What changes with the new Income Tax rules? All you need to know

The government introduced 32 amendments to the Finance Bill on Wednesday, with key changes related to income tax. In a retrospective amendment from April 1, 2021, the government clarified that electronically granted approvals in assessment, reassessment or recomputation proceedings cannot be invalidated due to inadequate reasoning, authentication defects, or absence of a digital signature. This follows the earlier amendment with retrospective effect from 2019 to specify that no order will be treated as invalid merely due to the absence of a DIN (Document Identification Number). This will help the tax department to safeguard the legality of previously issued electronically-generated documents.

Also, another amendment provides for the tax department to issue notices to reopen certain cases at any time for the purpose of making an assessment or reassessment or recomputation in consequence of a court order or appeal even after the time limit has passed.

Higher thresholds for mandatory quoting of PAN:

The thresholds for mandatory quoting of PAN (Permanent Account Number) have been hiked for withdrawals, deposits, motor vehicle purchases and property transactions. PAN is now needed for:

• Cash deposits or withdrawals aggregating to Rs 10 lakh or more in a financial year, in one or more accounts of a person as against present requirement of quoting for cash deposits exceeding Rs 50,000 during any one day with a banking company or a co-operative bank.

• For purchase of motor vehicles, the threshold for quoting PAN has been set at Rs 5 lakh (including motorcycles). At present, PAN was required for sale or purchase of a motor vehicle or vehicle, other than two-wheelers.

• For hotel or restaurant bills, or convention centres or banquet halls or for event management, for payments over Rs 1 lakh. At present, PAN is mandatory for payments exceeding Rs 50,000 in case of hotel or restaurant bills.

• For purchase or sale or gift or joint development agreement of any immovable property, if the transaction cost is over Rs 20 lakh, nearly double the existing limit of Rs 10 lakh.

For individuals, senior citizens:

• A single unified challan-cum-statement to replace separate forms for Tax Deducted at Source (TDS) on property, rent, contractors and crypto assets, with filing to be done using PAN (Permanent Account Number) of the deductor than TAN (Tax Deduction and Collection Account Number). TDS needs to be deducted on rent payment of Rs 50,000 for a month, on transfer of immovable property of Rs 50 lakh or more, on professional or contract or commission brokerage payments of Rs 50 lakh and transfer of virtual digital assets (no monetary limit).

• Unified interest declarations through Form 121 that merges Form 15G (individuals) and Form 15H (seniors). The system will automatically detect the filer’s age and apply the requisite rules.

For salaried employees:

• In case of a job shift, employees need to mention the tax regime opted for with the previous employer to assess tax liability accordingly. Form 130 will replace Form 16 to provide a detailed summary to an employee or pensioner about the salary earned, tax deducted and deposited, and applicable deductions.

• Perquisites, fringe benefits, or amenities or profits in lieu of salary provided by employers to employees to be part of Form 123, which will be digitally linked to Form 130. The employer-provided perks include accommodation, cars, interest-free or concessional loans, holiday expenses, free or concessional travel, free meals, free education, gifts, vouchers, credit card expenses.

• Valuation of perquisites includes electric vehicles within the concessional valuation slab for employer-provided motor cars: Rs 5,000 per month (plus Rs 3,000 if a chauffeur is provided) where the employer bears the running and maintenance expenses; or Rs 2,000 per month (plus Rs 3,000 if chauffeur is provided) where the employee bears the cost of personal‑use running and maintenance. “EVs are now treated at par with cars having engine capacity not exceeding 1.6 litres for the purpose of valuing perquisites when the vehicle is used partly for official duties and partly for personal purposes,” said Amit Maheshwari, Managing Partner, AKM Global.

Allowances:

• Benefits of meal vouchers for employees under the new tax regime, which was not allowed earlier, apart from those who opt for the old tax regime. Exemption has been provided for “free food and non-alcoholic beverages” provided by employers during working hours at office or business premises or “through paid vouchers usable only at eating joints” for value not exceeding Rs 200 per meal. “This will equate to Rs 4,400 for one meal a day or Rs 8,800 for two meals a day basis 22 working days a month,” Suresh Kumar S, Partner, Deloitte India, said.

• Children’s education allowance increased from Rs 100/month per child to Rs 3,000 (up to two children), and hostel expenditure allowance from Rs 300 per month per child to Rs 9,000 (up to two children).

• Expansion of the list of eligible cities for a higher 50% house rent allowance (HRA) benefit to four major cities — Bengaluru, Hyderabad, Pune and Ahmedabad, bringing them at par with the metropolitan cities of Mumbai, Kolkata, Delhi, Chennai. High-rent, high‑density employment hubs such as Noida, Gurugram and Navi Mumbai miss out from getting included and will fall under 40% HRA category like other cities.

Tighter compliance:

• HRA benefits and other claims by salaried employees to face greater scrutiny as they will be required to provide evidence for those claims in a separate form (Form 124) at the time of computation of income and TDS by employers. This implies it will now be mandatory for employees to give details of the landlord if they claim the HRA benefit. However, the PAN of the landlord has to be furnished only if the aggregate rent paid during the tax year exceeds Rs 1 lakh. The new I-T Act, 2025 has introduced the concept of ‘tax year’ as the 12-month period beginning from April 1, removing the existing term of ‘assessment year’.

• Under Rule 237, the reporting threshold for SFT (Statement of Financial Transactions) —  an annual report mandated by the I-T Act for specified entities such as banks, companies, and registrars to report high-value financial transactions of individuals — for receipt of insurance premium payments has been lowered from Rs 10 lakh to Rs 5 lakh where PAN is available, and from Rs 5 lakh to Rs 2.5 lakh where PAN is not available. “This significantly expands the reporting net for insurers, and customers can expect more policies to appear in their AIS (Annual Information Statement), strengthening tax‑trail transparency and tightening compliance,” Maheshwari said.

• Form 146 expands the reporting framework for remittances to non-residents with more disclosures and alignment with regulatory and DTAA (Double Taxation Avoidance Agreements) provisions. Taxpayers will now be required to furnish transaction-level particulars such as date of acquisition and sale, full value of consideration, cost of acquisition, and computation of long-term and short-term capital gains separately as against limited disclosure of aggregate capital gains figures earlier. Specific identification details, including PAN, if available, Tax Identification Number (TIN) in the country of residence, tax residency certificate number and address, contact details need to be provided in a move that will strengthen treaty-based verification and transparency, experts said.

Old income tax regime vs new regime, short compliance deadline:

With higher allowance thresholds and streamlined deductions, tax experts are of the view that there could be a potential advantage for income earners under the old tax regime as against the new tax regime, especially for middle-income earners.

For lower and lower middle-income earners, the new regime’s simplified structure may reduce tax liability while minimising compliance burden, but for higher middle and higher-income taxpayers who actively plan their finances, the old regime may provide opportunities to optimise taxes with deductions and exemptions, they said.

For taxpayers earning up to Rs 15 lakh, the new regime’s lower slab rates, higher standard deduction, and simplified structure generally make it more attractive, particularly for individuals with limited deductions and straightforward salary income, said Rahul Charkha, Partner, Economic Laws Practice.

“For middle-income taxpayers in the Rs 15-25 lakh range, the choice becomes more nuanced: those with modest deductions often find the new regime more efficient, while those who receive substantial HRA, have home loans, and fully utilise Sections 80C, 80CCD(1B), and other deductions may find the old regime equally or more beneficial. For taxpayers in the Rs 25-50 lakh bracket, regime selection increasingly depends on the scale of deductions and exemptions claimed. High-deduction profiles may still extract significant value under the old regime. For taxpayers earning Rs 50 lakh and above, the new regime’s lower marginal rates can be attractive, unless they pay high rents, have large housing loans, significant insurance cover, and structured investments providing savings under the old regime,” Charkha added.

Tax experts also pointed out the rushed timeline to comply with the new I-T rules. Even though the filings for income earned in 2026-27 will need to be filed in 2027-28, some provisions such as TDS, advance tax will kickstart based on these new rules.

Vishwas Panjiar, Managing Partner, SVAS Business Advisors LLP, said, “The CBDT released the Income-tax Rules, 2026 on March 20, effective April 1. If that sounds like a transition window, it isn’t — it’s a deadline. These rules have immediate operational impact. Rule 15 alone affects every employer running payroll in India. Perquisite valuation for accommodation, cars, concessional loans and utilities feeds directly into April salary processing and TDS computations — cycles that are already underway… compressed timelines don’t produce compliance, they produce gaps. One would have expected, given the scale of this legislative exercise, that the Rules be notified at least a month in advance or that transition provisions be built in for at least the first quarter. It’s critical of the government that a transitional window of at least quarter 1 of the year should be given to implement the Rules.”