CBDT notifies income-tax rules 2026; HRA benefits expanded, PAN norms tightened

The Central Board of Direct Taxes (CBDT) on Friday notified the Income-tax Rules, 2026, paving the way for implementation of the new Income-tax Act, 2025 from April 1, with a focus on simplified compliance, enhanced disclosures and expanded taxpayer benefits.

The new rules operationalise the direct tax legislation passed by Parliament last year, replacing the decades-old framework. “These rules may be called the Income-tax Rules, 2026. They shall come into force on April 1, 2026,” the government said in a gazette notification.

HRA benefits widened, disclosures tightened

The rules retain the framework for House Rent Allowance (HRA) exemptions but expand the number of cities eligible for a higher 50% exemption. In addition to Mumbai, Delhi, Kolkata, and Chennai, the benefit will now extend to Hyderabad, Pune, Ahmedabad and Bengaluru. All other locations will continue with a 40% exemption cap.

At the same time, the rules mandate disclosure of landlord-tenant relationships for claiming HRA deductions, increasing scrutiny and transparency in claims.

Higher PAN thresholds across transactions

The new framework significantly revises thresholds for quoting Permanent Account Number (PAN) across a range of financial transactions:

PAN will be mandatory for cash deposits or withdrawals aggregating ₹10 lakh or more in a financial year, replacing the earlier ₹50,000 daily threshold.

For purchase of motor vehicles, including two-wheelers, PAN will be required if the transaction value exceeds ₹5 lakh.

Payments exceeding ₹1 lakh for hotel bills, banquet halls, convention centres or event management services will require PAN, up from the earlier ₹50,000 limit.

PAN will be mandatory for property transactions above ₹20 lakh, compared with the existing ₹10 lakh threshold.

Stricter compliance, broader reporting

The rules introduce tighter norms for capital gains, stock market transactions and non-resident taxation, while simplifying disclosure mechanisms through structured formats.

They also mandate crypto exchanges to share transaction data with tax authorities and recognise Central Bank Digital Currency (CBDC) as an accepted mode of electronic payment.

Auditors and companies will face greater accountability, including checks for PAN duplication and verification of tax liabilities arising from adverse audit observations. Additional responsibilities have also been introduced for reporting foreign income and tax credit claims.

Simplified law, detailed rulebook

The new Income-tax Act reduces the number of sections from 819 to 536 and chapters from 47 to 23, while cutting the overall word count significantly. It also introduces structured tables and formulas to replace complex legal text.

The notified rules span nearly 1,000 pages and include over 150 prescribed forms covering a wide range of compliance requirements. These forms incorporate detailed instructions and structured data fields aimed at improving standardisation and ease of filing.

Industry sees shift towards transparency, ease of compliance

Sudhakar Sethuraman, Partner at Deloitte India, said the notification marks a key milestone in transitioning to the new tax regime. He noted that the framework highlights simplification, standardisation and transparency, with features such as the introduction of a “tax year” concept and rationalised provisions expected to improve usability.

He added that taxpayers will need to adapt to new forms, reporting formats and disclosure requirements, including revised norms for perquisite valuation.

Suresh Kumar S., Partner at Deloitte India, said the recalibration of limits for employee perquisites and exemptions will benefit both employers and employees. He highlighted that certain benefits, including those related to employee-owned cars and food coupons, will now also be available under the new tax regime.

Overall, experts said businesses and individuals will need to proactively review their compliance systems to ensure a smooth transition ahead of the April 2026 rollout.