Children’s education allowance is a tax exemption available only under the old tax regime, for up to two children. Through FY 2025-26 the exempt amount was Rs 100 a month per child; the Income-tax Rules, 2026 reportedly lift it to Rs 3,000 a month per child from FY 2026-27, with the separate hostel allowance rising from Rs 300 to Rs 9,000. The new regime gives no exemption at all.

The two allowances and the arithmetic

There are two related exemptions and an employee can have both for the same child: the education allowance and the hostel expenditure allowance. Both are capped at two children. Under the old Rule 2BB and section 10(14) the limits were Rs 100 and Rs 300 a month; the new Rules, in force from 1 April 2026, are reported at Rs 3,000 and Rs 9,000 under Rule 280. These figures come from law-firm and tax-portal summaries of the notified rules, so confirm them against the rule text before changing payroll. Returns being filed now for FY 2025-26 still use the old limits.

Take two children, one of them in a hostel. Education allowance of Rs 3,000 each is Rs 6,000 a month, or Rs 72,000 a year. Add Rs 9,000 hostel for one child and the exempt amount reaches Rs 15,000 a month, Rs 1,80,000 a year. If both children are in hostels, the ceiling is (3,000 + 9,000) x 2 x 12 = Rs 2,88,000. At a 30% slab with 4% cess that is worth up to Rs 89,856 in tax, but only if the employer actually pays the allowance and you stay in the old regime. Under the earlier limits the same family would have exempted just Rs 9,600 a year.

Where it fits in the pay structure

This is a component the employer chooses to pay; it does not exist unless it is written into the structure, usually by carving it out of special allowance. Anything paid above the monthly cap is taxable salary. It is separate from tuition-fee relief: fees paid for up to two children are claimed under Section 80C in the old regime, and the two can be used together. Declarations belong in the investment declaration cycle so monthly TDS reflects the allowance. Whether the old regime wins overall is a calculation covered in old vs new tax regime.

Frequently asked questions

Is children’s education allowance available in the new tax regime?

No. Neither the education nor the hostel allowance exemption is allowed there, so the whole allowance is taxed as taxable salary.

Do I need fee receipts to claim it?

It operates as a flat monthly limit rather than a bill-by-bill claim, but employers differ on documentation, so follow your company’s declaration process and keep school or hostel proof for the file.

Does it apply to a third child?

No. The exemption is limited to two children, whatever the family size.

Test whether the old regime pays off for you in the Income Tax Calculator.