New Delhi | The Central Board of Direct Taxes on Friday notified the rules for Income-tax Act, 2025 which provided enhanced tax benefit for HRA to salary earner but makes disclosure of landlord-tenant relationship mandatory.
The Income-tax Rules, 2026 will operationalise the simplified direct tax legislation that was approved by Parliament last year and will come into effect from April 1.
"These rules may be called the Income-tax Rules, 2026. They shall come into force on the April 1, 2026," a gazette notification said.
Income Tax Rules have significantly raised transaction limits for quoting of PAN for cash deposits/withdrawal in banks, purchase of motor vehicles and property, and payment of hotel bills.
It has also led to enhancing the value of perquisites provided by employers, and making it mandatory for crypto exchanges to share information with the tax department. It also includes Central Bank Digital Currency (CBDC) as an accepted mode of electronic payment.
Parliament on August 12, 2025 passed a new Income Tax Bill to replace the six-decade-old Income Tax Act, 1961. It does not impose any new tax rate and only simplified the language, which was required for understanding the complex Income Tax laws.
The Act has removed redundant provisions and archaic language and reduces the number of Sections from 819 in the Income Tax Act of 1961 to 536 and the number of chapters from 47 to 23.
The number of words had been reduced from 5.12 lakh to 2.6 lakh in the new Income Tax Bill, and for the first time, introduces 39 new tables and 40 new formulas, replacing the dense text of the 1961 law to enhance clarity.
New rules create stricter regulations around capital gains, stock exchange dealings and non-resident taxation while simplifying other disclosure mechanisms.
The notification, introduces more than 150 official forms -- numbered from Form 33 onwards -- covering a wide range of tax-related activities.
Income tax rules retain the proposed framework for house rent allowance (HRA) exemptions applicable to salaried taxpayers. However, it has doubled the number of cities eligible for 50 per cent exemption.
Under the new rules, eight cities -- Mumbai, Kolkata, Delhi, Chennai, Hyderabad, Pune, Ahmedabad, and Bengaluru -- will qualify for a higher exemption limit of 50 per cent of salary, while all other locations will continue at 40 per cent.
At present, salaried employees in Mumbai, Delhi, Kolkata, and Chennai are allowed to claim HRA exemption of up to 50 per cent of their salary, while those living in other locations are eligible for a lower limit of 40 per cent.
The new rules notified seek disclosure of tenant-landlord relationship for claiming I-T deductions and increased responsibility of auditors and companies for tax credit claims on foreign income.
It also entrusts auditors with greater responsibility for checking PAN duplication and tax liability arising out of adverse audit observation.
According to new rules, quoting of Permanent Account Number (PAN) will be mandatory for making cash deposits or withdrawals aggregating to Rs 10 lakh or more in a financial year, in one or more accounts of a person.
Presently, PAN is required for cash deposits exceeding Rs 50,000 during any one day with a banking company or a cooperative bank.
In case of purchase of motor vehicles (including motor cycles), a buyer has to quote his/her PAN if the price exceeds Rs 5 lakh.
The current Income Tax Rules, 1962, do not provide for quoting of PAN for purchase of two-wheelers, while for motor vehicles it was mandatory irrespective of price.
In case of hotel/restaurant bills, payments made to convention centres or banquet halls or a person engaged in event management, PAN will be mandatory if the payment exceeds Rs 1 lakh.
The current I-T Rules specify a Rs 50,000 threshold for quoting PAN in case of hotel/restaurant bills.
In case of purchase or sale or gift or joint development agreement of any immovable property, PAN will be mandatory if the transaction cost is more than Rs 20 lakh, as against the existing limit of Rs 10 lakh.
It also clarifies how the holding period of assets will be calculated in specific cases to determine whether gains are short-term or long-term.
For converted securities such as shares or debentures, the holding period will include the time for which the original instrument -- like bonds, debentures, or deposit certificates -- was held before conversion.
It also entrusts auditors with greater responsibility for checking PAN duplication and tax liability arising out of adverse audit observation.
Spanning an extensive document of 1,000 pages, the rules constitute a highly detailed code comprising several hundred individual rules along with dozens of prescribed forms, reflecting the scale and depth of the new tax framework.
Commenting on the notification, Rajat Mohan, senior partner, AMRG & Associates, said these rules provide critical procedural clarity across diverse areas, including determination of fair market value, and computation of income in cross-border structures.
Notably, he said, the detailed framework for valuation of assets -- especially in the context of indirect transfers and foreign entities -- demonstrates a clear policy intent to strengthen anti-avoidance provisions while aligning with internationally accepted valuation standards.
"The new rules should greatly help employers and employees given the recalibrated and realigned limits for various employee perquisites and exemptions. While these are largely applicable for those on old regime, employees under new regime should also benefit," Deloitte India partner SureshKumar S said.
According to AKM Global managing partner Amit Maheshwari, EVs are now treated at par with cars having engine capacity not exceeding 1.6 litres for the purpose of valuing perquisites when the vehicle is used partly for official duties and partly for personal purposes as per the new rules.
