The Central Board of Direct Taxes (CBDT) has unveiled the draft Income-tax Rules, 2026, alongside a fresh set of tax forms. It provides a comprehensive insight into how the Income Tax Act, 2025, will be rolled out from April 1.
The draft has been circulated for public scrutiny and will remain open for comments until Feb. 22.
PAN Rules Softened For Daily Transactions, Tougher For Insurance Policies
The draft framework signals a major shift for everyday banking, with a sharp upward revision in the threshold for furnishing PAN details. At present, individuals must provide their PAN for any single cash deposit exceeding Rs 50,000 in a day.
Going forward, PAN would be needed only when cumulative cash deposits or withdrawals across accounts reach Rs 10 lakh in a financial year. Under the proposed regime, cash payments made at hospitality establishments and event spaces would attract PAN reporting only beyond Rs 1 lakh: double the present Rs 50,000 limit.
The changes extend to the automobile market as well. While PAN is currently mandatory for almost all purchases barring select two-wheelers, the new framework would restrict the requirement to deals above Rs 5 lakh, offering respite to buyers in the entry-level segment.
The property market is also set for a compliance breather, with the threshold for quoting PAN in real estate deals proposed to be doubled from Rs 10 lakh to Rs 20 lakh. On the other hand, insurance-related payments are set to face stricter oversight. Previously, PAN disclosure was largely required when annual life insurance premiums crossed Rs 50,000.
The draft rules now propose to make PAN compulsory for every life insurance premium payment, signaling closer monitoring of investment-linked policies. Maturity proceeds from ULIPs will be taxed where annual premiums exceed Rs 2.5 lakh.
Tax Rates To Climb For Workplace Car Perks
Currently, the notional taxable value assigned to employer-provided cars used partly for private travel stands at Rs 2,700 per month for engines up to 1.6 litres and Rs 3,300 for higher-capacity models, driver charges included.
The proposed rules mark a significant jump, raising the monthly perquisite to Rs 8,000 and Rs 10,000, respectively.
Meals, Gifts And Staff Loans Set For Higher Tax-Free Ceilings
A number of outdated exemption thresholds are proposed to be revised upwards. The permissible tax-free value of meals provided by employers would quadruple to Rs 200 per meal. Likewise, the annual exemption on employer gifts is set to be raised to Rs 15,000 from Rs 5,000. The draft rules also widen the scope for tax-free staff loans, lifting the exemption limit from Rs 20,000 to Rs 2 lakh.
Relief For Families As Student Allowances Get A Raise
The draft rules signal a marked improvement in tax relief for parents. The monthly exemption for children’s education allowance, capped at Rs 100 per child for a maximum of two, is set to be raised sharply to Rs 3,000 per child.
Hostel expenditure limits would rise in tandem, from Rs 300 to Rs 9,000 per month per child.
Additionally, staff at educational institutions may benefit from a higher tax-free valuation of free or subsidised schooling for their children, increasing from Rs 1,000 to Rs 3,000 per month per child.
More Cities To Qualify For HRA Relief
Salaried individuals opting for the old tax regime could see additional relief through an expanded House Rent Allowance (HRA) benefit. The draft rules propose widening the list of cities eligible for the 50% House Rent Allowance exemption.
At present, only Delhi, Mumbai, Kolkata and Chennai fall within this bracket, with other locations restricted to a 40% cap. The proposed changes would add Bengaluru, Hyderabad, Pune and Ahmedabad to the higher category. Employees residing in these cities would consequently be able to shield a greater share of their HRA from tax, easing their overall burden.
Stricter Filing Rules
While the familiar ITR-1 to ITR-7 return system remains intact, the draft rules propose more stringent qualifying criteria and broader disclosure requirements, signalling enhanced scrutiny.
Rule 166 has been introduced to define what constitutes a defective return, including omissions in schedules, unpaid liabilities or discrepancies in MAT and AMT credits. Authorities also plan to serve notices and orders through a dedicated mobile app, complementing existing online communication methods.
Individuals reporting overseas earnings will need additional verification when claiming the Foreign Tax Credit. Under the proposed framework, a Chartered Accountant’s certification will become compulsory if the foreign tax paid is Rs 1 lakh or above, marking a departure from the previous self-certification approach.
The overarching thrust of the draft rules is clear: make routine compliance smoother, update ageing exemptions and reinforce safeguards around higher-value and international dealings. A narrow window remains for feedback from taxpayers and professional bodies before the changes are finalised ahead of their April 2026 commencement.
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