Kamal Ghorui
The Central Board of Direct Taxes (CBDT) on Friday notified the Income-tax Rules, 2026 to operationalise the simplified direct tax legislation passed by Parliament last year, with the new framework set to 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,” a gazette notification said.Parliament had on August 12, 2025 cleared the new Income Tax Bill aimed at replacing the six-decade-old Income Tax Act, 1961. The legislation does not introduce any new tax rate and focuses on simplifying language to make complex provisions easier to understand.
HRA framework and eligibility norms
The notified rules retain the proposed structure for house rent allowance (HRA) exemptions applicable to salaried taxpayers. Under the new framework, eight cities– Mumbai, Kolkata, Delhi, Chennai, Hyderabad, Pune, Ahmedabad and Bengaluru –will qualify for a higher exemption limit of 50 per cent of salary, while all other locations will continue to have an exemption ceiling of 40 per cent.At present, salaried employees residing 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, according to PTI report.The new rules also make disclosure of landlord-tenant relationship mandatory for claiming income-tax deductions linked to house rent allowance, thereby strengthening compliance requirements for taxpayers.
Simplification of tax law structure
The simplified law removes redundant provisions and archaic language and reduces the number of sections from 819 under the Income Tax Act of 1961 to 536, while the number of chapters has been cut from 47 to 23.The total number of words in the legislation has been reduced significantly from 5.12 lakh to 2.6 lakh. For the first time, the new framework introduces 39 tables and 40 formulas, replacing dense textual provisions to enhance clarity and improve ease of interpretation for taxpayers and practitioners.The notification also introduces more than 150 official forms — numbered from Form 33 onwards — covering a wide range of tax-related activities and procedural requirements.
Compliance tightening in key areas
New rules create stricter regulations around capital gains taxation, stock exchange dealings and non-resident taxation, while simplifying other disclosure mechanisms in the direct tax system.The framework increases the responsibility of auditors and companies for tax credit claims relating to foreign income. Auditors have also been entrusted with greater responsibility to check instances of PAN duplication and assess tax liabilities arising out of adverse audit observations.In addition, the rules clarify how the holding period of assets will be calculated in specific situations to determine whether gains are categorised as short-term or long-term.For converted securities such as shares or debentures, the holding period will include the duration for which the original instrument — including bonds, debentures or deposit certificates — was held before conversion, providing clarity on capital gains treatment in such cases.
