The Central Board of Direct Taxes (CBDT) has notified the Income-tax Rules, 2026, marking a major shift in India’s tax framework. These rules will replace the six-decade-old Income-tax Rules, 1962 and come into effect from April 1, 2026.
For salaried taxpayers, the new rules bring some important changes — especially in HRA, allowances, and documentation requirements.
The new income tax law brings several practical changes that directly impact salaried taxpayers. It expands the HRA benefit by including more cities, increases the limits for children’s education and hostel allowances, and introduces updated valuation rules for perks like company cars, concessional loans, and gifts from employers.
Alongside this, the rules also strengthen reporting requirements, especially for digital assets, reflecting the government’s push towards better transparency and tracking of income sources.
Most draft prposals retained in final version
Most of the proposals that were part of the draft rules have been retained in the final version, with only minor changes to improve clarity. However, what stands out is the level of detail introduced in compliance.
The new rules now include structured formats and clear instructions for reporting through new forms such as Forms 130, 124, and 141. This is a shift from the earlier approach, where rules were broader and less detailed, and signals a move towards more standardised and data-driven tax reporting.
Introduction of the ‘tax year’ concept
Another important change is the introduction of the concept of a “tax year” under the new Income-tax Act, 2025. This replaces the earlier system of having separate “previous year” and “assessment year.”
The idea is to simplify the tax process by using a single term for both earning income and paying tax on it. This change is expected to make the system easier to understand, especially for individual taxpayers, and reduce confusion around timelines.
Commenting on the development, Sudhakar Sethuraman, Partner, Deloitte India, said, “From 1 April 2026, taxpayers must use new forms, formats and terminology, follow requisite disclosure requirements, and adapt to revised perquisite valuation and reporting rules. From a policy perspective, the emphasis has clearly shifted towards simplification, standardization, and enhanced transparency.”
The consolidation of forms, introduction of the “tax year” concept, and rationalization of provisions are expected to make the law more navigable, particularly for individual taxpayers and businesses, he said.
Key changes every salaried taxpayer must know
HRA rules expanded to more cities
One of the biggest updates is the expansion of higher HRA exemption (50% of salary) to more cities.
Earlier limited to metro cities like Delhi, Mumbai, Chennai and Kolkata, the benefit now includes: Hyderabad, Pune, Ahmedabad, and Bengaluru.
As per Rule 279, HRA exemption will be the least of actual HRA received, rent paid minus 10% of salary and 50% (metro cities) or 40% (non-metro cities) of salary.
Important: HRA exemption is available only under the old tax regime.
Big jump in children-related allowances
The new rules significantly increase tax-free limits:
Children’s education allowance: Rs 100 → Rs 3,000/month per child
Hostel allowance: Rs 300 → Rs 9,000/month per child
These benefits (Rule 280) apply for up to two children and are also restricted to the old tax regime.
Stricter proof required for deductions
The government has tightened compliance. Taxpayers must now submit proper documents for claims such as:
HRA → landlord PAN (if rent > Rs 1 lakh)
Home loan interest → lender details
LTA → travel proof
Chapter VI-A deductions → investment proof
This move aims to reduce false claims and improve transparency.
Car perquisite valuation revised
The valuation of company-provided cars has been updated:
Up to 1.6L engine → Rs 5,000/month (employer-paid expenses)
Above 1.6L → Rs 7,000/month
Chauffeur cost → Rs 3,000/month extra
This impacts taxable salary for employees using company vehicles.
Old vs New Tax Regime: What changes?
Despite these updates, the broader debate remains unchanged.
New tax regime: Simpler, beneficial for most taxpayers (especially up to Rs 12.75 lakh income)
Backgrounder: New income tax law timeline
1961: Income-tax Act introduced
1962: Detailed rules notified
2020: New tax regime introduced (optional)
2023–25: Government begins simplifying tax law
2025: New Income-tax Act passed
March 2026: Income-tax Rules, 2026 notified
April 1, 2026: New system comes into force
What it means for you
The Income Tax Rules 2026 focus on simplification, higher allowances, and stricter compliance. While the new regime remains the default choice, taxpayers using the old regime may benefit from enhanced exemptions—provided they maintain proper documentation.
Disclaimer: This article is for informational purposes only and does not constitute professional tax advice. Tax laws and regimes are subject to frequent changes by the government. Readers should verify details with official Income Tax Department notifications or consult a Chartered Accountant before making any financial decisions.