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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.
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.
If the employer provides a car for both official and personal use, the “taxable value” added to the income will rise as follows:
| Engine Capacity | Provided Benefit | Old Value (1962 Rules) | Draft Rules (2026) |
| Up to 1.6 Litres | Car + Expenses | INR 1,800 /month | INR 5,000 /month |
| Chauffeur (Driver) | INR 900 /month | INR 3,000 /month | |
| Above 1.6 Litres | Car + Expenses | INR 2,400 /month | INR 7,000 /month |
| Chauffeur (Driver) | INR 900 /month | INR 3,000 /month |
To account for the rising cost of living, the draft rules propose a massive jump in exemption limits for daily expenses, education, and health.
| Allowance / Benefit Type | Old Exemption Limit | New Proposed Exemption |
| Children Education | INR 100 /month per child | INR 3,000 /month per child |
| Children Hostel | INR 300 /month per child | INR 9,000 /month per child |
| Free Meals (Office) | INR 50 /meal | INR 200 /meal |
| Gift Vouchers | INR 5,000 /year | INR 15,000 /year |
| Medical Loans | Up to INR 20,000 (Tax-free) | Up to INR 2,00,000 (Tax-free) |
| Physically Challenged Transport | INR 3,200 /month | INR 15,000 /month (Metros) |
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.
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).
While many rules offer relief, the government is increasing oversight on large spends and foreign credits.
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
