Government Releases Draft Rules for New Income Tax Act
The wait is finally over. On February 7-8, 2026, the Central Board of Direct Taxes (CBDT) released the much-awaited Income Tax Draft Rules 2026. These rules will operationalise the new Income Tax Act, 2025, which replaces the 63-year-old 1961 Act from April 1, 2026.
Public feedback is open until February 22, 2026. After that, the final rules will be notified, likely in March. For salaried individuals, families, and small investors, these changes bring real relief and much-needed simplification.
Old Tax Regime Gets a Fresh Lease of Life
Many expected the new tax regime to become the default choice with its lower rates and no exemptions. But the draft rules have strengthened the old regime significantly.
Key allowances have been made realistic and more generous:
- Children’s Education Allowance — Increased from ₹100 per child per month to ₹3,000. For two children, this means up to ₹72,000 per year can be claimed as exemption.
- Hostel Expenditure Allowance — Raised from ₹300 to ₹9,000 per child per month.
- House Rent Allowance (HRA) — More cities, including Bengaluru, Hyderabad, Pune, and Ahmedabad, now qualify for the higher 50% exemption limit (previously limited to Delhi, Mumbai, Kolkata, and Chennai).
Opinion: This is a smart, taxpayer-friendly correction. Earlier exemption limits were outdated and made the old regime unattractive for most. By updating them to match today’s costs, the government has ensured that families with children, working professionals in big cities, and those with high rent expenses will still find the old regime beneficial. The new regime remains simpler for young, single professionals who don’t claim many deductions.
PAN Quoting Thresholds Raised – Daily Life Gets Easier
Another major relief comes in PAN-related compliance:
- Cash deposits or withdrawals across banks now require PAN only if the annual total exceeds ₹10 lakh (earlier thresholds were much lower).
- Motor vehicle purchases need PAN only above ₹5 lakh.
- Property transactions and high-value hotel bills (above ₹1 lakh) have higher thresholds.
- Insurance premiums now require PAN reporting from the first rupee in many cases for better tracking.
These changes reduce unnecessary paperwork for small and routine transactions while maintaining oversight on bigger ones.
Simpler Forms, Fewer Rules, and Digital Push
The draft rules cut down the number of forms and procedures dramatically. New ITR forms will be smarter, with pre-filled data, better layout, and automated checks. The focus is on faceless assessments, centralised processing, and technology-driven compliance.
Crypto and virtual digital asset transactions will see stricter reporting from exchanges, promoting transparency.
What This Means for You Right Now
These Income Tax Draft Rules 2026 signal the government’s intent to simplify taxes without forcing everyone into the new regime. Middle-class families and salaried employees in metros stand to gain the most if they claim allowances properly.
My take as a journalist covering personal finance: This is one of the most balanced tax overhauls in recent years. It reduces harassment from outdated rules while keeping the system progressive. However, success will depend on how smoothly the new digital forms work.
Actionable Tips:
- Review your salary structure and allowances now.
- Decide between old and new regime based on your HRA, children’s education, and rent expenses.
- Submit your feedback on the draft rules by February 22 on the Income Tax portal.
The new era of Indian taxation begins April 1, 2026. Stay informed, plan early, and make the most of these changes.
