India’s income tax compliance framework is set for its most significant overhaul in years, with a new set of simplified rules and redesigned forms scheduled to come into effect from April 1. Under the proposed changes, Form-16, issued by employers to salaried taxpayers, will be reduced to nearly half its current size, while the overall number of income tax rules and forms will be sharply curtailed.
According to the Central Board of Direct Taxes, the total number of income tax rules will be reduced from 511 to 333, and the number of tax-related forms will come down from 399 to 190. The changes are part of the proposed Income Tax Rules, 2026, which are aligned with the Income Tax Act, 2025. The draft rules and forms are expected to be formally notified in the first week of March, after a public consultation period.
Pre-filled returns and simpler language
Under the new system, income tax return (ITR) forms will be pre-filled to a much greater extent. Taxpayers will only need to verify the information and make corrections where necessary before submitting the return online. Officials said this will significantly reduce errors and lower the compliance burden, especially for salaried individuals and small taxpayers.
The draft rules will remain open for public comments for 15 days, until February 22, allowing taxpayers, professionals, and stakeholders to submit feedback. The tax department has stated that the language of the rules has been simplified, with unnecessary repetitions removed and explanatory tables and formulas added to improve clarity.
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Major consolidation of audit and international tax forms
- One of the most notable changes is the merging and renumbering of several audit and international taxation forms, which had become complex over decades of amendments.
- The tax audit report, earlier filed through Forms 3CA, 3CB and 3CD, will now be submitted through a single Form 26.
- The transfer pricing audit report will move from Form 3CEB to Form 48.
- The certificate related to Minimum Alternate Tax (MAT) will now be filed in Form 66, replacing Form 29B.
- For obtaining a Tax Residency Certificate, taxpayers will use Form 42 instead of Form 10FA.
Tax experts said the new numbering system will reduce confusion and make it easier to integrate tax data with digital systems, enabling better real-time data matching and scrutiny. However, employers, tax consultants, registrars, and companies will need to update their internal systems quickly to align with the new framework.
HRA metro list expanded
The draft rules also propose an expansion of Category-1 metropolitan cities for the purpose of claiming House Rent Allowance (HRA). Along with Delhi, Mumbai, Kolkata, and Chennai, the list will now include Bengaluru, Pune, Ahmedabad, and Hyderabad, allowing taxpayers in these cities to claim higher HRA exemptions.
Crypto reporting and digital currency recognition
The draft rules introduce stricter compliance requirements for the crypto sector. Crypto exchanges will be required to share transaction data with the tax department, and crypto-asset service providers will have expanded reporting and due-diligence obligations. The rules also formally recognise Central Bank Digital Currency (CBDC) as an accepted mode of electronic payment.
- TDS and annual tax statement forms renumbered
- Several Tax Deducted at Source (TDS) forms have also been renumbered:
- Applications for lower or nil TDS will now be filed using Form 128.
- The TDS certificate for salary income will be issued as Form 130.
- Existing TDS return forms 24Q, 26Q and 27Q will receive new form numbers.
In addition, the Annual Tax Statement, currently known as Form 26AS, will be renamed Form 168, while the statement of financial transactions, Form 61A, will become Form 165.
Expanding the taxpayer base
Senior CBDT officials said the primary objective of the new law and rules is to increase the number of regular tax filers by making compliance simpler. At present, around 9 crore people file income tax returns, while nearly 12 crore individuals pay taxes in various forms, indicating a large gap between tax payment and return filing.
“The forms have been simplified to gradually bring more people into the return-filing system,” an official said, adding that the reforms aim to make the tax process more transparent, effective, and taxpayer-friendly.
About the author – Rehan Khan is a law student and legal journalist with a keen interest in cybercrime, digital fraud, and emerging technology laws. He writes on the intersection of law, cybersecurity, and online safety, focusing on developments that impact individuals and institutions in India.
