India Unveils Draft Income Tax Rules, 2026 Ahead of April 1 Rollout

India’s direct tax authority has released the draft Income Tax Rules, 2026, setting out the operational framework for implementing the Income Tax Act, 2025. The proposed regime streamlines tax compliance, reducing the framework to around 333 rules and 190 forms. The draft has been opened for public consultation until February 22, 2026.

The Central Board of Direct Taxes (CBDT) released the draft Income Tax Rules, 2026, along with the accompanying draft statutory forms, providing the first comprehensive view of how the Income Tax Act, 2025, will be implemented when it comes into force on April 1, 2026.

CBDT issued the proposed framework on February 8, 2026, with the objective of replacing the six-decade-old Income Tax Rules, 1962.

The tax authority has placed the draft rules and forms in the public domain for a 15-day consultation period ending February 22, 2026. CBDT has invited taxpayers, tax professionals, and industry bodies to review the proposals and submit feedback.

From a policy perspective, the draft framework signals a clear intent to simplify procedures, reduce interpretational ambiguity, leverage technology, and ease the compliance burden across taxpayer categories.

Legal status and implementation timeline

As per the draft notification, the proposed framework will be formally known as the Income Tax Rules 2026 and will come into force on April 1, 2026, coinciding with the commencement of the Income Tax Act, 2025.

The alignment of the rules’ effective date with the new Act is intended to ensure a seamless transition from the existing regime to the new legislative structure, avoiding parallel or overlapping compliance obligations.

Framework for implementing the Income Tax Act, 2025

The draft rules set out the procedural framework for implementing the substantive provisions of the Income Tax Act, 2025. It clarifies key definitions, standardizes terminology, and establishes the administrative processes required for effective enforcement and compliance.

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Within the definitional framework, the rules define the “Act” explicitly as the Income Tax Act, 2025. It also clarifies that an “authorized bank” means a bank appointed as an agent by the Reserve Bank of India (RBI) under Section 45(1) of the RBI Act, 1934, ensuring alignment with existing financial and banking regulations.

The draft rules signal India’s regulatory readiness to operationalize a streamlined tax regime marked by fewer sections, clearer drafting, and technology-driven administration.

Rationalization of rules and forms

One of the most notable features of the draft framework is the substantial reduction in the volume of rules and forms.

The existing Income Tax Rules, 1962, comprise 511 rules and 399 forms. Under the proposed Income Tax Rules, 2026, this has been rationalized to approximately 333 rules and 190 forms. This reduction was made through consolidation of provisions, removal of obsolete and redundant requirements, and simplification of language drafting.

While the Department of Revenue has broadly retained the underlying policy approach of the earlier rules, several provisions have been restructured to align with the architecture and philosophy of the Income Tax Act, 2025. Dense narrative text has increasingly been replaced with tables, formulas, and structured layouts. 

Overview of proposed Income-tax forms

The draft Income Tax Rules, 2026, prescribe 190 statutory forms covering compliance across registration, reporting, audits, appeals, withholding taxes, international taxation, and sector-specific incentives. Most taxpayers and businesses will interact with only a limited subset of these forms.

Despite the number of prescribed forms, compliance remains role- and activity-specific, with digital filing expected to streamline administration under the new Act.

Redesigned tax forms and tech-driven compliance

A key focus of the draft rules is the comprehensive redesign of income tax forms. According to the CBDT, the forms have been restructured as “smart forms” with enhanced capabilities such as pre-filling of data, automated reconciliation, and centralized processing.

Common data fields have been standardized across forms to minimize repetitive disclosures, a change expected to significantly reduce the time and effort required for compliance. The redesigned formats are intended to make filing more intuitive and to lower the risk of inadvertent errors.

Greater reliance on technology is also expected to support data-driven administration and improved taxpayer services while reducing manual intervention. For individual taxpayers, this may translate into cleaner pre-filled returns and clearer reporting thresholds. For businesses, it could result in fewer follow-up queries and shorter assessment cycles.

Clearer drafting and improved navigability

The CBDT has stated that both the draft rules and forms have been written using simpler, more precise language. Instructions and explanatory notes have been rewritten to minimize operational, administrative, and legal ambiguity.

To support stakeholders during the transition, the department has also released two navigational tools: one mapping the existing rules to the proposed draft rules, and another mapping the old forms to the new formats. Feedback is proposed to be collected on a rule-wise and form-wise basis, enabling more focused and constructive stakeholder inputs.

Dividend declaration and domestic presence requirements

One of the notable compliance provisions in the draft rules relates to dividend declaration. Rule 3 prescribes the conditions under which a company will be regarded as having declared and paid dividends within India for the purposes of Section 2(42) of the Income Tax Act, 2025.

To meet this requirement, companies must demonstrate substantive corporate governance presence in India by fulfilling all of the following conditions:

1. Maintenance of share registers: The company must maintain its share register for all shareholders at its principal place of business in India, starting no later than April 1 of the relevant tax year.
2. Holding of general meetings in India: The annual general meeting for adoption of accounts and declaration of dividends, including preference dividends, must be held within India.
3. Pay dividends within India: The company must pay all declared dividends, including preference dividends, within India.

These conditions reinforce the policy objective of anchoring dividend-related governance and compliance within Indian jurisdiction.

Implications for individuals and companies

From a taxpayer perspective, the draft rules point toward greater certainty and predictability. India expands the use of pre-filled returns, clarifies thresholds, and advances faceless processes, which may reduce errors and limit unnecessary interaction with tax authorities.

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For corporates, clearer rule-making and streamlined reporting can lower interpretational disputes and allow management teams to focus more on core business operations rather than prolonged tax litigation.

Tax professionals stress the need for active stakeholder engagement at this stage, noting that early feedback will play a critical role in identifying implementation gaps and refining the rules before final notification.

Public consultation process and submission mechanism

The CBDT has invited comments and suggestions on the draft Income Tax Rules and Forms ahead of their final notification. It encourages stakeholders to submit inputs across four focused areas:

• Simplifying statutory language
• Reducing litigation and interpretational disputes
• Lowering the compliance burden
• Identifying redundant or obsolete rules and forms

To enable structured participation, the CBDT has launched a dedicated feedback utility on the income-tax e-filing portal, live since February 4, 2026. Contributors can submit inputs after completing OTP-based verification using their name and mobile number. To visit the website, click here: eportal.incometax.gov.in/iec/foservices

Stakeholders must clearly specify the relevant rule, sub-rule, or form number to which each suggestion relates. The CBDT will review all submissions received during the consultation period before issuing the final notification.

The way forward

With the Income Tax Act, 2025, scheduled to take effect from April 1, 2026, the draft rules and forms will play a decisive role in determining how smooth the transition is for taxpayers.

The current consultation window provides a meaningful opportunity for stakeholders to influence the final shape of India’s next-generation income-tax compliance framework before it becomes legally binding.

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