which would help reduce taxable income.

Financial planners suggest that taxpayers should carefully review their salary structure and tax planning options once the rules are finalized.

Final Approval Still Pending

It is important to note that the Draft Income Tax Rules 2026 are still proposals and have not yet been implemented.

The government may review feedback and make further adjustments before final approval.

If adopted, the changes could bring substantial tax relief for salaried taxpayers, particularly those earning higher incomes and receiving multiple allowances as part of their salary packages.