A Guide to the Draft Income-tax Rules, 2026

Introduction

India’s Central Board of Direct Taxes (CBDT) has released the draft Income-tax Rules, 2026 (the “draft rules”) along with the proposed forms, in relation to the Income-tax Act, 2025 (the “Act”), which is scheduled to come into force beginning 1 April 2026. Before then, the draft rules and proposed forms have been placed in public domain.

1. Major Changes in Employee Benefits (Perquisites)

One of the biggest shifts is how “perks” provided by employers are valued. While most limits have been raised to benefit employees, the taxable value for company-provided cars is set to increase significantly.

Motor Car Perquisite Valuation

If the employer provides a car for both official and personal use, the “taxable value” added to the income will rise as follows:

2. Higher Tax-Free Limits for Allowances

To account for the rising cost of living, the draft rules propose a massive jump in exemption limits for daily expenses, education, and health.

HRA Metro Expansion: The list of cities eligible for a 50% HRA exemption (instead of 40%) now includes Ahmedabad, Bengaluru, Hyderabad, and Pune, alongside the original four metros.

3. Form Simplification & New Numbers

The CBDT has slashed the total number of rules and forms by nearly half. Alphanumeric names (like 12BB or 26QB) are being replaced by a simpler, sequential numbering system (1 to 190).

• Form 130 (Replacing Form 16): The new master certificate for TDS on salary. It now includes a specialized annexure for senior citizens.
• Form 124 (Replacing Form 12BB): Used to claim HRA/LTC. A new requirement: you must now disclose your relationship with the landlord (if any).
• Form 141 (The “Super” TDS Form): This single form consolidates four previous forms (26QB, 26QC, 26QD, and 26QE). It simplifies TDS on property sales, rent, and professional fees, especially for transactions involving multiple co-owners.
• Form 93 & 95 (Replacing 49A/49AA): New application forms for PAN. Non-residents must now provide passport numbers and citizenship status.

4. Tightened Compliance for High-Value Transactions

While many rules offer relief, the government is increasing oversight on large spends and foreign credits.

• Foreign Tax Credit (FTC): If an individual claims a credit of INR 1,00,000 or more, then the claim (Form 44) must be verified by a Chartered Accountant.
• Mandatory PAN: The threshold for quoting PAN has been revised for buying vehicles, making bank deposits, and payments to hotels or convention centres.
• Leaving India: For individuals moving abroad without a PAN due to income falling below the taxable limit, filing Form 157  is now a mandatory requirement to ensure tax compliance before departure. 

Conclusion

The transition from the 1962 Rules to the Draft Income-tax Rules, 2026 represents a comprehensive modernization of India’s tax framework, strategically balancing taxpayer relief with enhanced administrative oversight. By significantly increasing exemption thresholds for education, meals, and medical loans, the CBDT is aligning tax policy with contemporary inflation, while simultaneously expanding the 50% HRA benefit to high-growth tech hubs like Bengaluru and Hyderabad to reflect modern urban living costs. However, this relief is paired with stricter transparency measures such as mandatory disclosures of relationships with landlords and Chartered Accountant verification for high-value foreign tax credits and an increase in perquisite valuations for employer-provided cars. Ultimately, the drastic consolidation of forms and the move toward a simplified, sequential numbering system signal a shift toward a “Digital-First” ecosystem, designed to reduce litigation, simplify compliance for both employers and employees, and pave the way for a more automated and pre-filled tax-filing experience starting 1 April 2026.

Expositor(s): Adv. Archana Shukla