Central Board of Direct Taxes has released draft Income-tax Rules and Forms to simplify compliance under the Income-tax Act, 2025, cutting paperwork, raising PAN thresholds, and expanding tax-free allowances ahead of rollout from April 1, 2026.
The Income Tax Act, 2025 takes effect from April 1, 2026 (Tax Year 26-27 / FY 26-27). Draft Income Tax Rules, 2026 and redesigned forms are open for public feedback until February 22.
The Central Board of Direct Taxes (CBDT) has released the draft Income-tax Rules and Forms ahead of the Income-tax Act, 2025, coming into force on April 1. Kuldeep Singh explains the key changes and how these will ensure better compliance while reducing paperwork for taxpayers
The need for a complete rewrite
The old Income Tax Act, 1961 and Rules (1962) had become complex due to frequent amendments, redundancies, and cross-references. This made compliance difficult, increased dependence on professionals, and led to frequent disputes due to data mismatches. The Income Tax Act, 2025 simplified the law.
However, taxpayers interact mainly with rules and forms, which remained unwieldy. A full rewrite was needed to reduce paper-work, eliminate duplication using existing digital data, redesign processes for trust-based digital administration and deliver real ease of compliance.
When do these come into effect?
The Income Tax Act, 2025 takes effect from April 1, 2026 (Tax Year 26-27 / FY 26-27). Draft Income Tax Rules, 2026 and redesigned forms are open for public feedback until February 22. Final Rules and Form, and FAQ will be out after consultation, soon. They will apply to income earned from April 1, 2026 onwards. The old Act and Rules continue until March 31, 2026.
Fewer forms, less paperwork
Transactions requiring non-pan declarations have been sharply reduced. Earlier, individuals without PAN had to file Form 60 for 21 different types of transactions. Now, where data is already available through banking systems or digital payments, Form 60 is not required.
Earlier, PAN applications were handled through Forms 49A and 49AA, each being a long, one-size-fits-all form. Under the new framework, PAN forms are split by individual and non-individual applicants. The tax audit report (Form 26) has been aligned with ITR for auto-population.
Forms 15G/15H used by depositors have been merged into one smart form, very senior citizens (75+) get simplified authorisation so banks can deduct tax (many skip returns), business forms use dynamic logic (irrelevant fields hidden, data entry reduced.
Thresholds for mandatory PAN quoting raised
THE DRAFT RULES raise PAN quoting thresholds for purchase, sale, gift, joint development of immovable property to above Rs 20 lakh (up from Rs 10 lakh). For cash deposits/withdrawals, the new threshold is aggregation of Rs 10 lakh or more in a financial year across accounts (earlier Rs 50,000 per day at banks/ cooperative banks).
For motor vehicle purchases (including motorcycles), it has been set at Rs 5 lakh (previously all four-wheelers regardless of price, none for two-wheelers). Any payments of above Rs 1 lakh (up from Rs 50,000) made to hotels, banquet halls, convention centres, restaurants or event management companies will need PAN to be quoted.
Tax-free perks get inflation benefit
The draft rules update outdated perquisite valuations to reflect inflation and current costs. Free food/non-alcoholic beverages during working hours are tax-free up to Rs 200 per meal against Rs 50 earlier.
Employer-provided motor car perquisites increased for cars with 1.6 liter (L) engine to Rs 8,000/ month (Rs 5,000 car + Rs 3,000 driver) from Rs 2,700 and for vehicles above 1.6L engine, valuations have been revised to Rs 10,000/month from Rs 3,300 per month. Annual tax-free threshold for employer gifts has been increased to Rs 15,000 from Rs 5,000.
Higher HRA sops for more cities
Under the draft I-T rules, children’s education allowance rises from Rs 100 to Rs 3,000 per month per child (maximum of two children). Hostel expenditure allowance increases from Rs 300 to Rs 9,000 per month per child to help salaried taxpayers claim higher exemptions for family education/ hostel costs.
The draft expands the list of cities eligible for the higher 50% house rent allowance (HRA) exemption. Currently limited to Mumbai, Delhi, Kolkata, and Chennai, it now includes Bengaluru, Hyderabad, Pune, and Ahmedabad — thus making eight cities qualify for 50% of salary (basic plus dearness allowance) as the maximum exemption limit. For other cities, the exemption remains 40% of salary.
Likely impact on compliance
Compliance now becomes significantly easier, faster, and less burdensome due to reduced number of forms (190 against 399 earlier), heavy use of pre-available data (banks/ employers), auto-population, and system integration. Technical mismatches (a major source of notices) are expected to drop sharply because audit reports will align with returns and errors are flagged at filing stage.
Litigation at source is set to reduce through clearer processes and fewer interpretation disputes. The reform shifts taxation toward trust, certainty, and voluntary compliance while improving India’s investment climate by signalling a stable, citizen-friendly regime.
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