Athira Sethu
Kochi, 25 March 2026
The new Income Tax Act of 2025 will come into effect on April 1, 2025. To make it consistent with this new act, the Central Board of Direct Taxes (CBDT) has proposed a new set of rules, called Income-tax Rules, 2026. Experts believe that the old tax system may be more beneficial to middle-class people compared to the new one. The government has also simplified the tax filing procedure by reducing the number of forms from 399 to 190.
A major change is being introduced by increasing the requirements of quoting a Permanent Account Number (PAN). The requirement of a permanent account number will now be necessary while making or taking any money through a cash transaction of over ₹10 lakh in a year (earlier it was ₹50,000 per day). The permanent account number will also be required while making any purchase of a motor vehicle worth over ₹5 lakh, a hotel bill of over ₹1 lakh, or a property deal of over ₹20 lakh.
For senior citizens and other individuals, a new unified form will be used in place of the old forms for Tax Deducted at Source (TDS) on payment of items such as rent, contractors, and digital assets, which will automatically take care of the rules for senior citizens.
Salaried employees must ensure that they notify their new employer about the type of tax system they chose with the previous employer. Form 130, which replaces Form 16, will provide a detailed report on salary, taxes, and exemptions. Employers must also file a new form (Form 123) for perks such as accommodation and vehicles, which are linked to Form 130.
Electric vehicles (EVs) are now considered normal motorcars with engines of less than 1.6 litres for tax purposes, as a part of the new system for computing employee perks such as vehicles and loans.
The new rules also provide for claiming of employee meal vouchers under the new system of taxation. The education allowance for children has been increased to ₹3,000 from ₹100. The hostel allowance has been increased to ₹9,000 from ₹300. Employees in cities like Bengaluru, Hyderabad, Pune, and Ahmedabad will be able to claim a higher house rent allowance.
At the same time, there will be checks for claims like house rent allowance. Employees need to provide evidence for claiming HRA. This evidence will include the PAN card of the landlord if the employee is paying over ₹1 lakh annually.
The choice between the old and new system of taxation for middle-income earners will depend on personal deductions. Experts have expressed concerns about the short time frame available for implementing these changes. This may lead to errors while filing income tax returns.
