Income Tax Act 2025 cash rules explained: What are the key changes proposed?

The Government of India has officially notified the Income Tax Rules 2026, which will come into effect from April 1, 2026. These new rules issued by the Central Board of Direct Taxes (CBDT) aims to replace the old ones and simplify the tax process.

The Income Tax Act, 2025, will replace the 1961 Act, which the Finance Minister Nirmala Sitharaman described as a “maze” created by over 4,000 amendments.

Here are the most important changes that a taxpayer should know about new Income Tax rules 2026.

What are the new changes under new IT Act?

The proposed changes to the income tax rules in 2026 show a significant shift in how certain deductions and requirements are structured, also providing financial relief and simplifying compliance for taxpayers. Here’s an overview on each of the key changes mentioned:

1. Children Education Allowance Deduction Increase

The education allowance deduction has been increased to ₹3,000 per month per child. Previously, this deduction was capped at ₹100 per month per child. Moreover, the hostel allowance deduction is now ₹9,000 per month per child. The prior deduction was limited to ₹300 per month per child.

2. Higher threshold limits for PAN quoting requirements

An increase in the monetary thresholds for requiring the quotation of PAN during the purchase of motor vehicles and for cash deposits or withdrawals from banks has been introduced. The new regulations establish higher limits for transactions that require individuals to provide their PAN, in contrast to previous rules that mandated PAN quoting for a wider variety of financial activities.

3. Stock exchange compliance

Income Tax Rule 2026 has also strengthened stock exchange compliance. Stock exchanges will now be required to maintain audit trails for 7 years, prevent deletion of transaction records and submit monthly reports on modified transactions. This is to improve transparency and data integrity.

4. Introduction of Tax Year

The new Income Tax rules for 2026 introduce a single, unified concept known as the “Tax Year”, which replaces both the Financial Year and Assessment Year. The Tax Year is a simple 12-month period running from April to March, during which income is earned and taxes are filed in the subsequent tax year. The government is also introducing redesigned Income Tax Return (ITR) forms for making it more accessible and easier for taxpayers.

5. House expenditure allowance

House Rent Allowance (HRA) remains a significant tax advantage, especially following recent updates that extend relief and include more cities like Pune and Bengaluru for higher exemptions. Cities such as Bengaluru, Hyderabad, Pune, and Ahmedabad now qualify for a 50% HRA exemption, while residents of Delhi-NCR remain at 40%.

6. Simplified company perquisites for salaried employees

Perquisites refer to non-cash benefits provided or covered by the employer in return for services rendered. According to the new Income Tax regulations, these perquisites can be categorised as either taxable or non-taxable. The company’s perquisites have been amended to include a revised valuation of company-offered perks such as vehicles and adjusted limits for allowances and employee benefits. The new rules also suggest raising the limit for tax exemptions on loans given by employers for medical treatment. It proposed increasing this limit from ₹20,000 to ₹2,00,000.

Addressing the Income Tax Department, Ms. Sitharaman urged a fundamental change in how officials interact with the public. She emphasised that the new law provides a “clearer and leaner framework,” but must be “administered with empathy, fairness and efficiency.”

“The taxpayer is not your adversary. Please let’s appreciate this. The taxpayer is your partner in nation building,” she told the gathered officers. The Finance Minister also expressed hope for a future where a taxpayer feels comfortable enough to “come and say, hello, IT officer” without fear. She urged the department to “internalise the spirit of this new law” and use technology to “minimise human interface” and build lasting trust.

(With PTI and ANI inputs)