Draft income tax rules 2026: How your salaries, rental benefits and PAN disclosures could take a hit

The Central Board of Direct Taxes (CBDT) put out the Draft Income Tax Rules, 2026 in January 2026 and encouraged individuals to provide their comments on them until February 22, 2026. The window for submitting comments has now closed. These suggested rules don't just affect things a little bit. They made it possible for the new Income Tax Act of 2025 to go into effect. The 1961 Act will be replaced by this law, which will go into effect on April 1, 2026.

These rules are part of a bigger plan to modernise India's income tax system by changing how individuals think about it, understand it, and pay it. A lot of people might not notice the changes right away.

Why this is important

India has had the Income Tax Act since 1961. But since then, the economy, technology, and even labour itself have changed a lot. Long ago, laws were made that don't keep up with the rise of digital payments, new types of jobs, and investments across borders.

The changes that have been recommended are meant to make the tax system more like how individuals spend their money these days.

Important changes to the structure

One of the most useful modifications is the number of tax rules:

• Forms will go down from 511 to 333.
• The number of rules will go down from 399 to 190.

It's not only about having fewer papers; it's also about making the system easier for businesses and taxpayers to use. All of the forms will look the same and feature text that is easier to read.

The new forms also work better with the Income Tax Department's computer systems. This means that features like auto-filled data and automatic reconciliation are now increasingly common.

Changes that affect people who work

Most people who work for a wage won't be utterly astonished by how their taxes are set up, but there are some big changes being spoken about.

Food at work

As long as the meals cost less than ₹200, they won't be taxed anymore. These meals used to be taxed or handled in a different way. This change is in line with what most businesses do and the fact that food prices are going up.

Gifts and coupons

Employers don't have to pay taxes on gifts or certificates valued up to ₹15,000 a year. Any sum over that will be taxed as a benefit.

Loans for work

Now, loans with no interest or interest rates lower than the market rate will be taxed depending on the difference between the SBI lending rate and the rate that was actually charged. There are certain exceptions:

Loans for less than ₹2 lakh

Loans taken out to deal with medical emergencies. These are still not taxable.

Cars for work

If an employer gives an employee an automobile to utilise for work and personal reasons.

For cars with engines up to 1.6L, the taxable value is ₹8,000 a month. It costs ₹10,000 a month for bigger cars with a driver. A lot of this benefit will be taxed because these new levels are higher than before.

More cities can now get the Housing Rent Allowance (HRA)

Delhi, Mumbai, Kolkata, and Chennai were the only four cities that could enjoy the 50% HRA exemption till now. The draft guidelines want to add Bengaluru, Hyderabad, Pune, and Ahmedabad to this list.

This means that people who work in these areas that are growing quickly will now be able to get a bigger part of their HRA that is tax-free.

For a lot of people, this could be the deciding factor between the old and new tax systems, especially for people who rent homes but don't get housing loan benefits.

What PANs do you need for large purchases?

The CBDT is also making it harder to do big money dealings by making it harder to use a PAN. These are the new rules:

• You need a transaction PAN if you want to put in or take out more than ₹10 lakh in cash in a year.
• Buying or selling real estate costs ₹20 lakh.
• You have to pay ₹5 lakh to buy cars and bikes.
• ₹1 lakh for hotel and event costs
• You now have to connect to insurance accounts with PAN.

It's not just about looking at stuff. It is supposed to make money matters more clear and make it easier for people with low incomes and small enterprises to disclose their income.

Digital money, crypto, and moving money across borders

As India's economy grows more connected to the rest of the world and digital assets grow, the draft guidelines start to outline how these regions will be taxed and tracked.

It is now easier to understand the rules for Significant Economic Presence (SEP). They apply to digital enterprises from other countries that do business in India.

Cryptocurrency exchanges will have to give out more information.

People can now officially utilise Central Bank Digital Currency (CBDC) to pay.

These changes make it apparent that digital income and assets will no longer be in a murky area; they will be clearly subject to tax and legal rules. Not just a change in numbers, but also in how things are done.

These suggested rules would change more than just how things work. They are also part of a bigger change in how India handles taxes in a digital economy. Three significant things stick out:

More organisation and less complexity, especially when it comes to how data is gathered and used. Paying more attention to real-world costs like rent, food, and transportation. More emphasis on high-value financial activities, with less room for mistakes in reporting.

What you can do

These are not the final regulations; they are drafts. If you work for someone else, invest, are an NRI, or operate a small business, you should think about how these rules could affect your money.

Before the new fiscal year starts, you should talk to your tax lawyer or HR department about the changes. Many of the proposals are meant to make it easier to follow the rules, but they could potentially change how your transactions, rewards, and allowances are handled.

You can get ready for these changes now that you know where they're going to happen. You might even end up paying less in taxes later.

The author is Cofounder & Executive Director, Prime Wealth Finserv.

This article is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.