The government has introduced a major relief for salaried taxpayers under the Income Tax Rules, 2026, increasing tax benefits on children’s education and hostel expenses.
With the revised rules, families with two children can now claim a tax exemption of up to ₹2.88 lakh per year, provided certain conditions are met.
What Has Changed in the Allowance Limits?
The government has significantly increased two key allowances:
Child Education Allowance
Earlier: ₹100 per month per child
Now: ₹3,000 per month per child
Child Hostel Allowance
Earlier: ₹300 per month per child
Now: ₹9,000 per month per child
This sharp increase makes education-related expenses more tax-efficient for eligible salaried employees.
Who Can Claim This Tax Benefit?
This exemption is not available to everyone.
It applies only to:
Salaried employees
Those whose salary structure includes these allowances (CTC-based inclusion)
Employees under the old tax regime
If these allowances are not mentioned in your salary slip, you cannot claim them while filing your Income Tax Return.
Employees under the new tax regime will not be eligible for this benefit.
How Much Tax Can You Save on Two Children?
If you have two children, the total exemption works out as follows:
Child Education Allowance
₹3,000 × 2 × 12 = ₹72,000
Child Hostel Allowance
₹9,000 × 2 × 12 = ₹2,16,000
Total Tax-Free Benefit: ₹2,88,000 per year
For someone in the 30% tax slab, this can lead to a tax saving of around ₹83,520 per year, excluding cess and surcharge.
What Employees Should Do Now
To benefit from this exemption, employees should first ensure that these allowances are part of their salary structure.
If not included, it is advisable to request the HR department to add them to the CTC.
Additionally, employees should keep important documents ready, such as:
School admission proof
Fee receipts
Hostel accommodation records
These documents may be required to claim the exemption during tax filing.
Final Takeaway
This update offers a significant tax-saving opportunity for eligible salaried families.
However, the benefit depends on proper salary structuring and compliance with the old tax regime rules.
With the right planning, families can reduce their tax burden while managing education expenses more efficiently.
