Hostel Allowance limit revised — Tax-free amount per child in FY 2026-27

🏫 What Is Hostel Allowance?

Hostel allowance is an allowance provided by an employer to an employee for meeting the expenses of a child’s stay in a hostel. Under the Income-tax Rules, a prescribed amount of such allowance can qualify for tax exemption, subject to the applicable conditions.

This exemption is commonly considered along with Children Education Allowance while calculating the taxable salary income of an employee.

💰 Tax-Free Hostel Allowance Limit

For FY 2026-27, the prescribed exemption for Children Education Allowance and Hostel Expenditure Allowance continues to be governed by the limits specified under the Income-tax Rules unless a revised statutory limit is specifically notified.

For hostel expenditure allowance, the exemption is generally available up to ₹300 per month per child, subject to a maximum of two children.

Therefore, the maximum annual exemption can generally be:

₹300 × 12 months × 2 children = ₹7,200 per year.

Important: The exemption is subject to the conditions prescribed under the Income-tax Rules and is not automatically available merely because an employer pays an allowance under the name “Hostel Allowance.”

👨‍👩‍👧 Who Can Claim the Exemption?

The benefit is available to an employee receiving the eligible allowance from the employer for the purpose of meeting the hostel expenditure of their child.

The prescribed limit applies per child, with the exemption restricted to a maximum of two children.

If the actual allowance received is lower than the prescribed limit, the exemption is generally restricted to the amount actually received.

📋 Example of Hostel Allowance Tax Calculation

Suppose an employee receives ₹800 per month per child as hostel allowance for two children.

The annual allowance received would be:

₹800 × 12 × 2 = ₹19,200

However, the exemption is restricted to the prescribed amount of ₹300 per month per child.

Maximum eligible exemption:

₹300 × 12 × 2 = ₹7,200

The remaining ₹12,000 would be taxable, subject to the applicable tax regime and other provisions.

🧾 Documents and Employer Records

Employees should retain relevant documents such as the child’s educational records, hostel receipts and other supporting evidence where required by the employer.

Employers should also correctly reflect taxable and exempt portions of allowances in payroll records and the applicable salary certificate.

⚠️ Old Regime vs New Tax Regime

The availability of salary exemptions can depend on the tax regime selected by the taxpayer.

Taxpayers opting for the new tax regime under Section 115BAC should separately verify whether the particular allowance exemption is permitted under the applicable provisions.

Employees choosing the old tax regime may generally consider eligible exemptions subject to the prescribed conditions.

🚀 Final Takeaway

For FY 2026-27, employees should not assume that the entire hostel allowance received from their employer is tax-free. The exemption is subject to the prescribed statutory limit and eligibility conditions.

For eligible hostel expenditure allowance, the commonly applicable exemption is ₹300 per month per child, for a maximum of two children, resulting in a maximum annual exemption of ₹7,200.

 

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