The government has released draft income tax rules for 2026 that propose revisions affecting how salaries, rental benefits, and PAN disclosures are treated under tax law. If finalized, these changes could alter tax liabilities for millions of taxpayers.
The Central Board of Direct Taxes (CBDT) put out the Draft Income Tax Rules, 2026, in January 2026. 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 modernize India's income tax system by changing how individuals think about it, understand it, and pay it.
As long as the meals cost less than Rs. 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.
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:
If an employer gives an employee an automobile to utilize for work and personal reasons. For cars with engines up to 1.6L, the taxable value is Rs. 8,000 a month. It costs Rs. 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.
Delhi, Mumbai, Kolkata, and Chennai were the only four cities that could enjoy the 50% HRA exemption till now. The draft guidelines are likely 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.
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 Rs. 10 lakh in cash in a year.
Buying or selling real estate costs Rs. 20 lakh.
You have to pay Rs. 5 lakh to buy cars and bikes.
Rs. 1 lakh for hotel and event costs
You now have to connect to insurance accounts with PAN.
Closing Note
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.
People can now officially utilize Central Bank Digital Currency (CBDC) to pay. These are not the final regulations; they are drafts. Before the new fiscal year starts, it is advised to talk to your tax lawyer or HR department about the changes.