Draft Income-tax Rules, 2026 - Key changes and brief overview

 The Central Board of Direct Taxes (‘CBDT’) has released the Draft Income-tax Rules, 2026, along with accompanying Draft Forms, to operationalize the Income-tax Act, 2025, which is scheduled to come into force on April 1, 2026. These draft rules are currently in the public domain for feedback until February 22, 2026. The new framework aims to simplify compliance by reducing the number of rules from 511 to 333 and forms from 399 to 190. A comprehensive overview of key proposed changes, featuring combined common rules and forms, is tabulated below:

Particulars	Remarks	Old Rule/Form	New Rule/Form
Tax Audit Report	Expands reporting requirements to include details of accounting software and cloud storage (including IP address and country location), backup server particulars, Reporting of foreign remittances not subjected to withholding tax, Disclosures relating to utilisation of MAT/AMT credit.	Form 3CA, 3CB, 3CD	Form 26
Transfer Pricing Audit Report	Requires detailed disclosure of ALP determination for each transaction, including number of comparables, inter-quartile range and economic adjustments. Mandates specific confirmation on maintenance of TP documentation. Introduces granular reporting for stock compensation, asset cost/depreciation, and software/tools/licenses/ databases provided by AEs or developed in-house. Requires disclosure of travel, and other expenses incurred by AEs for employees of the assessee. Requires reporting of forex fluctuation and subsidies/grants, including confirmation whether recorded in books and considered in ALP computation. Requires disclosure of details of any Advance Pricing Agreement (APA), where applicable.	Form 3CEB	Form 48
Treaty Benefit Documentation	Mandatory furnishing of Form 41 for claiming treaty benefits, removing the earlier relaxation where Form 10F was required only if prescribed details were absent in TRC Disclosure of a communication address in India, which may pose practical challenges for non-resident entities without a presence in India.	Form 10F	Form 41
Foreign Tax Credit (FTC)	Consolidates FTC compliance by mandating accountant certification for all companies (and others ≥ Rs. 1 lakh tax)	Rule 128 / Form 67	Rule 76 / Form 44
Disputed Foreign Tax	Intimation of settlement of foreign tax disputes where credit was not initially claimed Requires evidence of tax discharge within 6 months.	New Provision	Form 45
TCS Due Dates	Aligns the due dates for quarterly statements of TCS the existing due dates for TDS statements	Rule 31AA	Rule 219
Defective Returns	Scope of defective return prescribed as follows: Applicable schedules/fields are not furnished, Tax audit report (where applicable) is not filed prior to return filing, Updated returns do not disclose tax payment details Mismatch in MAT/AMT credit claimed vis-à-vis credit allowed in the latest return.	New Rule	Rule 166
Form of Appeal before CIT(A)	Provides separate disclosure fields for block assessments, regular assessments, penalty matters and TDS assessments. Introduces declaration for repetitive appeals where identical questions of law are pending before the HC or SC. Requires certification that immunity from penalty is not being sought where an appeal is filed. Permits submission of earlier appellate orders on issues already decided.	Form 35	Form 99
Statement of Financial Transactions	Rationalises SFT reporting thresholds by reducing the limit from Rs. 10 lakh to Rs. 5 lakh (where PAN is not available) for specified cash transactions and foreign currency transactions. Expands reporting of purchase of RBI-issued prepaid instruments to transactions exceeding Rs. 10 lakh irrespective of mode of payment. Revises immovable property reporting threshold to Rs. 45 lakh from Rs. 30 lakh and expands scope to include gifts and joint development arrangements. Introduces SFT reporting for insurance premium receipts, with graded thresholds of Rs. 10 lakh (PAN available) and Rs. 5 lakh (PAN not available), to be reported by insurers.	Rule 237/ Form 165	Rule 114E/ Form 61A
Motor Car Perquisite	Employer-owned motor car (mixed official and personal use): Perquisite valuation significantly increased to Rs. 5,000 p.m. (plus Rs. 3,000 chauffeur) for cars up to 1.6L engine capacity and Rs. 7,000 p.m. (plus Rs. 3,000 chauffeur) for cars exceeding 1.6L Employee-owned motor car (expenses reimbursed by employer): Any reimbursement towards running and maintenance expenses exceeding the prescribed limits proposed to be treated as a taxable perquisite.	Rule 3	Rule 15
HRA Framework	Combines expansion of 50% HRA exemption to include Bengaluru, Hyderabad, Pune, and Ahmedabad Requirement to disclose the relationship with the landlord.	Rule 2A / Form 12BB	Rule 279 / Form 124
Tax free meal limit and gifts	Elevates tax-free meal limit from Rs. 50/meal to Rs. 200/meal, benefit extended to the new tax regime. Increase gift limit to from Rs. 5,000 p.a. Rs. 15,000 p.a.	Rule 3	Rule 15
Employer Loans	Increases the exemption limit for interest-free or concessional employer loans from Rs. 20,000 to an aggregate of Rs. 2,00,000.	Rule 3	Rule 15
Children Education Allowance & Hostel Allowance	Increases tax-free limits for: Children Education Allowance from Rs. 100 p.m. per child to Rs. 3,000 p.m. per child Hostel Allowance from Rs. 300 p.m. per child to Rs. 9,000 p.m. per child	Rule 2BB	Rule 280
Leave Travel (LTC)	Removes restriction of LTC exemption to economy-class airfare and allows exemption based on the class of travel to which the employee is entitled. Revises LTC valuation where no recognised public transport exists with a fixed limit of Rs. 30/km for the shortest route.	Rule 2B	Rule 278
ITR-1 Eligibility	Relaxes eligibility conditions for filing SAHAJ (ITR-1) to include individuals owning up to two house properties.	Rule 12	Rule 164
New Regime Option	Dispenses with the requirement to file a separate form for opting into the New Tax Regime, allowing exercise directly in the return.	New Provision	Rule 136

Overall, the Draft Income-tax Rules, 2026 signal a clear transition towards a digitised, disclosure-driven compliance framework with enhanced reporting standards, expanded certifications and increased data alignment across filings. While several proposals aim at simplification through consolidation of rules and forms, they simultaneously introduce deeper reporting obligations requiring early preparedness from taxpayers, auditors and compliance teams.