Rs 100 to Rs 3,000: children's allowance limits reset after 26 years, and Bengaluru and Pune get 50% HRA
Children's education allowance sat at Rs 100 a month for 26 years. It is now Rs 3,000. Hostel allowance went from Rs 300 to Rs 9,000. That is Rs 2.88 lakh of exemption for two children — but only if your employer actually pays those allowances. Most private employers do not.
Prabhakar Kumar
Chartered Accountant (ICAI, Nov 2019)
📅 16 Aug 2026
⏱ 5 min read
1,074 words
Children's education allowance had been stuck at ₹100 per month since 1998. Hostel allowance at ₹300.
₹100 a month. For two children that was ₹2,400 of exemption a year, saving ₹749 of tax at a 30% slab. The figure was so small that most payroll systems treated it as a formality.
From FY 2026-27 that has changed.
Allowance
Old limit
New limit
Multiple
Children's education allowance
₹100/month/child
₹3,000/month/child
30x
Children's hostel allowance
₹300/month/child
₹9,000/month/child
30x
The two-child limit remains — nothing for a third child.
And that is the real point. Many government and PSU pay structures already contain CEA. But most private employers do not pay a ₹9,000 a month hostel allowance — they never did, because the old exemption was ₹300 and there was no reason to.
This is a story about CTC restructuring, not an automatic windfall.
# HRA — Bengaluru, Hyderabad, Pune and Ahmedabad get 50%
This is the second significant change.
HRA exemption is the lowest of three figures:
Actual HRA received
Rent paid less 10% of salary
50% of salary (specified cities) or 40% (elsewhere)
# The regime question — and here I will be straightforward
The prevailing view: these allowances are available only under the old regime. The new regime does not permit them. That reading appears in most professional commentary, and it applies to the HRA 50% expansion as well.
However: some professional commentary reads it differently. This point is not fully settled.
Look at your salary structure — do CEA and hostel allowance components exist at all?
If not, ask HR — it is cost-neutral restructuring, and asking early in the year is the only version of this that works
In Bengaluru, Hyderabad, Pune or Ahmedabad? Work out all three HRA figures and see which binds
Recompute old versus new regime — the equation has changed for this year
Keep school and hostel documents ready — the employer will ask for a declaration
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What is the new children's education allowance limit?
Rs 3,000 per month per child, for a maximum of two children. It was previously Rs 100 per month, a figure that had not changed since 1998. Hostel allowance has gone from Rs 300 to Rs 9,000 per month per child. These apply from FY 2026-27.
How much exemption does that come to for two children?
Education allowance is Rs 3,000 multiplied by 12 multiplied by 2, which is Rs 72,000, and hostel allowance is Rs 9,000 multiplied by 12 multiplied by 2, which is Rs 2,16,000. Together Rs 2,88,000 a year. At a 30% slab that saves roughly Rs 89,900 including cess. But it only materialises if your employer actually pays these allowances.
Will this arrive automatically?
No. These are exemption limits, not entitlements. You benefit only if your salary structure contains components named children's education allowance and children's hostel allowance. Most private employers do not pay a Rs 9,000 a month hostel allowance. This is a story about CTC restructuring, not an automatic windfall.
Is this available under the new regime?
The prevailing view is that these allowances are available only under the old regime and not under the new one. Some professional commentary reads it differently. For planning purposes, assume old regime only, and if your employer is giving it under the new regime, get written confirmation of the basis on which they are doing so.
What changed in HRA?
The list of cities qualifying for 50% exemption has expanded. Previously it was only Delhi, Mumbai, Kolkata and Chennai. Bengaluru, Hyderabad, Pune and Ahmedabad have now been added, making eight cities in total. Everywhere else remains at 40%. This also applies from FY 2026-27.
I live in Bengaluru — how much will I benefit?
HRA exemption is the lowest of three figures — actual HRA received, rent paid less 10% of salary, and 50% or 40% of salary. If your exemption was being capped by that third figure, moving from 40% to 50% helps. If it was already capped by rent less 10% of salary, this change does nothing for you. Work out all three of your numbers and see which one binds.
Can I claim this in the return I am filing now?
No. You are currently filing for FY 2025-26, and the old limits applied that year — Rs 100 and Rs 300, and only four metro cities for HRA. The new limits apply to this year's salary, whose return goes next year.
Has the two-child limit been removed?
No, the two-child limit remains. There is no education or hostel allowance exemption for a third child. Only the per-child amount has increased, not the number of children.
⚖️ THE AUTHORITIES
The case law on s.10(13A)
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