The CBDT has released the Draft Income-tax Rules, 2026, to implement the Income-tax Act, 2025, replacing six-decade-old rules and aiming to simplify compliance and reduce litigation. The new framework will take effect from April 1, 2026.
The Central Board of Direct Taxes (CBDT) has unveiled the Draft Income-tax Rules, 2026, setting the stage for the enactment of the landmark Income-tax Act, 2025 (Act 30 of 2025). These new rules, intended to supersede the Income-tax Rules, 1962, which have been in place for over sixty years, represent a substantial reform in India’s direct tax administration, focusing on simplification and a reduction in litigation.
According to Rule 1 of the draft notification, these rules will officially be known as the Income-tax Rules, 2026, and their effective date will be April 1, 2026, aligning with the start of the new Act.
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Operationalising the “Income-tax Act, 2025”
The draft rules aim to establish the procedural framework for the substantive provisions outlined in the Income-tax Act, 2025. Rule 2 of the draft identifies the “Act” as the Income-tax Act, 2025 (30 of 2025) while also standardizing definitions.
The term “authorised bank” refers to those banks designated as agents by the Reserve Bank of India under Section 45(1) of the RBI Act, 1934. The release of these draft rules indicates the government’s preparedness to shift to the new tax system, which is expected to feature a streamlined tax structure with fewer sections and an emphasis on digital compliance.
- Key Provision: Arrangements for Dividend Declaration (Rule 3)
A crucial compliance element outlined in the draft is Rule 3, which details the requirements a company must meet to be regarded as having declared and paid dividends in India according to Section 2(42) of the new Act.
To qualify, a company must adhere to the following stringent conditions:
- Share Register Maintenance: The company must continuously update its share register for all shareholders at its primary business location in India, starting from no later than April 1 of any given tax year.
- General Meeting in India: The General Meeting for approving the accounts of the tax year and declaring any dividends (including those on preference shares) must be held solely within India.
- Dividend Register: The registers of members and dividend registers must be accessible for inspection at the company’s registered office in India.
This rule ensures that companies claiming benefits or status as domestic entities concerning dividend distribution retain their essential corporate governance operations within Indian jurisdiction.
- Detailed Depreciation Rates for Power and Infrastructure Assets
The draft rules also feature a detailed classification of depreciation rates, particularly in the power and infrastructure sectors, reflecting the government’s commitment to modernising energy assets.
According to the schedule attached to the draft (referenced as Page 410), specific depreciation rates have been suggested for assets used in electricity distribution and generation:
- Batteries: A high depreciation rate of 33.40% is proposed for batteries, aimed at promoting energy storage solutions and electric vehicle infrastructure.
- Transformers: Transformers rated at 100 kilovolt amperes and above will qualify for a depreciation rate of 7.81%, while others will be set at 7.84%.
- Switchgear & Lightning Arrestors: General rates are proposed at 7.84%, with specific types such as pole-type arrestors at 12.77%.
- Air-conditioning Plants: Static plants are rated at 12.77%, whereas portable units will qualify for a higher rate of 33.40%.
These specific rates signify a shift toward a more scientific methodology regarding asset life and depreciation, moving away from broad block rates to item-specific allowances in capital-intensive sectors.
- Reduction in Compliance Burden:
The new framework is reported to significantly reduce the compliance burden. Public reports suggest that the number of rules has been streamlined from 511 in the previous regime to approximately 333 in the 2026 Rules. Additionally, the number of forms is anticipated to be reduced from nearly 400 to around 190, thereby simplifying the filing process for taxpayers.
- Public Consultation and Way Forward:
The CBDT has made these draft rules available for public scrutiny to encourage comments and suggestions from stakeholders, tax professionals, and the general public. The consultation period will remain open until February 22, 2026. After incorporating public feedback, the final rules are expected to be announced for implementation starting April 1, 2026.
Stakeholders are advised to thoroughly review the specific “Manner of determination of Fair Market Value” and other procedural elements anticipated to be addressed in subsequent rules (Rule 4 onwards) to ensure preparedness for the upcoming fiscal landscape.
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