India Opens Public Consultation on Draft Rules Under New Income-Tax Law: What It Means for Taxpayers and the System
In a pivotal step towards implementing India’s reformed direct-tax regime, the Income Tax Department has released the draft Income-tax Rules, 2026, along with a set of associated forms and procedural clarifications — and opened them for public feedback until February 22, 2026. This public consultation phase is a key procedural requirement before the rules are formally notified and brought into effect.
These draft rules are designed to support and operationalise the Income-tax Act, 2025, which itself represents a comprehensive overhaul of the country’s primary direct tax statute that has governed income taxation since the 1960s. Once finalised, the rules will come into force from April 1, 2026, alongside the new law.
This extensive article explains what the draft rules cover, why they matter, how they differ from the existing framework, the potential impact on taxpayers and tax professionals, and what comes next in the reform process.
Background: Why a New Tax Law and Rules?
For more than six decades, India’s income tax system has been governed by the Income-tax Act, 1961, a statute that consolidated earlier tax laws and became the bedrock of direct tax policy and administration.
Over time, the 1961 Act was amended repeatedly — sometimes dozens of times a year — creating a complex patchwork of provisions that critics argued made compliance cumbersome, interpretation difficult, and litigation common.
Key drivers behind reform include:
- Complexity of the old system: The rules and forms under the 1961 Act had grown lengthy, detailed, and hard to navigate.
- Technological advancements: The government’s ambition for digital-first compliance, automation, and data-driven filing requires a modern base statute.
- Reducing litigation: Ambiguities in procedures and valuations have historically resulted in disputes between taxpayers and the tax authorities.
- Simplification and transparency: A clearer, more accessible tax regime was a recurring theme in recent annual budgets and consultations.
The Income-tax Act, 2025 emerged from this context. Passed by India’s Parliament and receiving Presidential assent in August 2025, the Act is intended as a modern, consolidated charging statute for income tax in India. It reduces the number of statutory sections, aligns definitions with modern economic structures, and places greater emphasis on clarity and digital procedures.
However, an Act alone cannot operate — it must be accompanied by rules that explain the practical steps taxpayers, professionals, and authorities must follow. Rules cover valuation norms, filing processes, calculation methods, reporting formats, procedures for assessments and appeals, and much more.
What the Draft Rules Cover
The draft Income-tax Rules, 2026 are a detailed procedural framework intended to work with the new law. They replace the Income-tax Rules of 1962 and reflect the simplified philosophy of the Income-tax Act, 2025.
Here are the major areas addressed:
1. Simplified Return Filing and Smart Forms
- The draft rules redesign the way Income-Tax Returns (ITRs) are structured.
- Forms have been renamed and rationalised, moving from the old alphanumeric nomenclature to a simpler serial numbering system (Forms 1–190).
- Common information fields are standardised across different forms to reduce duplication.
- Forms include pre-fill capabilities, automated reconciliation features, and clarity-oriented language to reduce errors and help taxpayers complete filings more confidently.
2. Valuation and Reporting Rules
Certain components of compliance hinge on fair valuation, especially for capital assets, gifts, inherited property, and jewellery — historically areas of dispute and litigation.
- Rule 57 (draft) introduces specific methods to determine the fair market value (FMV) of assets like property and jewellery for taxation purposes.
- Guidelines on computing the holding period of capital assets have also been incorporated.
3. Procedural Clarifications
The draft rules include operational guidance on:
- Notifications required under various provisions of the new Act.
- Methods and timelines for making statutory applications.
- Standardised compliance processes that may reduce interpretational discrepancies.
These are designed to ensure that procedural compliance is objective and less prone to disputes.
Comparison: Old Rules vs. Draft Rules 2026
To appreciate the scale of change, consider the following summary:
| Aspect | Income-tax Rules, 1962 | Draft Rules, 2026 |
|---|---|---|
| Number of Rules | 511+ rules (built over decades) | ~323 rules (streamlined) |
| Form Naming | Alphanumeric (ITR-1, ITR-2, etc.) | Serial numbering & standardised titles |
| Language | Legal and technical | Simplified, user-friendly |
| Filing Interface | Less integrated with tech | Smart forms with automation |
| Valuation Guidance | Fragmented | Specific methods for FMV & holding period |
| Compliance Burden | Varied | Aims to reduce compliance friction |
Data compiled from government notices and draft releases.
Public Consultation: Why Feedback Matters
The draft rules have been placed in the public domain for 15 days, inviting feedback from stakeholders: tax professionals, industry associations, corporate taxpayers, individual taxpayers, and citizens.
Consultation periods serve several purposes:
- Error correction: Early drafts may contain ambiguities, inconsistencies, or drafting issues that practitioners can flag.
- Practical insights: Professionals and business tax teams can point out areas where procedures may be hard to implement or interpret.
- Policy improvement: Feedback helps ensure rules align with the intent of the law and provide fairness, clarity, and administrative feasibility.
After February 22, the government will review submissions and may revise the draft before final notification.
What This Means for Taxpayers
Various groups will experience the consequences of these changes differently:
🔹 Individual Taxpayers
- Filing ITRs should become more intuitive.
- Smart forms and pre-fill features could reduce errors and delays.
- Clear valuation rules may reduce the need for personal clarifications on asset reporting.
🔹 Professionals & Tax Practitioners
- The simplified language and structured rules reduce ambiguity.
- Harmonised procedures make compliance advisory work more predictable.
- Professionals will need to quickly familiarise themselves with new forms and formats.
🔹 Corporates & Businesses
- Streamlined valuation and reporting norms can trim compliance timelines.
- Clearer procedures may reduce litigation and notices related to misinterpretation.
Impact on Government and Administration
For the Central Board of Direct Taxes (CBDT) and the tax administration:
- A more structured, digital-ready rulebook paves the way for more efficient processing.
- Greater consistency in forms and reporting enhances data accuracy.
- Reducing ambiguity is expected to cut down assessment time, disputes, and appellate burden.
The modernised system could also improve tax compliance metrics by enhancing ease of filing for all categories of taxpayers.
Looking Ahead: Implementation and Transition
Once the rules are finalised and notified:
- Effective date: April 1, 2026, aligned with the start of the financial year under the new regime.
- The income-tax portal will be updated with new forms and modules.
- Transitional provisions will be crucial since many assessments and proceedings under the 1961 Act will continue to run concurrently for a period.
Even after notification, taxpayers and practitioners will undergo a learning curve as the new Act and rules take practical shape. Government outreach, training, and guidance notes will play an essential role in this transition.
Conclusion: A Structural Shift in Direct Taxation
The release of the draft income-tax rules is a milestone in India’s largest direct tax reform in decades. By prioritising simplification, technology-enabled compliance, and clearer procedures, the government is aiming to modernise both taxpayer experience and tax administration.
The public consultation period underscores a collaborative approach — inviting real-world inputs before final implementation. If successfully executed, these reforms could reshape how tens of millions of taxpayers interact with the Indian tax system.
The next few months will be critical as the draft evolves into enforceable rules and the new tax regime unfolds from April 1, 2026.