CBDT Unveils Draft Income Tax Rules for 2026 with Key Revisions
The Central Board of Direct Taxes (CBDT) has floated the draft Income-tax Rules, 2026, introducing significant changes aimed at modernizing tax compliance and adapting to evolving economic realities. These proposals, open for public feedback until February 22, are set to take effect from April 1, 2026, following stakeholder consultations and final notification expected in early March.
Revised PAN Quoting Thresholds for Enhanced Compliance
One of the cornerstone changes in the draft rules is the substantial hike in monetary thresholds for quoting the Permanent Account Number (PAN) across various transactions. This move is designed to streamline reporting and reduce administrative burdens while maintaining robust oversight.
- Cash Deposits and Withdrawals: The new rules mandate PAN quoting for cash deposits or withdrawals aggregating to Rs 10 lakh or more in a financial year across one or more accounts of an individual. This marks a significant shift from the current requirement, where PAN is required for cash deposits exceeding Rs 50,000 in a single day with banking institutions.
- Motor Vehicle Purchases: For the purchase of motor vehicles, including motorcycles, the threshold has been set at Rs 5 lakh. Previously, PAN was required for the sale or purchase of any motor vehicle, excluding two-wheelers, without a specific monetary limit.
- Hospitality and Event Management: In the hospitality sector, PAN will become mandatory for hotel or restaurant bills, payments to convention centers, banquet halls, or event management services exceeding Rs 1 lakh. The existing limit stands at Rs 50,000 for such transactions.
- Immovable Property Transactions: The draft proposes doubling the threshold for PAN quoting in property deals. Transactions involving purchase, sale, gift, or joint development agreements for immovable property will require PAN if the cost exceeds Rs 20 lakh, up from the current Rs 10 lakh limit.
Updates to Employer-Provided Perquisites and HRA Eligibility
Reflecting market realities, the draft rules propose revisions to the valuation of tax-free perquisites provided by employers to employees.
- Free Meals: The perquisite value for free food and non-alcoholic beverages provided by employers has been fixed at Rs 200 per meal, offering clarity and standardization.
- Official Vehicles: For motor cars provided for official use, the monthly allowance is set at Rs 8,000 for cars with an engine capacity below 1.6 litres and Rs 10,000 for others, inclusive of driver allowances. This update aims to align with current market rates and usage patterns.
- House Rent Allowance (HRA): The list of Category 1 metropolitan cities for HRA claims has been expanded to include Bengaluru, Pune, Ahmedabad, and Hyderabad. Previously, only Delhi, Mumbai, Kolkata, and Chennai were included, reflecting urbanization trends and cost-of-living adjustments.
Inclusion of Digital Assets and CBDC in Tax Framework
In a forward-looking move, the draft rules incorporate provisions for virtual digital assets and Central Bank Digital Currency (CBDC), addressing the growing prominence of digital finance.
- Crypto-Asset Reporting: New reporting and due-diligence obligations are proposed for crypto-asset service providers, such as exchanges. Information sharing is slated to commence in 2027, with exchanges required to provide data for the financial year 2026-27, facilitating enhanced transparency and regulatory oversight in the cryptocurrency sector.
- CBDC as Electronic Payment: Transactions conducted via the Central Bank Digital Currency (CBDC) will now be recognized as part of the list of non-cash transactions, categorizing them as an acceptable mode of electronic payment. This inclusion underscores the government's push towards digital payment ecosystems and financial innovation.
Streamlined Rules and Forms for Efficiency
The CBDT has emphasized simplification and consolidation in the draft rules. The total number of rules has been reduced from 511 to 333, while forms have been cut down from 399 to 190. This streamlining effort aims to eliminate redundancy and enhance clarity, making compliance more straightforward for taxpayers and authorities alike.
The draft Income-tax Rules, 2026, represent a comprehensive overhaul aimed at modernizing India's tax infrastructure. By raising PAN thresholds, updating perquisite valuations, expanding HRA eligibility, and integrating digital assets, these proposals seek to balance ease of compliance with robust regulatory frameworks. Stakeholders are encouraged to provide feedback during the public consultation period to shape the final implementation.
