Draft Income Tax Rules, 2026

 The Central Board of Direct Taxes (CBDT) released the Draft Income Tax Rules, 2026 on February 7, 2026. It has invited suggestions and opinions from all stakeholders. Tax professionals, experts, and the general public can share their views up to February 22, 2026. So, what are the Draft Income Tax Rules, 2026? Rules are detailed instructions linked to an Act. They explain the practical side of compliance, such as reporting requirements, monetary limits, procedures, and form-filing rules. If all these details were written directly in the Act, the Act would become very long and complicated. Instead, the Act lays down the main provisions, while the Rules provide the step-by-step guidance.

Once an Act is passed, the government issues Rules to support and implement the relevant sections. Before finalising the Rules, it is a common practice to release a draft version and collect feedback. This helps the government improve the Rules by considering inputs from experts, businesses, and citizens. Accordingly, the government has issued the draft Income Tax Rules, 2026 for public consultation and suggestions.

When will the New Income-tax Rules come into force?

The Income Tax Rules come into effect from 01st April, 2026, along with the Income Tax Act, 2025.

Key Changes that will impact Taxpayers

The following are the key changes proposed in the Draft Income Tax Rules 2026.

1. Allowances and Perquisite Valuation Rules 

 This is a long-awaited change; the draft rules now reflect the exempt allowances and perquisite value consistent with the current market rates and inflation. This makes the exemptions and benefits meaningful, contrary to the existing rules. The following table shows the allowances and perquisite rules as proposed in the Draft Income Tax Rules, 2026.

 

Item	BEFORE (Old Rules)	AFTER (2026 Rules)
Children Education	₹100 /month per child	₹3,000 /month per child
Hostel Allowance	₹300 /month per child	₹9,000 /month per child
Free Meals	₹50 per meal	₹200 per meal
Gifts (Non-cash)	₹5,000 per year	₹15,000 per year
Car Lease for Car with < 1.6L Engine	₹1,800 (Perquisites) + ₹900 (Driver)	₹5,000 (Perquisites) + ₹3,000 (Driver)
Car Car Lease for Car with > 1.6L Engine	₹2,400 (Perquisites) + ₹900 (Driver)	₹7,000 (Perquisites) + ₹3,000 (Driver)
Medical Treatment	Tax-free only if Income < ₹0.2Lakh	Tax-free if Income < ₹2 Lakh
Overseas Medical  Treatment	Tax-free only if Income < ₹2 Lakh	Tax-free only if Income < ₹8 Lakh

 

 

·       Bengaluru, Pune, Ahmedabad, and Hyderabad added to the list of metro cities for HRA purpose.

 

2. PAN Quoting Requirements & Monetary Limits

The following table shows the changes made in the PAN quoting requirements for various transactions.

S. No.	Nature of Transaction	Existing Rule Limit	Draft Rules 2026 Limit
1	Sale/purchase of a motor vehicle	All transactions (except two-wheelers)	> ₹5,00,000 (includes motorcycles; excludes tractors)
2	Cash payment to the hotel/restaurant	> ₹50,000 at one time	> ₹1,00,000
3	Life insurance premium	> ₹50,000 per year	Replaced by requirement at commencement of account-based relationship (all transactions)
4	Immovable property transaction	> ₹10 lakh	> ₹20 lakh
5	Cash withdrawals from the bank/post office	≥ ₹ 20 lakhs for a financial year	≥ ₹10 lakh in a financial year

 

3. Other Important Areas Covered

Changes are made related to SFT transactions and other miscellaneous areas. The following table summarises the changes.

Item	BEFORE (Old Rules)	AFTER (2026 Rules)
Property SFT Limit	₹30 Lakh	₹45 Lakh
Books for Professionals	Manual Books	Mandatory Digital Books
CBDC (e-Rupee)	Not Recognized	Valid Electronic Mode - for payments

 

4. Others

·       Number of rules reduced to 333 from 511; forms cut to 190 from 399

·       Crypto exchanges are required to share information with the tax department.

·       Central Bank Digital Currency (CBDC) is recognised as an accepted mode of electronic payment

·       Limit of Significant economic presence increased to transaction value of Rs. 2 Cr and 3 Lakh users.

·        

Old Tax Regime vs New Tax Regime – What Survives in 2026 Rules?

• The most beneficial regime for any taxpayer depends on their income and deduction/exemption levels. 
• With the exemption limits for various allowances and perquisites for salaried employees increased, the old regime might prove beneficial for a section of taxpayers.
• If you already have many tax-saving deductions and the old regime is still not beneficial for you, these increased deductions and exemption limits can reduce your taxable income, making the old regime more beneficial.