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The Central Board of Direct Taxes (CBDT) has notified the Income-tax Rules, 2026, which will come into effect from April 1 and operationalise the new Income-tax Act, 2025. The rules retain the existing house rent allowance (HRA) exemption structure, allowing salaried individuals in eight major cities including Mumbai, Delhi, and Bengaluru to claim up to 50 per cent of salary, while others remain eligible for 40 per cent. However, the framework now mandates disclosure of landlord-tenant relationships for claiming HRA benefits. The revised rules introduce over 150 forms, tighten provisions around capital gains and foreign income tax credits, and expand auditor responsibilities. The new regime is aimed at simplifying compliance while strengthening reporting and verification mechanisms across taxpayers and institutions.
The Central Board of Direct Taxes (CBDT) has notified the Income-tax Rules, 2026, which will come into force from April 1 to operationalise the Income-tax Act, 2025, introducing changes to compliance frameworks including house rent allowance (HRA) disclosures, capital gains treatment, and tax reporting requirements. The notification was issued in the past week, following the passage of the new legislation by Parliament in the past year. Advertisement
Under the revised rules, the framework for HRA exemptions applicable to salaried individuals has been retained, with enhanced clarity on eligibility conditions. Taxpayers residing in eight cities Mumbai, Kolkata, Delhi, Chennai, Hyderabad, Pune, Ahmedabad, and Bengaluru will continue to qualify for an exemption of up to 50 per cent of their salary. For all other locations, the exemption limit remains at 40 per cent. However, the updated rules now make it mandatory to disclose the landlord-tenant relationship when claiming HRA deductions, adding an additional compliance requirement for salaried taxpayers.
The Income-tax Rules, 2026, have been introduced to implement the provisions of the Income-tax Act, 2025, which replaced the earlier Income Tax Act of 1961. The new legislation does not alter tax rates but focuses on simplifying legal language and removing redundant provisions. The number of sections has been reduced from 819 to 536, while chapters have been streamlined from 47 to 23. The revised law also reduces overall textual content significantly and introduces structured tables and formulas to improve clarity.
The notification includes more than 150 prescribed forms, beginning from Form 33 onwards, covering a wide range of tax-related filings and disclosures. The rules also introduce stricter provisions for capital gains, stock market transactions, and taxation of non-resident income, while simplifying certain reporting mechanisms.
Auditors and companies have been assigned increased responsibility under the new framework, particularly in relation to verification of tax credits on foreign income. The rules require auditors to undertake more rigorous checks on Permanent Account Number (PAN) duplication and assess tax liabilities arising from adverse audit observations.
Further clarity has been provided on the calculation of holding periods for capital assets, which determines whether gains are categorised as short-term or long-term. In cases involving converted securities such as shares or debentures, the holding period will include the duration for which the original instrument was held prior to conversion, such as bonds or deposit certificates.
The revised rules are part of a broader effort to modernise India's direct tax regime by simplifying statutory language while strengthening compliance and reporting standards. The inclusion of additional disclosures and structured formats indicates a shift towards greater transparency and accountability in tax administration.
Source - PTI
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