The Central Board of Direct Taxes (CBDT) has notified the Income-tax Rules, 2026 under the Income-tax Act, 2025, bringing into force a comprehensive compliance framework effective from April 1, 2026. The new rules consolidate procedural aspects relating to valuation, taxation of perquisites, determination of income in cross-border cases, and reporting obligations, significantly reshaping the tax administration landscape.
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Applicability and Commencement
The rules will come into effect from April 1, 2026, and apply in conjunction with the Income-tax Act, 2025. This marks the beginning of a new regime aimed at modernising tax processes and enhancing transparency.
- Dividend Declaration and Payment Norms
Companies are now required to maintain their share registers within India, hold general meetings domestically, and ensure that dividends are declared and paid within India. These provisions are intended to strengthen domestic tax jurisdiction and oversight.
- Recognition and Regulation of Stock Exchanges
The rules prescribe strict conditions for recognition of stock exchanges, including mandatory approval from SEBI, maintenance of detailed client data including PAN, preservation of transaction audit trails for seven years, and periodic reporting to tax authorities. This move is aimed at improving transparency in securities and derivatives trading.
- Clarification on Period of Holding for Capital Gains
The determination of the holding period for capital assets has been rationalised. In specified cases, the holding period of the original asset prior to conversion is to be included. For assets declared under the Income Declaration Scheme, the rules provide clear timelines for determining holding periods. This is crucial for classification of gains into short-term and long-term.
- Framework for Zero Coupon Bonds
The issuance of zero coupon bonds has been subjected to stringent conditions, including a minimum tenure of 10 years, mandatory investment-grade ratings, listing requirements, and prescribed utilisation timelines for funds raised. These measures aim to ensure discipline in infrastructure financing instruments.
- Residential Status Relief for Seafarers
Indian citizens working as crew members on foreign-bound ships will benefit from exclusion of certain periods spent outside India from their residential status calculation, based on official certification records. This provides clarity and relief in determining tax residency.
- Determination of Income in Case of Non-Residents
Where income accruing to non-residents cannot be precisely determined, the Assessing Officer is empowered to compute such income using reasonable methods, including a percentage of turnover or proportionate global profits. This provision expands the discretion of tax authorities in cross-border cases.
- Fair Market Value and Valuation Rules
A detailed framework has been introduced for determining fair market value of assets, covering listed and unlisted shares, partnership interests, and foreign entities. The rules prescribe use of observable market prices, merchant banker valuations, and formula-based approaches. This is particularly significant for cross-border transactions and indirect transfers.
- Attribution of Income to Indian Assets
The rules introduce a formula-based mechanism to attribute income to Indian assets in offshore transactions, ensuring that income derived from assets located in India is appropriately taxed. This strengthens the framework for taxing indirect transfers.
- Significant Economic Presence Thresholds
To address digital economy taxation, the rules prescribe thresholds for significant economic presence. Non-residents will be subject to tax if their transactions exceed ₹2 crore or if they engage with more than 3 lakh users in India. This expands the tax base for digital businesses.
- Disallowance of Expenditure Relating to Exempt Income
The method for computing disallowance of expenditure relating to exempt income has been simplified. It now includes direct expenses and 1% of the average value of investments yielding exempt income, subject to overall limits.
- Overhaul of Perquisite Valuation Rules
A comprehensive structure has been laid down for valuation of perquisites such as residential accommodation, motor cars, concessional loans, gifts, and employer-provided benefits. The rules prescribe standardised valuation methods based on salary percentages, fixed rates, and actual expenditure. These changes will significantly impact salaried taxpayers and employers.
- Taxation of Employer Contributions and Accretions
Employer contributions to specified funds exceeding ₹7.5 lakh per annum will be taxable, along with annual accretions computed using a prescribed formula. This targets high-income earners.
- Prescribed Salary and Income Thresholds
The rules prescribe thresholds for salary income and gross total income at ₹4 lakh and ₹8 lakh respectively for specified provisions.
- Medical Benefits and Exemptions
Detailed provisions have been introduced for exemption of medical perquisites, including a list of specified diseases and stringent conditions for hospital approval.
- Voluntary Retirement Scheme Conditions
The rules standardise eligibility and compensation limits for voluntary retirement schemes, requiring minimum service or age criteria and prescribing caps linked to salary and tenure.
- Unrealised Rent and Deduction ConditionsÂ
Deductions for unrealised rent are allowed only upon fulfilment of strict conditions, including proof of irrecoverability and initiation of legal proceedings.
- Banking Sector Provisions on Bad Debts
A clear methodology has been prescribed for computing aggregate average advances for rural branches to claim deductions for bad and doubtful debts.
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