Draft Income-Tax Rules, 2026: Simpler ITRs, Fewer Forms, Tech-Driven Compliance Ahead

The government’s release of the draft Income-Tax Rules, 2026, marks a significant milestone in the transition to the New Income-Tax Act, 2025, which is slated to come into force from April 1, 2026. These draft rules, along with redesigned Income Tax Return (ITR) forms, have been placed in the public domain for stakeholder feedback until 22 February 2026, ahead of their final notification, underscoring a consultative approach to tax reform.

“The income tax forms have been rationalised and will henceforth be identified by Serial Nos 1-190, in lieu of the existing alphanumeric nomenclature. The forms have been drafted in a clearer, more accessible language to avoid operational, administrative, or legal uncertainty, and the notes thereto have been correspondingly simplified,” says Sandeepp Jhunjhunwala, Partner at Nangia Global.

Notably, Draft Form No. 26, audit report and statement of particulars required to be furnished under Section 63 of the Income-Tax Act, 2025, provides for ICDS adjustments and may require further overhaul later, as the Union Budget 2026 proposes to merge ICDS with Ind-AS and scrap separate tax accounting requirements from tax year 2027-28.

Vipin Upadhyay, Partner, King Stubb & Kasiva, Advocates and Attorneys, says, “At the core of the draft is a comprehensive overhaul of the ITR framework, rationalising and substantially reducing the number of rules and forms compared with the legacy structure, while introducing simplified and technology-enabled ITR formats that are expected to streamline compliance for individual and corporate taxpayers.”

The proposed ITR forms are standardised, incorporate automated reconciliation and pre-fill features, and aim to reduce errors and manual inputs, which could ease filing under ITR-1 to ITR-7 categories, especially for salaried individuals, small businesses and startups. The draft rules also clarify procedural aspects, such as fair market value computations for assets including jewellery and property, that have direct implications for capital gains reporting across relevant ITRs.

“These changes dovetail with key Budget 2026 measures, including extended timelines for revising returns up to 31 March, a staggered filing calendar, and a sharper focus on compliance ease without altering existing tax slabs, signalling a broader shift towards a simpler, taxpayer-friendly regime. The final design and applicability of the new ITRs will, however, depend on how stakeholder feedback shapes these draft rules before their formal adoption,” says Upadhyay.

Richa Sawhney, Partner - Tax, Grant Thornton Bharat, points out that the new Rule 15 replaces the decades‑old framework for perquisite taxation for salaried taxpayers contained under Rule 3 of the 1962 Rules.

“For ease of reference, all perquisites and their valuation parameters have been tabulated, while thresholds have been updated in some cases, namely the Rs 200 per‑meal limit for free food and the enhanced Rs 15,000 annual limit for gifts. The revised rule also increases the taxable value of employer‑provided cars by laying down higher standard monthly valuations. There is no perquisite value to be assigned for a loan given to an employee if the quantum does not exceed Rs 200,000, which was a significantly lower amount of Rs 20,000 earlier.”

The other significant change is that the draft provides that prescribed professionals need to maintain their electronic books of account and other documents in a manner that they are accessible in India at all times. The backup needs to be kept in India‑based servers and needs to be updated on a daily basis. This requirement is in sync with similar requirements laid down for companies under the Companies Act 2013 and related rules.

“It also proposes a certified filing for claiming Foreign Tax Credit, which will ensure that the chances of incorrect claims are mitigated. The Rules further recognise the prescribed Digital rupee for specified payments. The forms relating to the audit report/ statement and TDS certification have been consolidated. These changes, along with the tech-savvy architecture of the forms, will help in simplifying and modernising compliance,” informs Sawhney.