The Finance Ministry on 20 March notified and published its draft Income-Tax Rules, 2026, in the e-Gazette.
This comes after the Central Board of Direct Taxes (CBDT) put out its Draft Income Tax Rules in January 2026 and sought feedback from stakeholders. These rules make it possible for the I-T Act of 2025 to come into effect, replacing the 1961 Act with effect from 1 April 2026.
Notably, Budget 2026 extended the income tax returns (ITR) due date for ITR-3 and ITR-4 for non-audit taxpayers to 31 August from the end of the relevant tax year. However, there are no changes in the income tax slabs for FY26-27, and the existing slabs will continue. Further, the deadline for ITR-1 and ITR-2 remains 31 July of the relevant tax year, and the due date for the tax audit also stays unchanged at 31 October.
What are the structural changes to I-T rules?
- The number of tax rules has been reduced from 399 to 190.
- The number of tax forms has been reduced from 511 to 333.
- The changes aim to make the taxation system easier for businesses and taxpayers to use.
- Further, all the forms will look the same and feature text that is easier to read, with features like auto-filled data.
How will these changes impact you, the taxpayer?
- Meal cards: No taxes for corporate meal cards that cost ₹200 or less per meal, under the Old Tax regime only. This includes free food and non-alcoholic beverages for employees, and is an increase from the previous ₹50 per meal
- Coupons and gift cards: Corporate gift cards, gift certificates or coupons of up to ₹15,000 each year are tax-free under the Old Tax regime.
- Corporate loans: Loans with no interest or interest rates below the market rate are to be taxed, based on the difference between the State Bank of India (SBI) lending rate and the actual rate charged, subject to certain exceptions. However, loans less than ₹2 lakh and those taken for medical emergencies remain tax-free.
- Corporate / company vehicle: For vehicles assigned by employer for work and personal use, tax of ₹8,000/month will be applicable on cars with engines up to 1.6 litre; and ₹10,000/month for bigger vehicles. This is under the Old and New Tax regimes.
- HRA exemption: Four new cities added to list of metros allowed to claim 50% House and Rental Allowance (HRA) exemption. Ahmedabad, Bengaluru, Hyderabad and Pune have been added to the list which includes Chennai, Delhi, Kolkata and Mumbai. This is under the Old Tax regime.
- Children’s education-related expenses: The exemption for the children’s education allowance has increased from ₹100/month to ₹3,000/month, per child under Old Tax regime. Further, the hostel expenditure allowance under Old Tax regime has also been increased from ₹300/month to ₹9,000/month, per child.
- Sector allowance: The exemption for the allowance granted to employees working in any transport system has been enhanced from ₹10,000/month or 70% of the allowance, whichever is lower, to ₹25,000/month or 70% of the allowance, whichever is lower.
- STT hike: The Centre has hiked Securities Transaction Tax (STT) for the equity derivatives segment in a move that is expected to hit futures and options (F&O) traders. STT on futures will be increased to 0.05% from 0.02%, and on options transactions will be raised to 0.15% from 0.1%, from 1 April. This tax is levied on every purchase and sale of securities, such as equity shares, futures and options on recognised stock exchanges.
- Buyback taxation: Any amount received from the buyback of shares will be taxed as capital gains from 1 April. Further, promoter shareholders will have to pay a “differential buyback tax” with an effective rate of 22% for corporate promoters and 30% for non-corporate promoters.
- Changes to TCS: The Budget rationalised Tax Collected at Source (TCS) to ease compliance, reduce refund delays, and address confusion among taxpayers, with effect from April. TCS rates on alcoholic drinks is increased from 1% to 2%; TCS rates on remittance under Liberalised Remittance Scheme (LRS) for overseas tour package have been reduced to a single flat rate of 2% without threshold from the existing dual rate of 5% and 20%; TCS rate for remittance under LRS for education and medical treatment has been reduced from 5% to 2%.
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