Income-tax rules 2026: New ITR forms to auto-fill income data, ease taxpayer burden; TCS, STT changes explained

The government’s move to replace the six-decade-old income-tax rules, 1962 with a new framework from April 2026 is set to remarkably overhaul India’s tax compliance system, with a strong focus on digitisation, simplification, and greater transparency.

Rahul Charkha, Partner at Economic Laws Practice, said the proposed income-tax rules, 2026 will align with the new act and revolve around three key pillars—simpler return forms, a digital-first compliance model, and greater consistency in tax treatment.

He said income tax return (ITR) forms are being redesigned to enable extensive pre-filling of data using inputs from TDS statements and financial information sourced from banks, mutual funds, employers, and other reporting entities. “Taxpayers will largely be required to review, verify, and correct pre-filled information instead of entering data manually,” he said.

To support this shift, Form 16 is expected to include a more granular salary breakup—covering components such as basic pay, allowances, perquisites, exemptions, ESOPs, and other taxable benefits—while also being closely aligned with AIS and Form 26AS data to reduce post-filing mismatches.

Charkha added that the revised rules also seek to address long-standing ambiguities. Updated Leave Travel Concession (LTC) norms will prescribe clear, mode-wise limits for eligible travel expenses, alongside stricter documentation requirements. The draft framework further introduces clearer methodologies for valuation of assets such as shares, immovable property and jewellery, and provides clarity on holding periods and cost calculations for capital assets, aimed at reducing disputes and litigation.

TCS rationalisation, relief on LRS and tour packages

Richa Sawhney, Partner at Grant Thornton Bharat, said the Budget has proposed a broad rationalisation of Tax Collected at Source (TCS) rates by converging multiple slabs into a uniform 2%.

This includes reduced TCS on tendu leaves, specified outward remittances under the Liberalised Remittance Scheme (LRS) for education and medical purposes, and overseas tour programme packages. However, TCS has been increased to 2% on items such as scrap, specified minerals and alcoholic liquor for human consumption.

A key relief measure is that the 2% TCS on LRS remittances for education and medical treatment will now apply only to amounts exceeding ₹10 lakh in a financial year. Further, no TCS will be applicable where education remittances are funded through approved education loans.

For overseas tour packages, a flat 2% TCS rate will replace the earlier tiered structure of 5% up to ₹10 lakh and 20% beyond that threshold, easing cash-flow pressures for taxpayers and addressing concerns raised by domestic tour operators.

STT hike to curb derivatives speculation

The Budget has also proposed an increase in Securities Transaction Tax (STT) to rein in speculative activity in the futures and options segment. STT on futures contracts will rise to 0.05% from 0.02%, while the levy on options premium will increase to 0.15% from 0.10%. The tax on exercise of options will also be aligned at 0.15%, up from 0.125%.

Buyback taxation shifts to capital gains regime

In another major change, the government has proposed restoring capital gains taxation on share buybacks, moving away from the earlier dividend-style taxation model. This will allow investors to factor in the cost of acquisition and be taxed only on net gains.

A differentiated tax regime has been introduced for promoters, with effective tax rates of 22% for domestic corporate promoters and 30% for others, aimed at preventing misuse of buybacks as a substitute for dividends.

The definition of “promoter” for listed companies has been aligned with SEBI regulations, while for unlisted companies, the scope has been expanded to include significant shareholders holding more than 10% stake, directly or indirectly.

Broader push to simplify tax framework

The Union Budget 2026 has introduced a series of amendments to the Income Tax Act to simplify compliance, reduce procedural burdens and improve taxpayer experience. Key measures include TCS rationalisation, an STT hike, and extension of deadlines for filing revised returns.

The government has also extended due dates for filing ITR-3 and ITR-4 for non-audit taxpayers and announced a one-time foreign asset disclosure window. These changes will come into effect from April 1, 2026, for FY27, marking a broader shift towards a modern, taxpayer-friendly and digitally enabled tax system.

Under the new rules, eight cities—Mumbai, Kolkata, Delhi, Chennai, Hyderabad, Pune, Ahmedabad and Bengaluru—will qualify for a higher House Rent Allowance (HRA) exemption limit of 50% of salary, while all other locations will continue at 40%. Currently, only Mumbai, Delhi, Kolkata and Chennai enjoy the higher exemption threshold.