For a large section of taxpayers, the belief around the new tax regime is fairly settled – choose it, and you only get the standard deduction and nothing more.

But a closer look at the Draft Income-tax Rules, 2026, which are expected to be notified before the April 1 rollout, tells a slightly different story. The rules suggest that the government has quietly ensured that several practical tax benefits continue even for those opting for the new tax regime.

The perception that the new tax regime offers little beyond standard deduction stems from the removal of popular deductions such as Section 80C, 80D, HRA and LTA. With the government pitching the new regime as a system with lower tax rates and fewer deductions, many taxpayers concluded that choosing it meant giving up almost all tax benefits.

The Finance Ministry has proposed an increase in the PAN threshold for several items from April 2026. Details outlined in the draft Income Tax rules also suggest raising the value of perquisites provided by employers and making it mandatory for crypto exchanges to share information with the tax department. The increasing of transaction limits will apply across categories — including cash deposits and with withdrawals at the bank, purchase of motor vehicles and property, and even payment of hotel bills.

Permanent Account Number will not be necessary for certain transactions once the new rules go into effect. The draft also slashes the number of Income Tax rules and forms significantly, and introduces features such as smart pre-filled forms.

The proposed Income Tax Rules will be will be notified by the first week of March after incorporating public comments. It will replace the Income Tax Rules of 1962 with effect from April 1.

On January 16, 2026, the Income Tax Appellate tribunal (ITAT) Indore granted a full Section 87A tax rebate on both short term and long term capital gains from the sale of equity shares. This decision settled the long- standing dispute about whether Section 87A tax rebates could be applied to STCG and LTCG from equities.

To give you some context on the Section 87A dispute, it all began on July 5, 2024. On that date, the Income Tax Department updated its ITR processing utility software and restricted the Section 87A tax rebate on special rate incomes like Short-Term Capital Gains (STCG) under the new tax regime. This sparked controversy and led to legal battles. On January 24, 2025, the Bombay High Court ordered the income tax department to allow Section 87A tax rebate claims on special rate incomes like capital gains, stating that any disputes would be resolved by judicial forums like ITAT and the courts.

As a result, the cases regarding the denial of the Section 87A tax rebates have now escalated to ITAT levels. Many ITATs, including those in Chandigarh, Chennai, and Ahmedabad have issued favourable rulings, allowing taxpayers to claim Section 87A tax rebates on LTCG and STCG income from equities.

The simplified income tax rules that will come into effect from April 1 could enable a salaried person with no additional income to verify data through a pre-filled return and submit it directly, Central Board of Direct Taxes (CBDT) chairman Ravi Agrawal said on Monday.

Referring to the recently enacted Income-Tax Act, 2025, he said the government has also drafted rules and forms in simple language for ease of taxpayers. Public feedback and comments have been invited before finalising the rules, which will be notified by the first week of March, he said.

Explaining the idea behind the new simplified rules and forms, he said: “The intent is how to cut down on redundant forms… and essentially, the focus is more on capturing the right information.” He said the exercise would not only help the Income-Tax department in analysing data, but also enhance ease of compliance. It will assist taxpayers in filing their income tax returns and ultimately help in widening and deepening of the tax base.

India’s income tax system is set for a structural reset. The Income-tax Act, 2025 will come into force from April 1, 2026, replacing the six-decade-old Income-tax Act, 1961. To operationalise the new law, the government has drafted the Income-tax Rules, 2026, along with revised tax forms, including ITR forms.

Before finalising them, the government has placed the draft Income-tax Rules, 2026 and forms in the public domain to seek feedback from taxpayers, professionals and other stakeholders. The draft rules will remain open for comments for 15 days, up to February 22, 2026, after which they are expected to be notified.

Taxpayers residing in cities like Bengaluru, Hyderabad, Pune and Ahmedabad in rented accommodations are set to get significant tax relief as the government has proposed the expansion of 50% house rent allowance (HRA) exemption under the old tax regime.

Currently, the cities where taxpayers under the old tax regime can enjoy up to a 50% exemption on HRA are Mumbai, New Delhi, Kolkata and Chennai.
According to the draft new Income Tax Rules, 2026, for all other cities across India, the HRA exemption will be 40%.

According to the Income Tax Act, 1961 (Old Act), the Income Tax Act, 2025 (New Act), and the Finance Bill 2026, there is a significant cut in the tax rate for unexplained income and investments. The Finance Bill 2026 proposes to rationalise the tax rate on such income under the new Act to 30%, down from the 60% prevalent under the Old Act and the unamended New Act.

The effective tax burden on unexplained income (excluding penalty) drops significantly from 78% under the old law to 39% under the new law. However, the penalty mechanism has shifted from a flat 10% surcharge-like penalty to a stricter misreporting penalty (200%), unless settled via the additional income tax route (120%).
Key provisions and changes 1. Income Tax Act, 1961 - Section 115BBE)
Taxability: Income determined by the Assessing Officer under sections 68 to 69D (unexplained credits/investments) is taxed at a flat rate of 60%.
No Deductions: No deduction for any expenditure or allowance is allowed against such income.
Penalty: A penalty of 10% of the tax payable is leviable under Section 271AAC.

The government has once again made it clear that crypto assets remain unregulated in India, but that does not mean crypto investors are outside the tax and enforcement net.

In a written reply in Parliament, the Finance Ministry said that while the government does not collect data on crypto holdings, tax evasion and illegal use of crypto are being actively tracked and acted upon by multiple agencies.

Replying to a question in the Lok Sabha, Minister of State for Finance Pankaj Chaudhary said crypto assets or virtual digital assets (VDAs), including NFTs, are currently unregulated. “However, notwithstanding this, the Government has brought the sector under the Financial Intelligence Unit’s regulatory ambit for anti-money laundering and combating the financing of terrorism,” he said.

Chairman of the Central Board of Direct Taxes (CBDT) Ravi Agrawal said there is no intention to reopen old cases following the Supreme Court’s ruling in the Tiger Global matter. In an exclusive interaction with Pushpita Dey and Dipak Mondal, he also explained how the Budget has addressed complications around taxing foreign assets and clarified key policy issues. Edited excerpts:

Could you explain how the government defines a small taxpayer under the Small Taxpayer Disclosure Scheme?

The background goes back to the Black Money Act (BMA) of 2015. Every year, India receives about 35–40 lakh pieces of information through the automatic exchange of information with various countries. These typically relate to small balances in foreign bank accounts, interest income, dividend income, and similar items.

A substantial portion of this information does not point to wilful tax evasion but to bona fide omissions.

Thousands of H-1B workers who travelled to India are now stuck there for months because of long visa interview delays. What began as a routine trip home has turned into a major headache—not just for workers, but also for their US employers. Companies are now struggling with a tough question: should they allow these employees to work remotely from India for a long period, or risk losing them altogether? Either option comes with serious tax and legal consequences.

H-1B workers stuck in India leave US companies in a tax fix
The issue began in mid-December, when US consular offices suddenly rolled out stricter social media screening rules. Visa interviews were pushed back with no warning. Some appointments have now been rescheduled as far out as 2027.

The timing couldn’t have been worse. Many H-1B workers had travelled during the holiday season, which is when they usually renew their visas. The situation has been especially chaotic for Indian workers, who make up the largest share of the H-1B workforce. The State Department has not said how many interviews were affected. But nearly 17,000 H-1B visas were issued in Chennai alone in December 2024, according to Bloomberg. Because of the delays, families have been separated, children’s schooling has been disrupted, and careers have been thrown into limbo.

Ravi Agrawal, chairman of the Central Board of Direct Taxes (CBDT), has made it clear that the old tax regime is not going away anytime soon even though about 88% individual taxpayers have switched to the new regime. He mentioned that the Indian government is not considering a sunset clause for the old tax regime right now.

According to a TOI report, the CBDT chairman noted that the new income tax regime has gained significant traction among individual taxpayers, with about 88 per cent now filing income tax returns (ITRs) under the new tax regime. He also pointed out that taxpayers still have the choice between the two tax regimes, but the transition towards the new tax regime has been quite positive.
Sachin Garg, Partner, Nangia & Co LLP, had written earlier that pulling out the old tax regime immediately would be premature as it continues to serve taxpayers who claim allowances such as House Rent Allowance (HRA), Leave Travel Allowance (LTA), deductions on interest paid for housing loans. deductions under Chapter VIA like 80C, 80D etc.

Following the Union Budget 2026-27 presentation on February 1, the finance ministry released a detailed set of FAQs through the Income Tax Department to clarify how several Budget proposals will work in practice. These clarifications are part of the Finance Bill, 2026 and assume special importance as India prepares to switch to the new Income-tax Act, 2025 from April 1, 2026.

While some of these changes might not have attracted immediate public attention, they will have a significant impact on how taxpayers file returns, disclose income, deal with penalties and prosecution, comply with TDS rules, and respond to tax notices in the upcoming financial year.

15 Budget 2026 tax changes that quietly matter to taxpayers
Updated return window stretched to four years, but at a rising cost
Taxpayers will now be able to file an updated return for up to 48 months, even if they did not file an original return earlier. However, the longer one waits, the more expensive it becomes, with additional tax rising from 25% to 70%. This makes late voluntary disclosure possible—but costly.

After the presentation of Union Budget 2026, the government, through the Finance Bill, 2026, has clarified the provisions relating to the filing of Updated Income Tax Returns (ITR-U) under the Income-tax Act, 2025. The Income Tax Department has released a set of FAQs explaining the scope, timelines and additional tax payable in such cases.

Below are the key provisions explained, based strictly on the official FAQs issued after Budget 2026.

What is an “Updated Return” under the Income-tax Act, 2025
Section 263(6) of the Income-tax Act, 2025 provides for furnishing of an updated return of income. An updated return is a return that may be furnished by a person, whether or not an original, revised, or belated return has been earlier furnished, to voluntarily disclose any income that was not reported or was inaccurately reported before, as long as certain conditions specified in the Income-tax Act, 2025 are met.

The government’s move to extend the tax holiday for units in GIFT City to 20 years is expected to significantly boost demand for office space, accelerate commercial real estate development and improve long-term leasing visibility at India’s only International Financial Services Centre (IFSC).

By doubling the tax deduction period for IFSC units and offshore banking units (OBUs), the government has provided long-term fiscal certainty, supporting larger office commitments, campus-style developments, and sustained absorption of Grade A commercial space.

Under the proposed amendments to the Income-tax Act, IFSC units will be eligible for a 100% deduction on specified incomes for 20 consecutive years out of a 25-year block, compared with the earlier 10-year window. After the deduction period, business income from IFSC operations will be taxed at 15%, versus 35% for overseas companies elsewhere in India.

On July 26, 2024, Mr Venugopal from Tamil Nadu, filed his income tax return (ITR) for the Assessment Year 2024-25, declaring a total income of Rs 6,75,940. He also claimed a Section 87A tax rebate of Rs 25,000 and thus effectively paid no tax. His ITR included income from long-term capital gains of Rs 4,72,175, and the tax rebate he claimed was attributable to the tax due on such capital gains.

Then, on April 15, 2025, the ITR was processed by the centralised processing centre (CPC) and rejected the Rs 25,000 tax rebate he had claimed. They issued an intimation notice but didn't clearly spell out why the rebate was denied.
Unhappy with the denial, Mr Venugopal decided to appeal to the CITYA). The CIT(A) on May 29, 2025, issued its ruling and confirmed the CPC's decision to deny him Section 87A tax rebate claim on LTCG.

Is govt eyeing your land? Worried about paying tax on compensation you'll receive? Not anymore. The Budget 2026 has brought an important amendment exempting compensation received on compulsory acquisition of land under Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLARR Act).

The proposal says the relief will be applicable to individuals and HUFs. With govt pushing for Infrastructure development sin urban areas such as metro train networks, industrial corridors and the like, land acquisition is on a rise. The proposal is expected to help landowners. However, this relief will not apply to acquisitions by private players or through mixed structures.

On the proposal, Rahul Charkha, partner at Economic Laws Practice, said, "The amendment incorporates the exemption that was earlier provided under Section 96 of the RFCTLARR and CBDT Circular 36/2016. The amendment also considers a decision of the tax tribunal (Amritsar Bench) wherein it was held that compensation from compulsory acquisition of land under the National Highways Act is exempt from income tax by virtue of Section 96 of the RFCTLARR, 2013. The relief is broader than the old capital-gains exemption for specified agricultural land. It will help owners of non-agricultural, and urban land acquired for roads, rail, metro, industrial corridors and other public projects."

The Union Budget FY27 proposals are designed to translate the vision of a taxpayer-friendly system into practical and operational measures that empower businesses to manage their tax affairs independently and transparently, Revenue Secretary Arvind Shrivastava said on Monday.

Addressing the post-Budget session organised by Confederation of Indian Industry (CII), the secretary highlighted that in direct taxation, several key reforms have been introduced to enhance taxpayer control.

On the customs front, he said, the government is moving from transaction-based rules to entity-based systems.

The Union Budget 2026 marks a decisive shift in how individual taxpayers engage with the income-tax return (ITR) framework. Moving beyond rate-centric reforms, the government has focused on re-designing the compliance lifecycle spanning original filing, revision, updated return, and post-assessment corrections so that the tax compliance framework becomes more adaptive, less adversarial, and aligned with modern data flows. These changes, applicable largely from FY 2025-26 onwards, materially alter how taxpayers should plan timelines, documentation, and error-management strategies.

1. Extended revision window: correcting returns with certainty
A key reform is the extension of the time limit for filing revised returns. Until now, revised and belated returns shared a common deadline of 31 December following the end of the financial year. This effectively denied the opportunity of filing a revised tax return by those taxpayers filing belatedly, especially on or closer to 31st December.

Investors who have enjoyed sharp gains on Sovereign Gold Bonds (SGBs) were caught off guard after Finance Minister Nirmala Sitharaman clarified changes to the capital gains tax exemption framework in the Union Budget 2026. The clarification relates to the tax treatment of SGBs purchased from the secondary market and has triggered confusion among investors amid a rally in gold prices.

Under the existing law, Section 70(1)(x) of the Income-tax Act provides an exemption from capital gains tax on income arising from the redemption of SGBs issued under the Sovereign Gold Bond Scheme, 2015. These bonds have been issued by the Reserve Bank of India (RBI) in multiple tranches over the years, with each series treated as a separate issuance.

According to tax advisory firm Tax Buddy, Sovereign Gold Bonds (SGBs) will no longer enjoy a blanket tax-free status after the Union Budget 2026, with the capital gains exemption now being tightly restricted.

As the government gears up for the Union Budget 2026-27, the Economic Survey 2025-26 has highlighted a quiet but important shift in India’s tax administration.

The focus is no longer only on scrutiny, audits or penalties. Instead, the tax system is increasingly relying on “nudging compliance” — a softer, data-driven approach that encourages taxpayers to voluntarily correct mistakes and pay the right tax.

For honest taxpayers, this shift matters. It reduces friction, lowers the risk of litigation, and makes compliance simpler and less intimidating.

What does ‘nudging compliance’ mean?
According to the Economic Survey, nudging compliance is anchored in behavioural economics. Under this approach, the Income Tax Department uses timely information, gentle prompts and data insights to influence taxpayer behaviour, instead of coercive enforcement.