Income-tax Rules, 2026: What’s changed for you

On 20 March 2026, the CBDT introduced the new Income-tax Rules, 2026 under the Income-tax Act, 2025. These rules will apply from 1 April 2026.

From an individual taxpayer’s point of view, here’s what has changed:

  • Higher limits for perks and allowances: The government has increased the values used to calculate taxable benefits (like company-provided perks) and raised exemption limits for some allowances. 

 

  •   More cases where PAN is required: You will now need to provide your PAN for more types of financial transactions. 

 

  •  Amendment to Rule reg. Car Perquisite:  Rule has been amended  regarding  calculation of  the taxable value of company-provided cars, including electric vehicles. 

 

  •   Stricter checks for updated returns: If you file an updated tax return (to correct earlier filings), there will be additional verification steps. 

 

  •   Changes in tax forms: New income-tax return forms have been introduced with updated reporting requirements. 

In short, The rules aim to update limits, improve clarity, and tighten compliance while making reporting more structured.


Details

Taxable value under Income-tax Rules, 1962

Taxable value under Income-tax Rules, 2026

a. Motor car owned or hired by employer

i. Used partly for official and partly for personal purposes and expenses on running and maintenance are met or reimbursed by the employer

Where cubic capacity of engine does not exceed 1.6 litres or the motor car is an electric vehicle

INR1,800 per

month (plus INR900 per month where a chauffeur is also provided)

INR5,000 per month (plus INR3,000 per month where a chauffeur is also provided)

Where cubic capacity of engine exceeds 1.6 litres

INR2,400 per

month (plus INR900 per month where a chauffer is also provided)

INR7,000 per month (plus INR3,000 per month where a chauffer is also provided)

 

 

ii. Used partly for official and partly for personal purposes and expenses on running and maintenance for personal use met by employee

Where cubic capacity of engine does not exceed

1.6 litres or the motor car is an electric vehicle

INR600 per month (plus INR900 per month where a chauffer is also provided)

INR2,000 per month (plus INR3,000 per month where a chauffer is also provided)

Where cubic capacity of engine exceeds 1.6 litres

INR900 per month (plus INR900 per month where a chauffer is also provided)

INR3,000 per month (plus INR3,000 per month where a chauffer is also provided)

b. Motor car owned by employee

Used partly for official and partly for personal purposes and expenses on running and maintenance met or reimbursed by employer

 

Actual value of expenditure incurred by employer as reduced by amounts provided below:

Where cubic capacity of engine does not exceed

1.6 litres or the motor car is an electric vehicle

INR1,800 per month (plus INR900 per month where a chauffer is also provided)

INR5,000 per month (plus INR3,000 per month where a chauffer is also provided)

Where cubic capacity of engine exceeds 1.6 litres

INR2,400 per month (plus INR900 per month where a chauffer is also provided)

INR7,000 per month (plus INR3,000 per month where a chauffer is also provided)

  • If your employer provides free or discounted education for your child, it will now be valued based on the actual cost of a similar school nearby. This will be taxable only if it exceeds ₹3,000 per month per child (earlier it was just ₹1,000).

 

  • If your employer gives you a loan, you won’t have to pay tax on it if:
  • it’s for certain medical treatments, or 
  • the total loan is up to ₹2 lakh (earlier limit was ₹20,000).

 

  • Free meals provided by your employer during work (or via meal vouchers) are now tax-free up to ₹200 per meal (earlier ₹50). 

 

  • Gifts or vouchers from your employer will not be taxed if their total value is up to ₹15,000 in a year (earlier ₹5,000).

 

  • If you claim foreign tax credit of ₹1 lakh or more, you’ll now need a Chartered Accountant to certify it, which means a bit more paperwork. 

 

  • The limits for when you must provide your PAN have been increased for certain transactions like buying a car, making big bank deposits, or spending at hotels and restaurants.

 

  • For Leave Travel Concession (LTC):
  • For air travel, the tax-free amount will now be based on the fare of the class you’re eligible for, using the shortest route (instead of economy fare limits earlier).
  • For bus travel in places without proper public transport, exemption will be ₹30 per km (earlier linked to train fares- AC First-Class).

 

  • Cities like Ahmedabad, Bengaluru, Hyderabad, and Pune will now be treated as metro cities for HRA calculation, so you can claim higher rent exemption (50% of salary instead of 40%). 

 

  • You can now verify an updated tax return using ITR-V (a physical verification option), making the process easier for some people.
  • Transport allowance for certain employees (like those in transport jobs without daily allowance) is now tax-free up to ₹25,000 per month or 70% of the allowance, whichever is lower (earlier ₹10,000).

 

  • Children’s benefits have increased:
    • Education allowance: Exemption of  ₹3,000 per month per child (earlier ₹100) 
    • Hostel allowance: Exemption of  ₹9,000 per month per child (earlier ₹300)

 

  • Transport allowance for physically challenged employees has been increased:
  • Metro cities: ₹15,000 + Dearness Allowance 
  • Non-metro cities: ₹8,000 + Dearness Allowance

(earlier it was ₹3,200 per month)

 

  • For employees working in underground mines, the allowance is now tax-free up to 15% of basic salary (earlier fixed at ₹800 per month).

Key changes in the Forms

1)   Form No. 130 replaces Form No. 16

  1. Your salary TDS certificate (earlier called Form 16) is now called Form 130. 
  2. Earlier it had 2 parts; now it has 3 parts. 
  3. There’s also an extra section for senior citizens in some cases.

2)  Form No. 124 replaces Form No. 12BB

  1. Form No. 124, being the statement showing particulars of claims by an employee has replaced Form No. 12BB.
  2. In case of HRA exemption claims, there is a requirement to disclose relationship with landlord, if any.
  3. Further, documentation in respect of claims (such as house rent agreement, loan agreement, etc.) are required to be provided as annexures.

3)  Consolidation of various TDS return forms

  1. Form No. 26QB, Form No. 26QC, Form No. 26QD, Form No. 26QE have been consolidated into a single Form No. 141. Earlier, separate forms had to be filed for each co-owner, co-buyer, co-seller, co-tenant, or co-landlord; this process has now been simplified and can be completed through one unified form.
  2. Under Schedule A (related to payment of rent), taxpayers are now required to specify whether the tax has been deducted on account of completion of tax year or end of tenancy.
  3. Under Schedule B (related to purchase of immovable property), detailed information must be provided on each instalment paid, specifying whether it is the first, a subsequent, or the final instalment.

4)  Form No. 44 replaces Form No. 67

  1. Form No. 44 has replaced Form No. 67 which is required to be filed by taxpayers claiming Foreign Tax Credit. Such form to be verified by a Chartered Accountant holding a COP.

 

 

5)  Change in PAN application form numbers

  1. Form No. 93 and Form No. 95 has replaced erstwhile Form No. 49A and Form No. 49AA respectively.
  2. Details of passport number and citizenship status required to be provided mandatorily by Non- Residents(NRs)/ Not Ordinarily Residents(NORs).

6)  Declaration in Form No. 157 to be filed by certain individuals leaving India

  1. Individuals domiciled in India who are leaving India, and do not possess a PAN either because their total income is below the basic exemption limit or they are otherwise not required to obtain a PAN, are now required to file Form No. 157.

 

Our Views

The new rules make some changes to match today’s economic conditions better.

Some benefits like children’s education allowance, hostel allowance, and interest-free loans have been improved. This helps employees who follow the old tax system save a bit more tax. However, if your employer gives you a car, the updated rules may increase the tax you have to pay on that benefit.

The rules now clearly include electric vehicles when calculating tax on company-provided cars, which removes earlier confusion.

For people who don’t have Aadhaar or can’t verify their updated tax returns online, things were difficult earlier. Now, a new option called ITR-V has been added, making it easier for such taxpayers to complete the process.

Overall, these updates aim to make the tax system clearer, more practical, and easier to follow for most people.