Employment Tax

India | Income-tax Rules, 2026—key highlights for personal and employment tax compliances

Summary

As part of the transition to the new Income-tax Act, 2025, the Central Board of Direct Tax (CBDT) has notified the Income-tax Rules, 2026 (Rules 2026) on 20 March 2026, which will come into force from 1 April 2026.

Key rationalization measures include a reduction in the number of Rules from 511 to 333 and a streamlining of prescribed Forms from 399 to 190. The revised framework also introduces technology-enabled forms, eliminates obsolete provisions, and consolidates previously fragmented requirements.

From a taxpayer perspective, Rules 2026 brings several notable changes. Revised perquisite valuation rules and increased exemption thresholds for certain allowances and benefits such as children’s education allowance, hostel expenditure allowance, and interest-free loans are expected to provide relief. However, enhanced valuation norms for motor cars (including electric vehicle) perquisite may lead to a higher tax burden.

The details

Key changes impacting individual taxation are given below:

Perquisite valuation

Details	Income-tax Rules, 1962		Income-tax Rules, 2026
Perquisite value for motor car owned or hired by employer: used partly for official and partly for personal use.
Running and maintenance expenses	Where cubic capacity (‘cc’) of engine does not exceed 1.6 litres	Where cc of engine exceeds  1.6 litres	Where cc of engine does not exceed 1.6 litres or the motor car is an electric vehicle	Where cc of engine exceeds 1.6 litres
Expenses met or reimbursed by employer	INR 1,800 (plus INR 900, if chauffeur also provided)	INR 2,400 (plus INR 900, if chauffeur also provided)	INR 5,000 (plus INR 3,000, if chauffeur is also provided)	INR 7,000 (plus INR 3,000, if chauffeur also provided)
Expenses for personal use met by employee	INR 600 (plus INR 900, if chauffeur also provided)	INR 900 (plus INR 900, if chauffeur also provided)	INR 2,000 (plus INR 3,000, if chauffeur also provided)	INR 3,000 (plus INR 3,000, if chauffeur also provided)
Perquisite value for vehicle owned by employee: used partly for official and partly for personal use and expenses are paid or reimbursed by the employer, then actual value of expenditure by the employer as reduced by amounts provided below:
Vehicle type	Where cc of engine does not exceed 1.6 litres	Where cc of engine exceeds  1.6 litres	Where cc of engine does not exceed 1.6 litres or the motor car is an electric vehicle	Where cc of engine exceeds 1.6 litres
Motor car	INR 1,800 (plus INR 900, if chauffeur also provided)	INR 2,400 (plus INR 900, if chauffeur also provided)	INR 5,000 (plus INR 3,000, if chauffeur also provided)	INR 7,000 (plus INR 3,000, if chauffeur also provided)
Any other vehicle	Subject to travel records maintained as prescribed, perquisite value is actual expenditure less INR 900.		Subject to travel records maintained as prescribed, perquisite value is actual expenditure less INR 3,000.

Details	Income-tax Rules, 1962	Income-tax Rules, 2026
Free education facility to members of employee’s household	Perquisite value is cost to employer (for employer owned institution) or similar cost in institution in nearby locality (if institution is not owned) less any amount recovered from employee. Not taxable if cost does not exceed INR 1,000 per month per child.	Non-taxable limit now increased to INR 3,000 per child per month.
Interest free concessional loan	Perquisite value computed on the basis of SBI interest rate on similar category of loan less interest paid by employee. Perquisite value nil Interest free loan does not exceed INR 20,000.	Interest free loan limit now increased to INR 200,000.
Free food and non-alcoholic beverages	Perquisite value is cost to employer less any amount recovered from employee. Exempt under old tax regime up to INR 50 per meal if provided during working hours in office/ business premises/remote area/off-shore.	Non-taxable limit now increased to INR 200 per meal. This benefit now available under new tax regime also.
Value of gift voucher etc.	Gift, voucher or token received from the employer is taxable at actual value. Non-taxable if total value during the year does not exceed INR 5,000.	Non-taxable limit now increased to INR 15,000.

Exemptions on certain allowances: substantial upward revisions to several long-standing exemption limits for certain allowances. The key changes are:

• House rent allowance: no changes in exemption limits. The list of cities (eligible for 50 percent valuation threshold) now includes Ahmedabad, Bengaluru, Hyderabad, and Pune. Additional reporting introduced in Form 124 to be submitted to employer where employee is required to disclose their relationship with the landlord.
• Children education allowance: limit for exemption increased from INR 100 per month per child to INR 3,000 per month per child, for maximum two children.
• Hostel expenditure allowance: limit for exemption increased from INR 300 per month per child to INR 9,000 per month per child, for maximum two children.
• Transport allowance granted to employee with disability to commute from home to office: transport allowance exemptions for a person who is blind or deaf and dumb or orthopedically handicapped with disability of lower extremities has been increased from INR 3,200 to INR 15,000+DA thereon per month for metro cities and INR 8,000+DA thereon per month for non-metro cities.
• Leave travel allowance: exemption for air travel was restricted to economy fare of the national carrier. Rules 2026 replace this with a broader benchmark fare admissible for the class of travel to which the employee is entitled. Where no recognised public transport system exists, the exemption will now be capped at INR 30 per kilometre for the shortest route, replacing the earlier reference to air-conditioned first-class rail fare.

Other key changes:

• Foreign tax credit: form 44 replaces existing Form 67. It is required to be certified by a practicing Chartered Accountant (CA) where the foreign tax credit (FTC) claimed is INR 100,000 or more. Form 45 has been introduced to claim FTC not availed earlier due to foreign tax disputes, subject to prescribed timelines and applicable CA certification.
• Treaty relief for NR taxpayers: presently, Form 10F is not required to be filed if the Tax Residency Certificate (TRC) obtained by the NR contains the information specified in Form 10F. Rules 2026 require such taxpayers to provide additional information in the new Form 41 along with the TRC.
• Eligibility to file Form ITR 1: presently, individuals having two house properties are required to file their return in Form ITR-2. Rules 2026 permit such individuals to file their return in Form ITR-1.
• No requirement of filing Form 10IEA: presently, individuals having business income and filing under old tax regime are required to file Form 10IEA. Rules 2026 eliminate requirement of filing separate a Form as the option can now be exercised in the ITR Form itself.

Changes in Income-tax Forms:

• PAN Application: forms 93 and 95 replace Forms 49A and 49AA. A foreign citizen is now required to furnish details of citizenship and passport number in the PAN application. Furnishing passport number is also mandatory for Indian citizens who qualify as NR or resident but not ordinarily resident.
• Withholding tax certificate for salary: form 16 has been replaced by Form 130. Form 130 provides additional information in Annexure-II of Part C of the form for specified senior citizens.
• Common form for TDS filing: current Forms 26QB, 26QC, 26QD and 26QE have been now merged into a single Form 141, simplifying the TDS filing process by allowing details for multiple parties (such as co-owners, co-buyers, or co-sellers) to be reported in one form instead of filing separate forms.
• Quarterly filing of eTDS return Forms: forms 24Q, 26Q and 27Q have now been replaced by Forms 138, 140 and 144 respectively.
• Declaration of income to employer: employees could share certain income details with current employer, containing details of salary income received from previous employer in Form 12B or details of other income in Form 12BAA. Under the new Rules, a consolidated Form 122 can be furnished with details of salary from other employers, loss from house property, other income, etc.  for inclusion in the withholding tax computation by current employer.
• New mode of verification of updated return: presently, Form ITR-U is required to be verified at the time of filing the return through electronic modes such as Aadhaar OTP or net banking. Form ITR-U is now replaced by Form ITR-UN, which can also be verified by submitting a signed Form ITR-V to the CPC, for non-audit cases.
• Persons leaving India: individuals domiciled in India who do not possess a PAN are required to file Form 157 before leaving India.
• FAQs and guidance notes on forms: guidance Notes and FAQs are provided on the income-tax website to help taxpayers navigate the new form https://www.incometaxindia.gov.in/w/faqs-on-forms-as-per-income-tax-rules-2026-1.

Conclusion

The Income- tax Rules and Forms, 2026 have incorporated several changes to make them relevant to current times. Several age-old exemption limits have been revised upwards, which is a welcome change.  However, as more taxpayers are nowadays opting for the new tax regime, some of these new limits may be of limited benefit as many of these are available only under the old regime. There are some areas which may also lead to increased cost of compliance, such as the requirement to obtain accountant certification for taxpayers with cross-border income who wish to claim foreign tax credit.

Considering that these rules will be applicable from 1 April 2026 and some of these changes are related to compensation and benefits being provided to employees, employers should keep these changes in mind alongside developments under other applicable laws in India to ensure a cohesive and future-ready compliance framework. It would also be a good time to reassess compensation structures to enhance tax efficiency for employees, while maintaining overall cost-effectiveness and regulatory compliance under the 2026 Rules.

Contact us

For a deeper discussion on the above, please reach out to your Vialto Partners point of contact, or alternatively:

Ishita Sengupta
India Lead, Mumbai

Ravi Jain 
Bengaluru/Kolkata

Chander Talreja 
Delhi NCR

Nishant Kumar 
Bengaluru

Sundeep Agarwal 
Mumbai

Anand Dhelia 
Bengaluru/Hyderabad

Hitesh Sharma 
Mumbai/Pune

Sebin Jinny CJ 
Bengaluru

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