CBDT Notifies Income-Tax Rules 2026, New Law Effective April 1

New Delhi, Mar 20: The Central Board of Direct Taxes (CBDT) on Friday notified the Income-tax Rules, 2026 to operationalize the simplified Income-tax Act, 2025, which will come into force from April 1.

The new rules provide enhanced benefits for house rent allowance (HRA) for salaried taxpayers while making disclosure of landlord-tenant relationships mandatory for claiming deductions.

As per the gazette notification, the rules will take effect from April 1, 2026, implementing the revamped direct tax framework approved by Parliament in August 2025. The new law replaces the six-decade-old Income Tax Act, 1961 without altering tax rates, focusing instead on simplification and clarity.

The legislation significantly trims the legal framework, reducing sections from 819 to 536 and chapters from 47 to 23. The overall word count has also been cut nearly in half, alongside the introduction of 39 tables and 40 formulas to make provisions easier to understand.

The rules introduce stricter norms for capital gains, stock market transactions, and non-resident taxation, while simplifying disclosure requirements. Over 150 forms have been notified to cover a wide range of tax-related activities.

Under the revised HRA framework, eight major cities — Mumbai, Kolkata, Delhi, Chennai, Hyderabad, Pune, Ahmedabad, and Bengaluru — will qualify for a higher exemption limit of 50% of salary, while other cities will continue with a 40% cap.

The rules also mandate disclosure of landlord-tenant relationships for tax deductions and place greater responsibility on auditors and companies, particularly in verifying foreign tax credits, PAN duplication, and liabilities arising from audit observations.

Additionally, clarity has been provided on determining the holding period of assets for capital gains. In cases of converted securities, the holding period will include the duration for which the original instrument was held prior to conversion. (Agencies)