The income tax department has released the Draft Income-tax Rules, 2026, to operationalise the Income-tax Act, 2025. While these rules are still in draft form and may change after stakeholder consultations,
they provide a detailed roadmap of how the new tax system is expected to work from April 1, 2026.
For taxpayers, the draft rules provide clearer valuation of income and perks, and a move towards simplified returns and tighter but more predictable compliance.
Simpler ITRs and clearer tax calculations
One of the key objectives of the draft rules is to support simpler income-tax return (ITR) filing under the new law. By laying down detailed formulas and valuation methods upfront — especially for salary income, perquisites, capital assets and foreign income — the rules aim to reduce ambiguity and disputes at the time of filing returns.
Tax experts say this could make ITR forms more standardised, with fewer open-ended disclosures and less scope for subjective interpretation by both taxpayers and tax officers.
Salary perks under sharper focus
For salaried taxpayers, the draft rules bring clarity on how employer-provided benefits will be taxed. These include housing, company cars, food benefits, gifts, credit card expenses, club memberships and concessional loans.
Employer-provided accommodation will be taxed based on city population and salary levels, while company car usage will be classified clearly as official, personal or mixed use, with fixed monthly perquisite values. The rules also spell out documentation requirements, especially where official use is claimed, signalling stricter enforcement but clearer expectations.
Food, gifts and small benefits: what stays tax-free
Some familiar exemptions continue under the draft framework. Free food and non-alcoholic beverages provided during working hours remain tax-free up to Rs 200 per meal. Gifts, vouchers or tokens from employers will not be taxed if their total value stays below Rs 15,000 in a tax year.
Interest-free or concessional loans from employers remain exempt up to Rs 2 lakh, while loans for specified medical treatment continue to enjoy tax relief, subject to conditions.
Easier compliance
While the draft rules seek to simplify tax computation, they also make record-keeping more important. Detailed tables for perquisite valuation and clearly defined formulas are expected to reduce litigation, but employees and employers will need to maintain proper documentation for travel, car usage and reimbursements.
NRIs and global income: more clarity, wider tax net
For non-residents, the draft rules explain how income linked to India will be computed when exact figures are not available. They also define thresholds for ‘significant economic presence’.
At the same time, Indian seafarers get clarity, as days spent on eligible foreign voyages will not be counted while determining residential status, provided prescribed certificates are maintained.
ESOPs, investments and valuation rules
Employees holding ESOPs and investors should note the detailed valuation rules proposed for listed and unlisted shares. The draft rules specify how fair market value will be calculated and when merchant banker valuations will be mandatory, which could influence tax outgo at the time of exercising stock options.
It is important to note that these are draft rules and may change before being notified. However, such procedural rules usually see limited changes once finalised.
Richa Sawhney, partner tax, Grant Thornton Bharat LLP, said, “In line with the New Income -Tax Act, the new rules have also been drafted to ensure they are simple to comprehend and easy to comply with, for all categories of taxpayers. The number of rules and forms has been significantly reduced, as redundant ones have been removed. The use of tables will help in better navigation. The focus on technology in ensuring the forms are pre -filled and reconciled will reduce the time spent in compliances and reduce inadvertent errors. It is important that all stakeholders evaluate these rules and forms in detail and share their inputs with the government in a timely manner, so that any teething issues in implementation are mitigated and there is a smooth transition.”
The New Income Tax Act 2025
A new and simplified Income Tax Act, 2025, which will replace the over six-decade-old Income Tax Act of 1961, will come into effect from April 1.
The Income Tax department has sought comments from stakeholders on the draft Income-tax Rules, 2026, and forms by February 22. Thereafter, the rules and forms under the new Act will be notified.
The Income-tax Rules, 1962 contains 511 rules and 399 forms. As a result of the changes proposed in the new rules and forms, including the removal of redundancy and consolidation of rules wherever possible, the draft Income-tax Rules, 2026 contains 333 rules and 190 forms, the I-T department said while inviting stakeholder comments.
With regard to the new income tax forms, it said that they have been simplified to a large extent for the ease of the taxpayers. Standardisation of common information has been done across the forms with a view to reducing the compliance burden of the taxpayers.
“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. These smart forms would considerably ease the filing and enhance the user experience,” it said.
