Winning Bizness Desk

Mumbai. India is set to roll out a sweeping overhaul of its income tax framework from April 1, 2026, replacing the decades-old Income-tax Act, 1961. The new Income-tax Rules, 2026 aim to simplify calculations while tightening the way perks and benefits are taxed. The changes are expected to directly impact salaried individuals, private sector employees and large businesses, with a sharper focus on transparency in valuation of non-cash benefits.

New tax regime to take effect soon

The new rules will come into force from the financial year 2026-27 and will apply to assessment year 2027-28. The framework has been designed to support the Income-tax Act, 2025 and streamline tax calculations. Draft rules were placed in the public domain until February 22, 2026, inviting feedback before final rollout.

Retirement contributions beyond limit taxable

Employer contributions exceeding Rs 7.5 lakh annually to retirement funds such as provident fund, national pension system and superannuation will now attract tax. Not just the excess contribution, but also the returns generated on it will be treated as taxable perks. This move is aimed at capping tax-free benefits available to high-income earners.

Housing and car perks see clear valuation

A key highlight is the standardisation of valuation rules for company-provided accommodation and cars:

• Housing benefit will be taxed based on city population slabs
• 10 percent of salary in cities with over 40 lakh population
• 7.5 percent in cities with 15 to 40 lakh population
• 5 percent in smaller towns
• Lease rentals will be taxed on actual rent or 10 percent of salary, whichever is lower

Similarly, use of office cars for personal purposes will now carry fixed monthly taxable values:

• Rs 5,000 for engines up to 1.6 litre
• Rs 7,000 for bigger engines
• Additional Rs 3,000 for driver facility

Employers can now offer tax-free gifts only up to Rs 15,000 annually. Any amount beyond this will be fully taxable. At the same time, food provided during working hours will remain tax-free if the cost does not exceed Rs 200 per meal. This includes office canteens, meal coupons and corporate food programs.

• Gifts above Rs 15,000 fully taxable
• Meals under Rs 200 remain exempt
• Applies to non-alcoholic beverages as well

Rules tighten on loans and exempt income

Interest-free or concessional loans from employers will now be taxed based on prevailing State Bank of India interest rates. However, loans up to Rs 2 lakh or those taken for critical illness treatment are exempt. For tax-free income, a new formula caps expense claims at 1 percent of average annual investment value, preventing excessive deductions.

Foreign digital firms brought under tax net

The rules also widen the tax base for foreign digital companies. A significant economic presence will be established if a firm earns over Rs 2 crore from India or has more than three lakh users in the country. Such entities will be liable to pay tax in India.

Tax experts say these changes could alter take-home salaries as perks become more structured and taxable. Employees are advised to review salary components like housing, cars and retirement contributions with their employers before the new regime kicks in.