Major Overhaul Proposed in Draft Income Tax Rules for 2026
The Central Board of Direct Taxes has unveiled the draft Income-tax Rules, 2026, signaling significant changes aimed at simplifying compliance and adjusting thresholds to contemporary economic conditions. Released for public consultation on Saturday, these rules are scheduled for implementation starting April 1, 2026, with final notification expected in early March.
Key Threshold Revisions for Financial Transactions
One of the most notable changes involves the permanent account number (PAN) quoting requirement. The draft rules propose raising the threshold for quoting PAN for bank deposits to ₹200,000, a substantial increase from the current limit of ₹50,000. This revision extends to various financial investments, including mutual funds, where PAN will now be mandatory only for investments exceeding ₹200,000, up from the previous ₹50,000 benchmark.
Tax officials emphasized that while these new rules will govern future filings, taxpayers must continue using existing forms for income earned in the financial year 2025-26. This transitional measure ensures continuity during the implementation phase.
Enhanced Employee Benefits and Allowances
The draft rules introduce significant rationalization of monetary thresholds for employer-provided allowances, reflecting current market realities. The tax-exempt per-meal limit has been increased to ₹200, up from ₹50, providing substantial relief to employees. Additionally, thresholds for children’s education allowances and personal expense allowances have been revised upward.
"The rates have been rationalized taking into account market realities. Up to the revised level, the amount paid by the employer will not be counted as perquisites. It will be beneficial to the employees," explained an unnamed tax official familiar with the matter.
Income Tax Rule 15 now provides updated applicable thresholds for various perquisites in tabular format, along with specific conditions for their application. Experts note that these revisions represent a substantive recalibration of the tax treatment of employee benefits, including tax-free at-work meal values, gifts received from employers, and provision of free or concessional educational facilities for household members.
Streamlined Forms and Digital Integration
The 2026 rules and accompanying forms have undergone comprehensive simplification to eliminate redundancies and request only relevant, usable information from taxpayers. Officials stated that the draft rules are more concise and coherent, designed to reduce the compliance burden.
Process re-engineering has been implemented to minimize paperwork and facilitate more convenient return filing, according to a second unnamed official. The number of rules and forms has been reduced by nearly half, making the system more efficient.
Taxpayers will be offered pre-filled forms that they can either edit or approve, significantly simplifying the filing process. This innovation is expected to encourage wider participation and deepen the tax base over time.
Inclusion of Central Bank Digital Currency
In a forward-looking move, the draft rules explicitly include Central Bank Digital Currency (CBDC) as an accepted mode of electronic payment. This inclusion acknowledges the growing importance of digital currencies in the financial ecosystem and ensures the tax framework remains relevant in an increasingly digital economy.
The public consultation period allows stakeholders to provide feedback on these proposed changes before final implementation, ensuring the rules effectively balance simplification with robust tax administration.
