The Ministry of Finance notified the Income-tax Rules, 2026 on 20 March 2026 under the Income-tax Act, 2025. They take effect from 1 April 2026 and set out how the provisions of the new Act are to be implemented, complied with, and read. What follows covers each part of the rules and the practical effect of each.
1. Applicability and framework
- The rules are titled the Income-tax Rules, 2026 and sit under the Income-tax Act, 2025
- They define terms including “authorised bank” and “Form”, and set out how references to sections of the Act are to be read
2. Dividend distribution
Companies are required to:
- Maintain shareholder registers within India
- Declare dividends only in India
- Make payments domestically
The effect is to keep dividend flows under domestic control and traceable.
3. Recognised stock exchanges
To qualify as a recognised stock exchange, an exchange needs:
- SEBI approval
- A full audit trail of transactions retained for 7 years
- Monthly reporting of any transaction modifications
4. Capital gains and asset holding
The rules prescribe how to work out the period of holding in situations that were previously unclear, such as conversions and the restructuring of foreign companies, and how an asset is then classified as short term or long term. This matters most for modern financial instruments and for restructuring transactions.
5. Zero coupon bonds
A formal approval process now applies:
- Application must be filed at least 3 months before issuance
- Tenure must fall between 10 and 20 years
- Deployment timelines for the money raised are prescribed
The framework is aimed at infrastructure financing with regulatory oversight attached.
6. Non-resident taxation
Where a non-resident’s income cannot be determined precisely, the tax authorities may compute it on either of two bases:
- A percentage of turnover
- A proportionate share of global profits
7. Significant Economic Presence
SEP thresholds are now fixed at:
- Transaction value of ₹2 crore, or
- 3,00,000 users in India
Digital and remote businesses serving Indian customers fall within the tax net at these levels.
8. Disallowance of expenditure
- Expenditure relating to exempt income is capped at 1% of average investments
- Total disallowance cannot exceed the total expenditure claimed
This replaces the earlier and more complicated calculation.
9. Employee taxation: perquisites under Rule 15
Rule 15 is the section employers will spend the most time on. It sets out how benefits given to employees, in cash or in kind, are valued and taxed under the head “Salaries”:
- Residential accommodation: valuation turns on whether the employer owns the property, the population of the city, and a percentage of salary. Furnished accommodation carries an additional value for the assets provided
- Motor vehicles: official and personal use are treated differently, and the exemption for official use survives only where the documentation is maintained
- Domestic help and utilities: taxed on the actual cost to the employer, or the cost attributable to the employee
- Education benefits: taxable above the specified threshold
- Food benefits: exempt up to the prescribed limit
- Gifts: taxable only above an annual threshold
- Interest-free and concessional loans: valued against the benchmark lending rate
- Credit card and club expenses: taxable unless incurred strictly for business purposes and backed by records
- Use or transfer of employer-owned assets: valued by the prescribed method, including depreciation
The common thread is documentation. Where the paperwork is missing, the benefit is taxable.
10. Fair market value
Valuation methods are prescribed for:
- Listed and unlisted shares
- Foreign entities holding Indian assets
- Partnership interests
These matter for cross-border deals and indirect transfer taxation.
11. Scientific research and deductions
- Framework for approval of research institutions and companies
- Audit and reporting requirements are mandatory
- Approvals are time bound
12. Sector-specific incentives
- Infrastructure and affordable housing: eligibility conditions and criteria for tax benefits are specified
- Skill development and agricultural extension: approval mechanisms are introduced for projects in both
13. Cash payment restrictions
Exceptions to the ₹10,000 cash payment limit are clarified, including payments to:
- Banks and government
- Farmers
- Recipients in areas without banking access
14. Depreciation and business deductions
- Depreciation rates and conditions are standardised
- Special provisions apply to technology-driven manufacturing
15. What businesses should take from this
- Compliance load goes up across reporting, valuation, and documentation
- Complex transactions, particularly cross-border ones, are now more clearly defined
- The tax net widens for digital and non-resident businesses through the SEP thresholds
- Incentives improve for infrastructure, R&D, and skill development, with tighter approval conditions attached
Official notification: Income-tax Rules, 2026 (PDF)