Income Tax Act 2025: New Changes in Income Tax Rules from April 1, 2026

Income Tax Act 2025: New Changes in Income Tax Rules from April 1, 2026

The Income Tax Act, 2025, is set to take effect from April 1, 2026, replacing the 65-year-old Income Tax Act, 1961. The new law aims at bringing more clarity and simplicity to the income tax provisions.

Additionally, the new Income Tax Rules, 2026, will also come into effect from April 1, 2026. The draft income tax rules for 2026 and the related documents were released by the income tax department on February 8, 2026, for the stakeholders’ comments and feedback. These suggestions will be reviewed and considered in the final rules. Let us take a look at the proposed changes in the Draft Income Tax Rules, 2026.

House Rent Allowance Changes

The 50% exemption benefit on house rent allowance is extended to new cities. Earlier, the HRA allowance was only provided in Delhi, Mumbai, Kolkata, and Chennai. This list has been expanded to include other cities like Bengaluru, Pune, Ahmedabad, and Hyderabad.

The Constitution of India in June 1993 had already recognized cities like Bengaluru, Coimbatore, Hyderabad, Kochi, Madurai, Thiruvananthapuram, etc., as ‘metros.’ After six decades, Bengaluru, Pune, Ahmedabad, and Hyderabad are included on the list.

Apart from this, the draft rules mandatorily require the salaried employees who are paying rent to their relatives to disclose their relationship with the landlord in Form No. 124 for claiming HRA.

PAN Changes

Here are some PAN-related changes under the Draft IT Rules, 2026:

• The draft rules propose to increase the limit of cash deposits and cash withdrawals up to Rs 10 lakh in a financial year.
• PAN will be mandatorily required for the annual cash deposits or withdrawal of amounts of more than Rs 10 lakh.
• PAN will also be required if you buy a vehicle or motorcycle worth over Rs 20 lakh.
• If you are purchasing a property worth over Rs 20,000, quoting PAN is mandatory.
• For hotel bills less than Rs 1 lakh, you do not need to provide your PAN.
• PAN is also required when you open or maintain accounts with insurance companies.

Changes in Special Allowances

The children’s education allowance is proposed to increase to Rs 3,000 per month per child (up to two children) from the current Rs 100 per month per child. The hostel expenditure has been proposed to increase to Rs 9,000 per month per child (up to two children). Earlier, this limit was Rs 300 per month per child.

Perquisite Benefits

The tax-free value for some perquisites like free meals, official vouchers, cars, gifts, medical benefits, etc., is proposed to be increased. If an employer provides a motorcar, the monthly taxable value for cars up to 1.6 litres increases to Rs 5,000-Rs 8,000, and above 1.6 litres to Rs 7,000-Rs 10,000. The driver cost increased to Rs 3,000 per month.

The tax-free limit per meal is proposed to increase to Rs 200, up from Rs 50. The annual tax-free limit for the gifts provided by the employer will be increased to Rs 15,000 from Rs 5,000.

Income Tax Forms

The draft rules for 2026 have proposed bringing changes to the existing ITR forms. The number of rules is reduced to 333, from 511, and the number of ITR forms will be reduced from 399 to 190. Under the draft rules, certain forms have been renamed as follows:

• Form 26AS renamed as Form 168
• TDS Certificate-Salary Form No. 16 renamed as Form No. 130
• PAN application Form No. 49A renamed as Form No. 94
• The TDS Certificate-Others Form No. 16A renamed as Form 131.