India’s Central Board of Direct Taxes (CBDT) released on 8 February 2026 draft Income-tax Rules (the “Draft Rules”) for public consultation. On 20 March 2026, the CBDT notified the Income-tax Rules, 2026 (the “Rules”), in relation to the Income-tax Act, 2025, which is expected to come into force beginning 1 April 2026.1 Also see the GMS Flash Alert on the Draft Rules
WHY THIS MATTERS
The new Rules affecting personal tax introduce significant changes by enhancing previously set values for determining perquisites, increasing exemption values for certain allowances, and introducing new limits for compulsory quoting of a permanent account number (PAN) in certain transactions.
While retaining provisions of the Draft Rules, the Rules have also provided clarity on the perquisite valuation for motor car (electric vehicle) and an additional verification mechanism for individuals filing an updated tax return. The new forms prescribed under the Rules also introduce significant changes.
Key Changes in the Rules
Change in perquisite value of motor car provided by an employer.
Details | Taxable value under Income-tax Rules, 1962 | Taxable value under the Rules
|
a. Motor car owned or hired by employer | ||
Used partly for official and partly for personal purposes and expenses on running and maintenance are not met or reimbursed by employer. | ||
Cubic capacity of engine does not exceed 1.6 litres or the motor car is an electric vehicle | INR 1,800 per month (plus INR 900 per month if a chauffeur is also provided) | INR 5,000 per month (plus INR 3,000 per month if a chauffeur is also provided) |
Cubic capacity of engine exceeds 1.6 litres | INR 2,400 per month (plus INR 900 per month if a chauffeur is also provided) | INR 7,000 per month (plus INR 3,000 per month if a chauffeur is also provided) |
Details | Taxable value under Income-tax Rules, 1962 | Taxable value under the Rules
|
Used partly for official and partly for personal purposes and expenses on running and maintenance for personal use met by employee. | ||
Cubic capacity of engine does not exceed 1.6 litres or the motor car is an electric vehicle | INR 600 per month (plus INR 900 per month if a chauffeur is also provided) | INR 2,000 per month (plus INR 3,000 per month if a chauffeur is also provided) |
Cubic capacity of engine exceeds 1.6 litres | INR 900 per month (plus INR 900 per month if a chauffeur is also provided) | INR 3,000 per month (plus INR 3,000 per month if a chauffeur is also provided) |
b. Motor car owned by employee | ||
Used partly for official and partly for personal purposes and expenses on running and maintenance met or reimbursed by employer. | ||
Cubic capacity of engine does not exceed 1.6 litres or the motor car is an electric vehicle | INR 1,800 per month (plus INR 900 per month if a chauffeur is also provided) | INR 5,000 per month (plus INR 3,000 per month if a chauffeur is also provided) |
Cubic capacity of engine exceeds 1.6 litres | INR 2,400 per month (plus INR 900 per month if a chauffeur is also provided) | INR 7,000 per month (plus INR 3,000 per month if a chauffeur is also provided) |
The value of free or concessional education provided to any member of an employee’s household, whether through an employer-owned institution or any other institution shall be determined based on actual cost of education in a similar institution or nearby locality as reduced by any amount recovered from the employee. This valuation applies if the cost or value of the benefit exceeds INR 3,000 per month per child, as compared with an earlier threshold of INR 1,000 per month per child.
No perquisite value shall be charged in cases where loans are granted by an employer to the employee for medical treatment of specified diseases, or where the aggregate amount of such loans does not exceed INR 200,000. The earlier threshold was INR 20,000.
The exemption limit for free food and non-alcoholic beverages provided by an employer during working hours at office or business premises or through paid vouchers usable only at eating joints has been increased from INR 50 per meal to INR 200 per meal.
The perquisite value of any gift, voucher or token provided by an employer to an employee shall be treated as nil if the aggregate value of such benefits does not exceed INR 15,000 during the tax year. This limit has been revised from the earlier threshold of INR 5,000.
If a taxpayer claims a foreign tax credit (FTC) of INR 100,000 or more, Form No. 44 is now required to be verified by a Chartered Accountant holding a Certificate of Practice (COP).
The limits for mandatory quoting of a PAN have been enhanced for certain transactions, such as the purchase of vehicles, deposits with banks or post offices, and payments made to hotels, restaurants, and convention centres.
The condition for claim of exemption of Leave Travel Concession (LTC) in case of air travel is now limited to fare admissible for the class of travel to which the employee is entitled, based on shortest route to the destination, replacing an earlier cap that was linked to the economy fare of national carrier for the same route.
The condition for claim of exemption for LTC in case of bus travel in areas without a recognised public transport system will now be calculated at a fixed rate of INR 30 per kilometre, replacing the earlier limit that was linked to AC first-class rail fare.
Ahmedabad, Bengaluru, Hyderabad, and Pune have been included in the list of cities eligible for a 50 percent salary criterion (instead of the earlier 40 percent) for the purpose of computing the House Rent Allowance (HRA) exemption.
An updated tax return filed can also be verified by submitting a verification of return in Form ITR‑V.
The transport allowance exemption has been increased from INR 10,000 to INR 25,000 per month (or 70 percent of the allowance, whichever is lower) for employees in transport operations who do not receive a daily allowance.
The exemption for Children Education Allowance has been increased from INR 100 per month per child to INR 3,000 per month per child.
The exemption for Children Hostel Allowance has been increased from INR 300 per month per child to INR 9,000 per month per child.
The exemption for transport allowance granted to a physically challenged employee has been revised by replacing the earlier limit of INR 3,200 per month with an enhanced ceiling of INR 15,000 plus Dearness Allowance for employees residing in metro cities and INR 8,000 plus Dearness Allowance for employees residing in non‑metro cities.
The exemption for underground allowance granted to employees working in uncongenial or unnatural conditions in underground mines has been revised by replacing the earlier INR 800 per month limit with an exemption equal to 15 percent of basic pay.
Changes in forms
1. Form No. 130 to replace Form No. 16
Form No. 130, the certificate for tax deducted at source on salary paid to employee / pension or interest paid to specified senior citizens, has replaced Form No. 16. While the erstwhile form had two parts, the current form has three parts with additional annexure introduced for senior citizens in specific cases.
2. Form No. 124 to replace Form No. 12BB
- Form No. 124, the statement showing particulars of claims by an employee, has replaced Form No. 12BB.
- In case of HRA exemption claims, there is a requirement to disclose relationship with landlord, if any.
- Further, documentation in respect of claims (such as house rent agreement, loan agreement, etc.) is required to be provided as annexures.
3. Consolidation of various TDS return forms
- Form No. 26QB, Form No. 26QC, Form No. 26QD, Form No. 26QE have been consolidated into a single Form No. 14I. Earlier, separate forms had to be filed for each co‑owner, co‑buyer, co‑seller, co‑tenant, or co‑landlord; this process has now been simplified and can be completed through one unified form.
- Under Schedule A (related to payment of rent), taxpayers are now required to specify whether the tax has been deducted on account of completion of tax year or end of tenancy.
- Under Schedule B (related to purchase of immovable property), detailed information is required to be provided on each instalment paid, specifying whether it is the first, a subsequent, or the final installment.
4. Form No. 44 to replace Form No. 67
Form No. 44 has replaced Form No. 67, which is required to be filed by taxpayers claiming a FTC. This form must be verified by a Chartered Accountant holding a COP.
5. Change in PAN application form numbers
Form No. 93 and Form No. 95 have replaced erstwhile Form No. 49A and Form No. 49AA, respectively. Details of passport number and citizenship status must be provided by Non‑Residents (NRs) / Not Ordinary Residents (NORs).
6. Declaration in Form No. 157 to be filed by individuals leaving India
Individuals domiciled in India who are leaving India, and do not possess a PAN either because their total income is below the basic exemption limit or they are otherwise not required to obtain a PAN, are now required to file Form No. 157.
KPMG INSIGHTS
The Rules introduce several revisions to existing limits to better align them with current economic conditions. While enhancements to allowances—such as the children education allowance, hostel allowance, and interest‑free loans—reduce taxable income for employees opting for the old tax regime, the revised perquisite value of employer provided car might increase taxable income. The inclusion of electric vehicles for the purpose of determining perquisite value of a motor car brings in the required clarity.
Further, individuals who do not possess an Aadhaar or lack access to other modes of electronic verification were encountering practical difficulties in filing updated returns. The introduction of the ITR‑V as an additional verification mechanism effectively addresses these challenges and provides greater flexibility to such taxpayers.
Although certain amendments and new forms streamline procedural requirements, the introduction of mandatory accountant certification for claiming the foreign tax credit may add to compliance efforts.
Overall, these updates represent a step towards modernising the tax framework, offering increased clarity and more realistic thresholds for taxpayers.
If assignees and/or their programme managers have any questions or concerns about the scope of the update, its application and potential impacts, and appropriate next steps, they should consult with their qualified tax professional or a member of the GMS tax team with KPMG in India (see the Contacts section).
ENDNOTE:
1 Income Tax India, “en-notified-it-rules-2026-20-03-2026” (access may be restricted).
RELATED RESOURCE
This article is excerpted, with permission, from "Income-tax Rules, 2026 Key updates from personal tax perspective," Tax Flash News (21 March 2026), a publication of the KPMG International member firm in India.
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