The central government is going to implement a new income tax system in the entire country from April 1, 2026. This new law will replace the existing Income-Tax Act, 1961. According to the draft Income-Tax Rules, 2026, there will be a complete change in the way taxes are calculated for middle-class taxpayers, private sector employees and large business houses. These draft rules were open for suggestions from the general public till February 22, 2026. The purpose of the new rules is to create a clear formula for determining the value of salary perks like houses, cars and gifts given by the company, so that there is transparency in tax assessment and calculation.
1. The new law will come into effect from the financial year 2026-27.
The Income-Tax Rules, 2026, will officially come into effect from April 1, 2026. This means that these rules will be applicable to income earned during financial year 2026-27 and tax returns filed for assessment year 2027-28. This new framework has been introduced to support the Income-Tax Act, 2025, which further simplifies the process of tax calculation.
2. Tax on contribution of more than ₹ 7.5 lakh to retirement fund
If your employer contributes more than ₹7.5 lakh annually to your Provident Fund (PF), National Pension System (NPS), or superannuation fund, such contributions will now be taxable. The draft rules specify a specific formula under which contributions above the limit of ₹7.5 lakh—and the returns (interest/dividends) received thereon—will be counted as ‘taxable perquisites’.
3. The method of determining the price of the house given by the company will be the same.
Cities with population more than 40 lakh: 10% of the salary will be considered as taxable value.
Cities with population between 15 to 40 lakh: 7.5% of the salary will be considered as taxable value.
Other cities: 5% of salary. If the employee himself is paying some part of the rent, that amount will be deducted from this price. 4. Separate rules for rented accommodation
If the company itself rents a house and makes it available to the employee, the rules are different. In this case, the taxable value is considered to be the actual rent paid by the company or 10% of the employee’s salary—whichever is less. This rule applies to rented accommodation in metropolitan cities.
5. Using an office car will now be more expensive
A fixed monthly taxable value has been set for the use of an office car—for both personal and official purposes:
Engines up to 1.6 litre: ₹5,000 per month.
Engines larger than 1.6 litre: ₹7,000 per month.
Driver facility: Additional ₹3,000 per month.
The tax liability will be calculated by adding these fixed values to the salary income of the employee.
6. Limit of gifts received on festivals fixed at ₹ 15,000
Gifts, vouchers or tokens received from companies will now be tax-free only up to a cumulative annual limit of ₹15,000. If the total value of gifts received during the year exceeds ₹15,000, the entire amount will be taxable. Earlier, this limit was quite low.
7. Office meals up to ₹200 tax-free
Food or non-alcoholic beverages provided during working hours will not be taxable provided their value does not exceed ₹200 per meal. This includes office canteens, meal coupons and corporate meal programs.
8. Tax on loan taken from employer
If a company provides loan at zero interest rate or at concessional interest rate, the profit received from such loan will be taxable. Tax will be calculated based on the prevailing interest rates of State Bank of India (SBI). However, loans up to ₹2 lakh, or loans taken for the treatment of a serious illness, will be exempt from tax. 9. Rules regarding expenses related to tax-exempt income
If you earn income which is exempt from tax, a new formula has been introduced to claim expenses related to it. One percent of the average annual value of the investment will be considered as expense; However, this amount cannot exceed the total expenses actually claimed by you.
10. Limit of ₹2 crore for foreign digital business
A limit of ‘Significant Economic Presence’ has been set for foreign companies doing digital business. If a company’s revenue in India exceeds ₹2 crore, or it has more than 300,000 Indian users, it will have to pay tax in India.
What are ‘Perks’?
Apart from the basic salary, facilities and benefits provided by the employer are called ‘perks’. Examples of these include a company car, a home, club membership, or household help. The Income Tax Department considers these benefits as part of your ‘income’, assigns a monetary value to them, and taxes them accordingly.
Impact on Form 16 and salary slip
According to tax experts, these changes can have a direct impact on your ‘take-home’ salary. Companies will need to update their salary structures and software systems to ensure that these new valuations are accurately reflected in Form 16 and salary slips.
What should taxpayers do?
Before the new rules come into effect, taxpayers should review components of their salary—such as car allowance, housing benefits and retirement funds—with their employers to manage their tax liability. On Saturday, the Income Tax Department released a new draft of ‘Income Tax Rules, 2026’. These new rules will be applicable from the next financial year, i.e. April 1, 2026. The government aims to simplify the tax filing process and make the rules more accessible to common taxpayers.