Draft Income Tax Rules 2026: How ITR forms are evolving – top changes explained – The Times of India

Draft Income Tax Rules 2026: Redesigned earnings tax return (ITR) forms, broader criterion for applicability of ITR forms, and extra pre-crammed particulars are some of the changes that earnings taxpayers can sit up for for the upcoming tax yr 2026-2027 for which returns will likely be filed in 2027-28.The Income Tax Division has launched the Draft Income Tax Rules 2026 which record out some of the changes within the tax submitting course of which additionally influence salaried and center class taxpayers. You will need to be aware that the Draft Income Tax Rules 2026, as soon as finalised, will likely be relevant for the subsequent monetary yr 2026-27 and don’t change your tax submitting necessities and ITR forms for the upcoming tax submitting season. Whereas the draft earnings tax guidelines 2026 point out the attainable changes in ITR forms for tax yr 2026-27, better readability will emerge solely as soon as the ultimate forms are launched subsequent yr.

Draft Income Tax Rules 2026: How are ITR forms evolving?

In line with Richa Sawhney, Companion Tax, Grant Thornton Bharat LLP, the eligibility parameters for choice of ITR 1 and 4 have been tweaked. “Although the forms are presently not obtainable, it’s anticipated that they are going to additional carry ahead the theme of simplification and ease of compliance. Additionally, because the New ITR forms could be relevant for tax yr 2026 -27 they are anticipated to be notified later,” Richa Sawhney instructed TOI.The new rule 164 lays down the factors for applicability of totally different ITR forms. The new forms are not but obtainable. The key changes are:

Speaking in regards to the Draft Income Tax Rules 2026, she mentioned, “According to the New Income -Tax Act, the brand new guidelines have additionally been drafted to make sure they are easy to grasp and straightforward to adjust to, for all classes of taxpayers. The quantity of guidelines and forms has been considerably diminished, as redundant ones have been eliminated. The use of tables will assist in higher navigation. The give attention to expertise in guaranteeing the forms are pre -filled and reconciled will cut back the time spent in compliances and cut back inadvertent errors. It is vital that every one stakeholders consider these guidelines and forms intimately and share their inputs with the federal government in a well timed method, in order that any teething points in implementation are mitigated and there’s a easy transition.”Kuldip Kumar, accomplice at Mainstay Tax Advisors, highlighted technological progress within the ITR forms. “The redesign of forms, elevated use of pre-crammed data, and automatic linkages will considerably simplify compliance and enhance ease for taxpayers. This simplification has already been progressing steadily through the years and is additional strengthened by the proposed changes and strategy adopted by the federal government,” Kuldip Kumar instructed TOI.

The ITR kind ineligibility threat

5 fundamental return forms: ITR-1 (Sahaj) for salaried people with easy earnings, ITR-2 for these with out enterprise earnings, ITR-3 for enterprise or skilled earnings, ITR-4 (Sugam) for presumptive taxpayers, and specialised forms for different entities.ITR-1 eligibility seems easy—wage, household pension, home property earnings (most two properties), earnings from different sources (excluding lottery and race horses), and lengthy-time period capital good points underneath part 198 as much as Rs 1.25 lakh.However twelve particular disqualifications exist: overseas property or signing authority in abroad accounts, overseas-supply earnings, director standing in any firm, holding unlisted fairness shares, earnings above Rs 50 lakh, agricultural earnings exceeding Rs 5,000, plus six different technical triggers.ITR-4 for presumptive taxpayers has fifteen disqualifications.OP Yadav, former principal commissioner of earnings tax and now tax evangelist at Prosperr.io explained the continuity. The forms are prescribed annually throughout the broader framework—earlier underneath Rule 12 of the 1962 guidelines, from 2026-27 onwards underneath Draft Rule 164. “There isn’t any basic shift in coverage—the construction largely continues the present strategy.”Requested by TOI whether or not strange taxpayers might unknowingly slip into ineligibility, CA Chintan Ghelani, accomplice for direct tax at N.A. Shah Associates LLP, mentioned the danger is actual.An in any other case strange taxpayer might unknowingly develop into ineligible if any exclusion triggers—overseas property, unlisted shares, directorship, or crossing the Rs 50 lakh threshold. However the guidelines are largely in step with the present framework, he emphasised. The key level: cautious analysis earlier than choosing the return kind.The annual evaluate query turns into essential.In line with Ghelani, taxpayers ought to evaluate eligibility yearly fairly than assume continuity. “Even a single change resembling buying overseas property, holding unlisted shares, changing into a director, or crossing the earnings threshold can instantly alter the relevant return kind,” he mentioned.Yadav bolstered the purpose. Eligibility isn’t static—a taxpayer eligible within the earlier yr might develop into ineligible within the present yr as a consequence of changes in earnings composition or asset holdings, and vice versa. Subsequently, annual evaluate is not pushed by rule changes however by evolving earnings profiles.He famous the compliance threat: assuming continuity merely on the premise of final yr’s submitting, with out evaluating the modified earnings profile, can result in incorrect kind choice.

Capital good points complexity

The draft guidelines enable ITR-1 and ITR-4 the place lengthy-time period capital good points underneath part 198 do not exceed Rs 1.25 lakh and there are no carry-ahead losses. Part 198 of the brand new Act corresponds to part 112A of the present Act—the supply taxing lengthy-time period capital good points on listed fairness shares.From Evaluation Yr 2025-26, Yadav explained, ITR-1 and ITR-4 permitted reporting of lengthy-time period capital good points from listed fairness shares as much as Rs 1.25 lakh underneath part 112A, which is in any other case exempt. The new Act continues this via part 198.For retail traders buying and selling actively via SIPs, direct equities, and digital platforms, monitoring will get difficult.Requested how troublesome this turns into, Ghelani instructed TOI the problem is average however actual. Even routine SIP redemptions or fairness trades can generate capital good points or losses affecting whether or not simplified forms stay obtainable.Whereas buying and selling platforms usually present consolidated achieve/loss statements, taxpayers nonetheless must accurately classify good points as brief-time period versus lengthy-time period, establish any carry-ahead losses, and examine prescribed thresholds. Crossing these limits mechanically disqualifies the simplified return. “In apply, the problem is manageable with correct document-protecting and annual evaluate, however traders who commerce ceaselessly or throughout a number of platforms face the next threat of overlooking a disqualifying set off.“Can small changes like reserving income all of a sudden shift taxpayers into complicated forms?Sure. In line with Ghelani, even comparatively small transactions—reserving capital good points or claiming a carry-ahead loss—can instantly make a taxpayer ineligible for simplified forms. Eligibility depends upon the character and classification of earnings fairly than its measurement. Subsequently, a seemingly routine funding exercise can shift the taxpayer right into a extra detailed return kind.Yadav clarified the mechanics. If capital good points exceed the prescribed restrict however there isn’t any enterprise earnings, ITR-2 would typically apply. If there’s enterprise or skilled earnings together with capital good points, ITR-3 turns into needed.

Faulty returns threat

Fallacious kind choice carries penalties. However what’s handled as a faulty return? Let’s perceive that:In line with Grant Thornton Bharat’s Richa Sawhney, the newly inserted situations state {that a} return of earnings shall be handled as faulty if any of following situations fulfilled-

Simply as underneath part 139(9) of the Outdated Act, OP Yadav explained, underneath Draft Rule 166 learn with part 263(7) of the New Act, a return could also be handled as faulty if not furnished within the prescribed kind relevant for the related yr.Latest information exhibits lively enforcement. For Evaluation Yr 2025-26, a substantial quantity of notices underneath part 139(9) have been issued as a consequence of incorrect choice of ITR forms. This demonstrates that the tax administration actively verifies kind eligibility primarily based on disclosures obtainable via TDS statements, AIS and different reporting mechanisms.Incorrect kind choice isn’t merely a procedural lapse- it might set off formal defect notices requiring well timed rectification. If such a defect isn’t rectified throughout the prescribed time by submitting the return within the relevant kind, the return might finally be handled as invalid – successfully as if no return was filed – attracting all penalties of non-submitting.

Digital Submitting of ITR

Draft Rule 164(12) prescribes submitting strategies. Corporations should file electronically underneath digital signature. Individuals whose accounts require audit underneath part 63 can file underneath digital signature or digital verification code. Others have extra choices together with transmitting information electronically and submitting bodily verification in Type ITR-V.People aged 80 years or extra submitting ITR-1 or ITR-4 can file in paper kind—the one remaining choice for bodily submitting.Draft Rule 165 governs up to date returns underneath part 263(6), requiring Type ITR-U. Draft Rule 177 addresses modified returns for enterprise reorganizations underneath part 314, requiring Type ITR-A.