The new income tax rules will come into effect from April 1, 2026, which will replace the existing Income Tax Act, 1961. According to the draft Income Tax Rules, 2026, the new tax laws are expected to bring many changes, which may impact salaried employees, middle class taxpayers and businesses. These draft rules were placed in the public domain for a period of 15 days till February 22, 2026.
According to the draft rules, the new tax laws will aim to provide clearer methods for taxable salary allowances, employer-provided benefits and certain types of income calculations, among several other measures. In these, such formulas and limits have also been prescribed, which the tax authorities will use while assessing the income.
It has been said in the draft that these rules may be called Income Tax Rules, 2026… They will come into force on April 1, 2026. While many provisions merely formalize existing practices, some rules clarify how benefits such as company-provided accommodation, gifts received from employers, loans and retirement contributions will be taxed. Let us also tell you which 10 tax related changes are going to happen from April 1, which can change the entire calculation of taxpayers…
New tax rules will be applicable from FY 2026-27
Income Tax, 2026 will be applicable from April 1, 2026. This means that these will be relevant for the financial year 2026-27 and assessment year 2027-28. These rules support the Income Tax Act, 2025, and explain the procedures, valuation methods and calculation formulas used for taxation.
Tax on employer contribution above Rs 7.5 lakh
An important provision relates to the employer’s contribution to the retirement fund. These rules provide a formula for calculating the taxable perquisite when the employer’s contribution exceeds Rs 7.5 lakh in a year. These contributions typically include: Provident Fund (PF), National Pension System (NPS), and Superannuation Fund. The taxable amount will also include income earned on contributions exceeding the limit of Rs 7.5 lakh.
The taxable valuation of the accommodation given by the company will be fixed
The draft rules also clarify how accommodation provided by the employer will be taxed as a perquisite. For private sector employees, the taxable value will depend on the population of the city:
- 10 percent of salary in cities with population more than 40 lakhs
- 7.5 percent of salary in cities with population between 15 lakh to 40 lakh
- 5 percent of salary at other places
Any rent paid by the employee will be deducted from this value. The draft rules prescribe different percentages of salary depending on the population of the city.
Clear rules for when an employer gives a house on rent
If the employer provides a house or apartment on rent, the taxable value will be calculated differently. In such cases, the value of the perquisite will be either the actual rent paid by the employer, or 10 per cent of the salary; Whichever is less will be considered. This rule will mainly apply to employees working in metros where companies often provide rented accommodation facilities.
Monthly taxable value of cars given by the employer will be fixed
There is a provision of tax on the facility of car given by the company to the employer. According to the draft rules, the tax on this facility has been kept fixed. For cars used for both official and personal purposes:
- Rs 5,000 per month for cars with engine capacity up to 1.6 liters
- Rs 7,000 per month for cars with engine capacity more than 1.6 liters
- If a chauffeur is also provided, an additional Rs 3,000 per month
- These fixed amounts will be used to calculate the perquisite received under salary income.
Gifts received from employer are tax-free only up to Rs 15,000
Another rule is related to gifts given by the employer. As per the rules, gifts, vouchers or tokens given by the employer will be tax-free if their value is less than Rs 15,000 in a financial year. If the value of these gifts is more than Rs 15,000, then full tax will be levied on them. The draft rules state that the value of such gifts “will be treated as nil if their aggregate value during the tax year is less than Rs 15,000.” This rule assumes significance during the festive season when companies distribute gifts or vouchers.
Free meal in office valid up to Rs 200 per meal
Food provided by the employer during office hours will be tax-free within a specified limit. According to the draft rules, free meals or drinks will not be taxed unless their value exceeds Rs 200 per meal. This includes office canteen food, meal vouchers and corporate meal program. This discount applies when the food is served during working hours and its price remains within the prescribed limit.
Interest-free loan received from employer may attract tax
If employers provide loans at interest-free or concessional rates, that benefit may be taxable. As per the rules, the taxable price will be calculated based on the interest rate charged by State Bank of India (SBI) on similar loans. However, there are some exceptions to this. If the total loan amount is up to Rs 2 lakh, then no tax will be levied. Additionally, exemption can also be availed on loans taken for certain medical treatments. The taxable value will be calculated using the interest rate charged by SBI on similar loans.
Formula for expenses related to tax-free income
The draft rules also explain how expenses related to tax-exempt income will be calculated. For example, if a taxpayer earns tax-free income from certain investments, as per the rules, 1 per cent of the annual average value of the investment will be considered as the related expense. However, the amount disallowed cannot exceed the total expenses claimed by the taxpayer. In the rule, an amount equal to “one percent of the annual average value of the investment” has been fixed.
There will be tax on this also
The rules also specify when a foreign digital trade will be considered to have “substantial economic presence” in India. According to the draft, transactions worth more than Rs 2 crore with Indian users, or having 3 lakh or more users in India, may attract tax liability in India.
What should taxpayers do
Since these rules are expected to come into effect from April 1, 2026, taxpayers—especially salaried employees—will need to keep an eye on how their salary perks, employer benefits and retirement contributions are determined. Changes in valuation methods may impact the calculation of taxable income in salary slips and Form 16 in the coming years.