New Income Tax Rules: PAN mandatory for high-value transactions, tighter norms introduced

The Central Board of Direct Taxes (CBDT) on Friday notified the rules for the Income Tax Act, 2025. These rules offer more tax benefits to salaried persons receiving house rent allowance. However, you are required to divulge landlord-tenant information. The Income Tax Rules, 2026, would enact the simplified direct tax law. It was approved by Parliament last year. It would be effective from April 1.

On August 12, 2025, Parliament passed a new Income Tax Bill. It would replace the old Income Tax Act of 1961. The old act is sixty years old. The new bill does not alter the tax rates. It makes the language easier to comprehend. It would enable persons to understand income tax laws better.

It eliminates unnecessary sections and old words. It reduces the Income Tax Act of 1961 from 819 sections to 536. It reduces the chapters from 47 to 23.

The new Income Tax Bill reduces the word count from 512,000 to 260,000 words and introduces 39 new tables and 40 new formulas for the first time, replacing the cumbersome text of the 1961 Act, to enhance clarity.

The new rules tighten rules for capital gains, stock market transactions, and non-resident taxation, while simplifying other disclosure mechanisms. The notification introduces over 150 official forms.

People in eight cities will now be able to claim an HRA exemption up to 50 percent of their salary. The Income Tax rules retain the proposed framework for house rent allowance (HRA) exemption applicable to salaried taxpayers.

Under the new rules, eight cities (Mumbai, Kolkata, Delhi, Chennai, Hyderabad, Pune, Ahmedabad, and Bengaluru) will be eligible for a higher exemption limit of 50 percent of salary, while all other locations will remain at 40 percent.

Currently, salaried employees in Mumbai, Delhi, Kolkata, and Chennai can claim HRA exemption up to 50 percent of their salary, while those living in other locations are eligible for a lower limit of 40 percent.

The new rules require disclosure of tenant-landlord relationships to claim income tax deductions and increase the responsibility of auditors and companies for tax credit claims on foreign income.

Auditors have been given greater responsibility to investigate tax liabilities arising from duplication of PAN and adverse audit remarks.

Under the new rules, disclosure of PAN will be mandatory if an individual makes a cash deposit or withdrawal totaling ₹10 lakh or more in one or more accounts in a financial year. Currently, PAN is required for cash deposits exceeding ₹50,000 in a bank or cooperative bank on any single day.

For the purchase of motor vehicles (including motorcycles), if the value exceeds ₹5 lakh, the buyer must provide their PAN. The current Income Tax Rules, 1962, do not require PAN for the purchase of two-wheelers, whereas it was mandatory for motor vehicles regardless of the value.

An additional ₹50 exemption for hotel or restaurant bills will be available. PAN will be required for payments made to hotel/restaurant bills, convention centers, banquet halls, or individuals engaged in event management exceeding ₹1 lakh.

Under the current rules, the threshold for quoting PAN for hotel/restaurant bills is ₹50,000. For purchases, sales, or gifts of immovable property, PAN will be mandatory if the transaction value exceeds ₹20 lakh, up from the current threshold of ₹10 lakh.