Reference: Draft Income-tax Rules, 2026 (Pages 11–28)
Governing Law: Income-tax Act, 2025
Audience: Employers, HR & Payroll Teams, Employees, Banks, Deductors, Professionals
The Draft Income-tax Rules, 2026 propose a comprehensive restructuring and rationalisation of provisions relating to salary, perquisite valuation, TDS procedures, declaration forms, and statutory reporting, replacing the corresponding Income-tax Rules, 1962.
While many changes are structural and drafting-oriented, certain provisions will have direct tax and payroll impact once notified.
- Salary & Perquisites – Comparative Position
|
Particulars |
Old Rules (IT Rules, 1962) | Draft Rules, 2026 |
Impact |
|
Governing Rule for Perquisites |
Rule 3 | Rule 15 | Renumbering & re-organisation |
|
Rent-Free Accommodation – Govt Employees |
License fee minus rent paid | Same | No change |
| RFA – Private Employer (Owned House) | 15% / 10% / 7.5% of salary (metro classification based on population >25 lakh, etc.) | 10% / 7.5% / 5% (2011 Census based: >40 lakh / 15–40 lakh / others) |
Beneficial – reduced valuation |
|
RFA – Leased Accommodation |
Lower of lease rent or 15% of salary | Lower of lease rent or 10% of salary | Reduced ceiling |
|
Furnished Accommodation |
Add 10% of furniture cost | Same | No change |
| Hotel Accommodation | Lower of actual charges or 24% of salary | Same |
No change |
| Multiple Accommodation on Transfer | Lower-valued accommodation taxable for 90 days | Same |
No change |
|
Continued Accommodation |
No structured valuation cap | CII-based valuation cap prescribed | Clarificatory |
| Motor Car ≤ 1.6L (Employer-owned) | ₹1,800 + ₹900 chauffeur | ₹5,000 + ₹3,000 chauffeur |
Significant increase |
|
Motor Car > 1.6L (Employer-owned) |
₹2,400 + ₹900 chauffeur | ₹7,000 + ₹3,000 chauffeur | Significant increase |
|
Employee bears fuel & maintenance |
₹600 / ₹900 | ₹2,000 / ₹3,000 |
Increased |
| Normal Wear & Tear (Motor Car) | 10% p.a. | 10% p.a. |
No change |
|
Free Food |
₹50 per meal (later ₹200) | ₹200 per meal | Aligned with current position |
| Gifts from Employer | ₹5,000 per annum | ₹15,000 per annum |
Enhanced exemption |
|
Interest-free / Concessional Loans |
₹20,000 threshold | ₹2,00,000 threshold | Major relief |
| Specified Medical Loans | Exempt | Exempt |
No change |
|
Club / Credit Card Expenses |
Taxable unless official | Same | No change |
| Use of Movable Assets | 10% of cost | Same |
No change |
|
Transfer of Movable Assets |
Computers 50%, Cars 20%, Others 10% | Same | No change |
| ESOP – Listed Shares | Avg. opening & closing price | Same |
No change |
|
ESOP – Unlisted Shares |
Merchant banker valuation | Same | No change |
|
Employer Contribution > ₹7.5 lakh (PF/NPS/Superannuation) |
Taxable + accretion (Rule 3B) | Rule 16 – accretion formula codified |
Structural |
| Definition of Salary (for RFA) | Scattered provisions | Explicit definition under Rule 15(8)(k) |
Drafting clarity |
|
Prescribed Income u/s 17(1)(c)(ii) |
₹3 lakh | ₹4 lakh | Increased |
| Prescribed GTI u/s 17(3)(b) | ₹5 lakh | ₹8 lakh |
Increased |
|
Medical Hospital Approval |
Limited conditions | Detailed infrastructure criteria prescribed |
Compliance tightened |
- Key Takeaways
✅ Major Relief Areas
- Reduced valuation percentages for rent-free accommodation
- Interest-free loan exemption increased to ₹2 lakh
- Gift exemption increased to ₹15,000
- Higher prescribed income / GTI thresholds
❗ Major Tax Increase Area
- Motor car perquisite values substantially increased, impacting employer-provided vehicles
📘 Structural / Drafting Improvements
- Explicit salary definition
- Codified accretion formula for employer contributions
- CII-linked accommodation valuation cap
- Continuity and clarity in ESOP valuation rules
- Declaration Forms –Form 15G / 15H
Rule 211 – Declaration under Section 393(6)
- Draft Rules prescribe only one declaration form:
👉 Form No. 121 - Forms 15G and 15H are not prescribed in the Draft Rules, 2026
Critical Clarification
- The concept of declaration for non-deduction of tax continues
- Only the form number and procedural framework have changed
- Form 121 functionally subsumes earlier Forms 15G and 15H
📌 Interpretation:
Forms 15G and 15H have been procedurally replaced by a consolidated declaration, Form No. 121, under section 393(6) of the Income-tax Act, 2025. The eligibility principles broadly continue, subject to the new statutory framework.
- Salary TDS Certificates & Perquisite Statements – Rule 204
Where Salary ≤ ₹1.5 lakh
- Employer may report salary and perquisites directly in Form 130
- Form 130 replaces old Form 16
Where Salary > ₹1.5 lakh
Employer must issue:
- Form 130 – Salary TDS Certificate
- Form 123 – Statement of Perquisites
📌 Form 123 replaces old Form 12BA
- Senior Citizens – Special Regime for Banks (Rule 208)
Declaration
- Senior citizen to furnish Form No. 125 to the specified bank
Role of Bank
- Verify eligibility
- Allow deductions only on submission of evidence
- Allow rebate under section 156
- Compute total income
- Deduct tax at applicable slab rates
📌 This mechanism operates independently of Form 121 and applies only to specified banking cases.
- TDS Returns, Certificates & SFT Reporting
- Rule 215: Forms for TDS certificates
- Rule 219: TDS return forms & due dates (replacing earlier 24Q / 26Q / 27Q structure)
- Rule 237: Statement of Financial Transactions (SFT) to be furnished in Form No. 165
- Major Income-tax Forms Renumbered (Tabular Summary)
- Audit, International Tax & Corporate Forms
|
Purpose |
Old Form No. | New Form No. |
| Tax Audit Report | 3CA / 3CB / 3CD |
Form 26 |
|
Transfer Pricing Audit |
3CEB | Form 48 |
|
MAT Report |
29B |
Form 66 |
| Tax Residency Certificate |
10FA |
Form 42 |
|
DTAA Particulars |
10F |
Form 41 |
- Charitable Trust / NGO Forms
|
Purpose |
Old Form No. | New Form No. |
| Provisional Registration | 10A |
Form 104 |
|
Registration / Renewal |
10AB | Form 105 |
| Accumulation of Income | Form 10 |
Form 109 |
|
Audit Report |
10B / 10BB | Form 112 |
| Donee Statement | 10BD |
Form 113 |
|
Donor Certificate |
10BE |
Form 114 |
- TDS / TCS & Withholding Compliance
|
Purpose |
Old Form No. | New Form No. |
| Lower / Nil TDS Application | Form 13 |
Form 128 |
|
Salary TDS Certificate |
Form 16 | Form 130 |
| Other TDS Certificate | Form 16A |
Form 131 |
|
TCS Certificate |
27D | Form 133 |
| Salary TDS Return | Form 24Q |
Form 138 |
|
TDS Return – Residents |
Form 26Q | Form 140 |
| TDS Return – Non-Residents | Form 27Q |
Form 144 |
|
TCS Return |
Form 27EQ |
Form 143 |
- Information Reporting & Other Forms
|
Purpose |
Old Form No. |
New Form No. |
|
Annual Tax Statement |
Form 26AS | Form 168 |
| Foreign Remittance Declaration | Form 15CA |
Form 145 |
|
CA Certificate (Remittance) |
Form 15CB | Form 146 |
| Statement of Financial Transactions | Form 61A |
Form 165 |
|
FATCA Return |
Form 61B |
Form 166 |
- Action Points for Clients
- Review salary structures, accommodation and car policies
- Re-configure HR and payroll systems for new valuation rules
- Train teams on new declaration, certificate, and return forms
- Strengthen documentation and evidence retention
- Track final notification of rules before full-scale implementation
Disclaimer
This advisory is based on the Draft Income-tax Rules, 2026, which are subject to modification before final notification. Final compliance obligations shall apply as per the notified rules.