Old Tax Regime Gains Attention after CBDT Releases Draft IT Rules 2026

As the Draft Income Tax Rules 2026 have been released by the Central Board of Direct Taxes (CBDT), the old tax regime is back in focus for the taxpayers. The draft income tax rules are designed to align with the new Income Tax Act, 2025, which is effective from April 1, 2026. The draft is open for suggestions and feedback from the shareholders.

Income Tax Act, 2025

The New Income Tax Act, 2025, was introduced by Nirmala Sitharaman during her Budget 2026 speech. This new law is replacing the 60-year-old 1961 Act by bringing more clarity and simplification to the law.

The draft income tax rules bring down the number of rules from 511 to 333. It reduces the number of forms from 399 to only 190. The proposed changes include higher House Rent Allowance (HRA) benefits and revised allowances for the children’s education and hostel expenses. Taxpayers can still claim deductions and exemptions that are not available in the new tax regime.

HRA Benefit Expansion

The HRA is a component that comes with the salary offered by the employers to an employee. It helps the employee to cover the rented accommodation expenses on which a partial or full exemption can be claimed. The HRA exemption is only available under the old tax regime.

The HRA exemption is calculated on the lowest of:

• Actual HRA received from the employer.
• Rent paid minus 10% of the basic salary.
• 50% of basic salary (metro cities) or 40% (non-metro)

At present, the 50% HRA exemption under the old tax regime is only for Mumbai, Delhi, Kolkata, and Chennai. The draft proposes to include four other cities: Bengaluru, Hyderabad, Pune, and Ahmedabad. The rest of the cities will continue to get a 40% HRA exemption.

Allowances Revision

The draft proposes to revise the allowances. The children’s education allowance is proposed to be increased from Rs 100 to Rs 3000 per month per child, for a maximum of two children. The hostel allowance is proposed to be increased from Rs 300 to Rs 9000 per month per child.

Additionally, the draft proposes to increase the transport allowances for the employees who are blind, deaf, mute or orthopedically handicapped to Rs 15,000 plus Dearness Allowance in metro cities and Rs 8,000 plus DA in other cities, as compared to Rs 3,200 per month.

FTA Verification

The new draft introduces significant changes to the Foreign Tax Credit compliance. As per the new rules, the foreign tax credit claim through Form 44 must be certified by a chartered accountant for companies or where the foreign tax is more than Rs 1 lakh. The CA is required to check the income record, tax payment proof, and the treaty eligibility.