ET OnlineTax department releases draft Income Tax Rules, 2026; Know more(AI generated representative image)
The Income Tax Department has announced the release of the draft new Income Tax Rules, 2026 which will correspond to Income Tax Act, 2025 and replace the earlier 1962 tax rules, once passed in Parliament.
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Income-tax Act, 2025 is to come into force from April 1, 2026 and so the tax department has drafted the Income-tax Rules, 2026 and forms that are part of these Rules. These rules once passed in Parliament will be applicable from April 1, 2026.
These Rules are required to be notified shortly.
In a note, the tax department said that prior to the said notification, it has been decided to place the draft Income-tax Rules, 2026 (and Forms) in public domain so as to seek the feedback/comments from stakeholders and public.
These draft rules and forms shall remain in public domain for a period of 15 days i.e. up to February 22, 2026. The tax department has requested all stakeholders and members of the public to go through these draft rules and forms and provide considered feedback on the same so as to make the exercise of framing of subordinate legislation more participative and effective.
Changes made in rules and forms to simplify and improve taxpayers’ experience
The drafting of new Income-tax Rules and forms has followed the same philosophy as that of the new Income-tax Act 2025. The language of the rules has been simplified to the extent possible. Formulas and tables have been provided wherever necessary. Redundancy in the Income-tax Rules, 1961 has been sought to be eliminated.
While preserving the larger content of the policy, certain changes have been introduced in line with the changes in the Income-tax Act, 2025.
Tax forms have been simplified
The forms which are part of the draft rules have also been simplified to a large extent for the ease of the tax payers. Standardisation of common information has been done across the forms with a view to reducing the compliance burden of the tax payers. Forms have been designed in a smart way so as to provide for automated reconciliation and also prefill capabilities so as to make filing more intuitive and less error-prone.
The Income Tax Department said that these smart forms would considerably ease the filing and enhance the user experience. They would also enable centralised processing and data driven decision making so that the technology is used to provide better services to the taxpayers. The language of the forms has also been simplified so as to avoid any operational, administrative or legal ambiguity. Notes to forms have been simplified.
Sandeepp Jhunjhunwala, Partner at Nangia Global said to ET Wealth Online: “The release of comprehensive valuation rules covering all categories of assets, articulated in simplified and accessible language and the decision to substantially align these rules with the existing valuation framework, enhances continuity, reduces interpretational ambiguity, and promotes greater ease of compliance, while still advancing clarity and consistency in implementation.”
Jhunjhunwala says that consolidation of Rule 11UA, 11UAA and 11UAB into a single rule, Rule 57, enhances coherence and mitigates ambiguity arising from dispersed provisions.
Rule 6 of the draft rules: Method of determination of period of holding of capital assets in certain cases
(1) For the purposes of section 2(101)(c)(D), the period for which such capital asset is held by an assessee, shall be determined in accordance with the provisions of this rule.
(2) For the capital asset mentioned in column (B) of the Table below, the period for which the capital asset is held by the assessee shall be determined in accordance with column (C) thereof:
| SI (A) | Nature of asset (B) | Period of holding (C) |
| Shares or debentures of a company, which becomes the property of the assessee under the circumstances mentioned in section 70(1)(z) of the Act | The period of holding shall include the period for which the bond, debenture, debenture-stock or deposit certificate, as the case may be, was held by the assessee prior to the conversion. | |
| 2. | capital asset declared under the Income Declaration Scheme, 2016 | (i) in the case of an immovable property, the period for which such property is held is to be reckoned from the date on which such property is acquired, if the date of acquisition is evidenced by a deed registered with any authority of a State Government. (ii) in any other case, the period for which such asset is held shall be reckoned from the 1st day of June, 2016 |
| 3. | capital asset which became the property of the Indian subsidiary company in consequence to conversion of a branch of a foreign company referred to in section 219(1). | the period of holding shall include the following: (i) the period for which the asset was held by the said branch of the foreign company (ii) the period for which the asset was held by the previous owner, if any, who has acquired the capital asset by a mode of acquisition referred to in section 73(1) [Sl.No1. Column (A)] or section 219(1) |
(3) In case of the amount which is chargeable to income-tax as income of a specified entity under section 67(10) under the head “Capital gains”:
(a) the amount or a part of it shall be considered to be from transfer of short-term capital asset, if it is attributed to, –
(i) the capital asset which is short-term capital asset at the time of taxation of amount under section 67(10)
(ii) capital asset forming part of block of asset; or
(iii) capital asset being self-generated asset and self-generated goodwill as defined in section 67(11) (b) the amount or a part of it shall be considered to be from transfer of long-term capital asset or assets, if it is attributed to capital asset which is not covered by clause (i) and is long-term capital asset at the time of taxation of amount section 67(10).
Rule 57 of the draft tax rules: Determination of Fair Market Value
For the purpose of the sections referred to in column B of the Table below, the fair market value of the property of the nature referred to column C shall be determined in the manner provided in column D thereof:
(Extract of the table is given below, some types of properties like quoted shares, unquoted shares are not mentioned in this table reproduced below but exists in the actual draft shared by tax department)
| SI (A) | Section (B) | Nature of Property (C) | Manner of determination of Fair Market Value (D) |
| 1. | (i) Section 92 (ii)Section 26(2)(j) | Jewellery | (a) The price which such jewellery would fetch if sold in the open market on the valuation date. (b) If the jewellery is received by way of purchase from a registered dealer on the valuation date, the invoice value of such jewellery. (c) If the jewellery is received by any other mode and its value exceeds Rs 50,000, the assessee may obtain a report from a registered valuer regarding the price it would fetch if sold in the open market on the valuation date. |
| 2. | (i) Section 92 (ii) Section 26(2)(j) | Archaeological collections, drawings, paintings, sculptures or any work of art (hereinafter referred as artistic work) | (a) The price which such artistic work would fetch if sold in the open market on the valuation date. (b) If the artistic work is received by way of purchase from a registered dealer on the valuation date, the invoice value of such artistic work. (c) If the artistic work is received through any other means and its value exceeds Rs.50,000, the assessee may obtain a report from a registered valuer regarding the price it would fetch if sold in the open market on the valuation date. |
| 5. | Section 26(2)(j) | Immovable property being land or building or both | The value adopted or assessed or assessable by any authority of the Central Government or a State Government for the purpose of payment of stamp duty in the respect of such immovable property on the valuation date. |
| 6. | Section 26(2)(j) | Any other property other than referred to at Sl No. 1-6 above. | The price that such property would ordinarily fetch on sale in the open market on the valuation date |
Jhunjhunwala says that a marked difference appears to have been made in the qualifying definition of an Accountant for the purpose of various certification for the purpose of asset valuation under the new Income Tax Act, which now stands revised to individual professionals with not less than 10 years experience and annual receipt in the year preceding certification to be more than Rs 50 lakh and in case of Partners in any entity engaged in rendering accountancy or valuation services, the annual receipt of the entity in the year preceding certification, exceeds Rs 3 crore.”
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