Govt Notifies New Income Tax Rules 2026: Enhanced HRA Benefits and Higher PAN Limits from April 1

The government said that the new income tax rules have significantly raised transaction limits for quoting of PAN for cash deposits/withdrawal in banks, purchase of motor vehicles and property, and payment of hotel bills. Besides, it has also led to enhancing the value of perquisites provided by employers, and making it mandatory for crypto exchanges to share information with the tax department and Central Bank Digital Currency (CBDC) as an accepted mode of electronic payment.

As per the gazette notification by Central Board of Direct Taxes (CBDT), the Income-tax Rules, 2026 will operationalise the simplified direct tax legislation that was approved by Parliament last year and will come into effect from April 1. “These rules may be called the Income-tax Rules, 2026. They shall come into force on the April 1, 2026,” it said.

The notification, however, introduces more than 150 official forms — numbered from Form 33 onwards — covering a wide range of tax-related activities. The I-T rules retain the proposed framework for house rent allowance (HRA) exemptions applicable to salaried taxpayers. However, it has doubled the number of cities eligible for 50 per cent exemption.

Under the new rules, eight cities such as Mumbai, Kolkata, Delhi, Chennai, Hyderabad, Pune, Ahmedabad, and Bengaluru will qualify for a higher exemption limit of 50 percent of salary, while all other locations will continue at 40 per cent. At present, salaried employees in Mumbai, Delhi, Kolkata, and Chennai are allowed to claim HRA exemption of up to 50 per cent of their salary, while those living in other locations are eligible for a lower limit of 40 per cent.

The new rules notified seek disclosure of tenant-landlord relationship for claiming I-T deductions and increased responsibility of auditors and companies for tax credit claims on foreign income. It also entrusts auditors with greater responsibility for checking permanent account number or PAN duplication and tax liability arising out of adverse audit observation.

According to new rules, quoting of PAN will be mandatory for making cash deposits or withdrawals aggregating to Rs 10 lakh or more in a financial year, in one or more accounts of a person. Presently, PAN is required for cash deposits exceeding Rs 50,000 during any one day with a banking company or a cooperative bank. In case of purchase of motor vehicles (including motorcycles), a buyer has to quote his/her PAN if the price exceeds Rs 5 lakh.

Last year, Parliament on August 12 passed a new Income Tax (I-T) bill to replace the six-decade-old Income Tax Act, 1961. It does not impose any new tax rate and only simplified the language, which was required for understanding the complex Income Tax laws. The Act has removed redundant provisions and archaic language and reduced the number of Sections from 819 in the Income Tax Act of 1961 to 536 and the number of chapters from 47 to 23.

The current Income Tax Rules, 1962, do not provide for quoting of PAN for purchase of two-wheelers, while for motor vehicles it was mandatory irrespective of price. In case of hotel/restaurant bills, payments made to convention centres or banquet halls or a person engaged in event management, PAN will be mandatory if the payment exceeds Rs 1 lakh.

The current I-T Rules specify a Rs 50,000 threshold for quoting PAN in case of hotel/restaurant bills. In case of purchase or sale or gift or joint development agreement of any immovable property, PAN will be mandatory if the transaction cost is more than Rs 20 lakh, as against the existing limit of Rs 10 lakh. It also clarifies how the holding period of assets will be calculated in specific cases to determine whether gains are short-term or long-term.

Commenting on the development, Deloitte India partner SureshKumar S said that the new rules should greatly help employers and employees given the recalibrated and realigned limits for various employee perquisites and exemptions. “While these are largely applicable for those on old regime, employees under new regime should also benefit,” he said.

Union finance minister Nirmala Sitharaman on Friday asked income tax officers to make life easier for assesses and use technology to catch those evading tax wilfully. She also warned the tax evaders, saying that paying tax is so easy and honesty becomes the natural choice. "But, those who are wilfully evading and those who are deliberately trying to get away, technology must catch them. If you are honest, the system will make your life easy, but if you evade, the system will find you,” Sitharaman said while addressing at an event.

The minister also exuded confidence that the Income Tax Act, 2025, effective from April 1, will certainly set the trend for making India a very tax-friendly country. She also asked the tax officials to hold awareness sessions across India to educate people about the new tax laws in local languages. “Besides, efforts should be made to reduce litigation aggressively. Every case that goes to a tribunal or a court is a failure of our system... A black mark on all of us,” she said.