Income Tax Rules, 2026
March 23, 2026
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The Central Board of Direct Taxes (CBDT), under the Ministry of Finance, issued a landmark Gazette Notification on March 20, 2026, formally establishing the Income-tax Rules, 2026. These rules are enacted under Section 533 of the new Income-tax Act, 2025 (Act No. 30 of 2025), which replaces the Income-tax Act, 1961, and will come into force on April 1, 2026.
Changes That Affect Everyone
These changes cut across every category of taxpayer — salaried, self-employed, investor, business owner. Read this part first before jumping to your specific section.
|
What’s changed |
Under the old Act (1961) |
Under the new Act (2025) |
| Core terminology | “Previous Year” and “Assessment Year” were two separate, distinct concepts | Replaced by a single Tax Year (e.g., Tax Year 2026-27) |
| Revised ITR filing window | 9 months from the end of the relevant year | Extended to 12 months from the end of the Tax Year |
| Investigative digital access | Restricted to physical records and a narrow set of digital assets | Authorities can now access emails, cloud drives, social media, and digital trading accounts |
| Crypto / VDA assets | Covered loosely under existing provisions, without an explicit definition | Formally defined and addressed under dedicated provisions |
For HR, Payroll Teams, and Business Owners
Forms — the new names
Every form has either been renamed or redesigned.
|
Old form (1961 Act) |
New form (2025 Act) |
What it’s for |
| Form 16 | Form 130 — now three parts, plus a senior citizen annexure | Annual TDS certificate issued to employees |
| Form 24Q | Form 138 | Quarterly TDS return submitted by employers to the tax department |
| Form 12BB | Form 124 | Employee declarations for HRA, LTC, and home loan interest |
| (No standardised form existed) | Form 122 (new) | Standardised employee declaration for investments and deduction claims |
Note: Form 16 for FY 2025-26 will still go out under the old name — the switchover to Form 130 only applies from Tax Year 2026-27, once the current filing cycle finishes.
Section numbers — what’s moved where
|
Old section (1961 Act) |
New section (2025 Act) |
Covers |
| Section 192 | Section 392 | TDS on salary — employer estimates annual income and deducts tax monthly |
| Scattered across multiple sections | Section 393 | All non-salary TDS consolidated here — residents, non-residents, any person; includes TDS on income of specified senior citizens |
| Scattered across multiple sections | Section 394 | All TCS (Tax Collected at Source) provisions consolidated |
| Section 80C | Schedule XV read with Section 123 | Investment deductions — PPF, ELSS, LIC, home loan principal, and so on |
The practical upshot: over sixty TDS and TCS provisions that were spread across the old Act are now in three sections. Section 392 is new Section 192. Section 123 does what Section 80C did. The compliance obligation itself hasn’t changed — annual income will be estimated at year-start and deducted proportionally each month.
What falls inside TDS under Section 392
TDS applies to the full scope of what an employee earns, not just their monthly salary transfer. That includes:
- Joining bonuses and signing amounts
- ESOPs — taxable at exercise, valued at Fair Market Value on the exercise date
- Non-cash benefits and perquisites, valued using prescribed rule-based methods
- Termination payouts including severance and ex-gratia amounts beyond exempt limits
Shortfalls attract interest at 1.5% per month — and the liability sits with the employer, not the employee.
HRA — updated exemption rules
The 2025 Act expands the metro list from four cities to eight.
|
City |
Earlier classification |
From April 2026 |
| Mumbai, Delhi, Kolkata, Chennai | Metro — 50% exemption | No change |
| Bengaluru | Non-metro — 40% | Upgraded to Metro — 50% |
| Hyderabad | Non-metro — 40% | Upgraded to Metro — 50% |
| Pune | Non-metro — 40% | Upgraded to Metro — 50% |
| Ahmedabad | Non-metro — 40% | Upgraded to Metro — 50% |
For employees based in those four newly upgraded cities, the shift from 40% to 50% of Basic Pay directly reduces the taxable portion of their HRA.
Rent paid to a family member
If an employee pays rent to a parent, spouse, or sibling and the annual total crosses ₹1 lakh, Form 124 now requires the landlord’s name, PAN, and their relationship to the employee. Without it, the HRA claim is simply invalid.
Allowance limits — what’s been revised
|
Allowance |
Earlier limit |
Revised limit |
| Children’s education allowance | ₹100/month per child | ₹3,000/month per child |
| Hostel expenditure allowance | ₹300/month per child | ₹9,000/month per child |
| Transport allowance — differently abled employees | ₹3,200/month | ₹15,000 + DA (metros) / ₹8,000 + DA (others) |
Perquisite values — revised thresholds
|
Perquisite type |
Earlier value |
Revised value |
| Festival gift / non-cash voucher | ₹5,000/year | ₹15,000/year |
| Interest-free or concessional loans (aggregate) | ₹20,000 | ₹2,00,000 |
| Office meals — tax-free amount per meal | ₹50/meal | ₹200/meal |
|
Company car — scenario |
Earlier monthly rate |
Revised monthly rate |
| Employer pays maintenance, engine under 1.6L (or EV) |
₹1,800 |
₹5,000 |
| Employer pays maintenance, engine above 1.6L |
₹2,400 |
₹7,000 |
| Employee pays maintenance, engine under 1.6L (or EV) |
₹600 |
₹2,000 |
| Employee pays maintenance, engine above 1.6L |
₹900 |
₹3,000 |
| Driver provided by the employer |
₹900 |
₹3,000 |
The vehicle perquisite changes matter most for companies that include cars in executive packages. For anything above 1.6L, you’re looking at ₹7,000/month as the base perquisite value, plus ₹3,000/month if a driver is also provided.
Deadlines:
- TDS deposit: 7th of the following month. TDS deducted in March is due by April 30th.
- Form 138 (quarterly TDS return, replacing Form 24Q): Q1 by July 31 / Q2 by October 31 / Q3 by January 31 / Q4 by May 31.
- Form 130 (TDS certificate, replacing Form 16): Issue to employees by June 15th after the Tax Year ends.
Please find the notification below:
