The Indian income tax system currently offers taxpayers a choice: theold tax regimewith deductions and exemptions, or thenew tax regimewith lower tax rates but minimal deductions. Recently, theold regime received a meaningful upgradeunder the Draft Income Tax Rules 2026 — including broader eligibility for higher metro HRA exemptions, increased allowances for children’s education and meals and updated valuation for employer perks — giving this traditional system new relevance.
Under the updated draft rules:
More cities now qualify for 50% metro HRA treatment — including Bengaluru, Hyderabad, Pune and Ahmedabad — boosting HRA exemptions for many renters.
Children’s education and hostel allowances were raised significantly, benefiting families who utilize these exemptions.
Meal voucher values and other employer‑linked allowances were updated to reflect contemporary costs, reducing taxable income for salaried workers who receive such benefits.
These revisions directly benefit taxpayers who rely heavily onexemptions and deductions— such as HRA, children’s allowances and employer perks — making the old regime more tax‑efficient for a specific group.
Thenew tax regimefeatureslower basic tax ratesand a higher basic exemption limit — currently up to ₹4 lakh, with rebates under Section 87A effectively making income up to around ₹12 lakh tax‑free for many taxpayers. It also offers a larger standard deduction (around ₹75,000) and eliminates the need to maintain documentation for multiple deductions.
Old Tax Regime:Now more beneficial for those with significant deductions and exemptions — particularly taxpayers living in high‑rent cities, paying substantial home loan interest, or claiming deductions under Sections 80C/80D and other allowances. These tax savings can exceed the benefits of lower slabs under the new regime if utilized fully.
New Tax Regime:Still simpler and often cheaper formost salaried taxpayers without large deductions, as it removes the compliance burden and applies competitive slab rates and rebates.
The choice between regimes is highly personal — based on income level, allowances, deductions, family structure, rent, home loan interest and other tax‑saving investments. Tools and calculators (or the guidance of a tax professional) can help you crunch the numbers to determine which regime yields the lowest tax liability each year.
For now, the updated old tax regime gives more taxpayers a viable reason to reconsider their choice — but for many, the new regime’s simplicity and lower effective tax may still be the better fit.
