The Income Tax Department has initiated a significant overhaul of the nation's direct tax administration by releasing the draft 'Income Tax Rules, 2026'. These rules are intended to replace the existing Income Tax Rules of 1962 and are part of the implementation process for the upcoming Income Tax Act, 2025. Scheduled to come into force on April 1, 2026, the draft has been placed in the public domain to invite feedback from stakeholders and the general public. The window for submitting suggestions or objections remains open until February 22, 2026, ensuring a transparent transition to the new legislative framework.
Introduction of Smart Forms and Automation
A primary focus of the draft rules is the simplification of the tax filing process through the introduction of 'Smart Forms'. According to the department, these forms will feature automated reconciliation and pre-filled data capabilities, Importantly reducing the manual effort required by taxpayers, while the language of the rules has been streamlined, utilizing formulas and tables to make complex calculations more accessible. Redundant provisions from the 1961 framework have been removed to eliminate duplication. The department anticipates that these technology-driven changes will facilitate centralized processing and enhance the overall taxpayer experience by minimizing errors.
Rule 57: New Standards for Asset Valuation
One of the most critical components of the draft is 'Rule 57', which outlines the methodology for determining the Fair Market Value (FMV) of various assets for taxation purposes. Analysts note that this rule consolidates the erstwhile Rules 11UA, 11UAA, and 11UAB into a single, comprehensive provision. For jewellery, the FMV will be the price it would fetch in the open market or the invoice value if purchased from a registered dealer, while however, for jewellery received as a gift exceeding ₹50,000 in value, a report from a registered valuer will be mandatory. Similar standards apply to archaeological collections, paintings, sculptures, and other artworks. For immovable property, the FMV will be the value determined by Central or State government authorities for stamp duty purposes on the date of valuation.
Rule 6: Clarification on Holding Periods
The draft also provides clarity on the calculation of 'holding periods' for capital gains tax under 'Rule 6'. In cases where bonds, debentures, or deposit certificates are converted into shares, the period for which the original instruments were held will be included in the total holding period. For assets acquired through the conversion of a foreign company's branch into an Indian subsidiary, the time the asset was held by the foreign branch or the previous owner will be counted. Plus, for immovable properties under the Income Declaration Scheme 2016, the holding period will start from the date of the registered deed, or June 1, 2016, in other instances.
Enhanced Criteria for Accountants and Valuers
To ensure the integrity of asset valuations, the draft proposes stringent eligibility criteria for professionals authorized to issue valuation certificates. Under the new rules, only accountants with a minimum of 10 years of experience will be eligible. Also, individual professionals must have had annual receipts exceeding ₹50 lakh in the preceding year. For partnership firms, the threshold for annual receipts is set at over ₹3 crore. These measures are designed to ensure that valuations are conducted by experienced professionals, thereby reducing the likelihood of disputes between taxpayers and the department.
Expert Analysis and Compliance Outlook
According to tax experts, including partners at Nangia Global, the consolidation of valuation rules under Rule 57 is a welcome move toward regulatory clarity. The integration of various sub-rules into a single framework is expected to reduce litigation related to asset pricing. While the shift toward automated 'Smart Forms' aligns with the broader digital transformation of Indian tax administration, some analysts point out that the requirement for registered valuer reports for gifts and art pieces above ₹50,000 may increase the compliance burden for certain taxpayers. Overall, the draft represents a strategic move toward a more transparent, data-driven, and simplified tax regime.