The rules set out detailed procedures for international taxation, perquisites, TDS/TCS, virtual digital assets, non-profit organisations, special business deductions, dispute resolution, and administrative compliance, including reporting, audits, recovery of arrears, and information sharing.

RF Report

India’s Central Board of Direct Taxes (CBDT) issued Notification No. 22/2026 on 20 March 2026 under the Income Tax Act, 2025, introducing the Income Tax Rules, 2026. The rules provide a comprehensive framework for income tax administration, covering areas such as international taxation, employee benefits, tax deduction and collection at source, virtual digital assets, non-profit organisations, special business deductions, dispute resolution, and extensive compliance and reporting requirements.

Some of the key measures include:

International taxation and transfer pricing

The Income-tax Rules, 2026, provide a comprehensive framework for international taxation and transfer pricing, establishing rigorous procedures for determining the arm’s length price, requiring detailed global documentation, and offering mechanisms like Safe Harbour and APAs to ensure tax certainty.

Determination of arm’s length price (ALP)

The rules define an associated enterprise and uncontrolled transaction as foundational concepts for determining the ALP in international or specified domestic transactions.

  • Prescribed methods: The ALP must be determined using the most appropriate method, which could be:
    • Comparable Uncontrolled Price (CUP) Method
    • Resale Price Method (RPM)
    • Cost Plus Method (CPM)
    • Profit Split Method (PSM)
    • Transactional Net Margin Method (TNMM)
    • Any other method taking into account prices charged in similar uncontrolled transactions.
  • Selection criteria: The “most appropriate method” is selected based on the nature of the transaction, the availability and reliability of data, and the extent to which accurate adjustments can be made for differences.
  • Data and range: Determinations generally use data from the current year. If a dataset consists of six or more entries, an arm’s length range (from the 35th to the 65th percentile) is constructed. If the actual transaction price falls outside this range, the median of the dataset is used to determine the ALP.

Mandatory extensive documentation

Multinational groups must comply with a three-tiered documentation structure, including general transfer pricing records, the Master File, and Country-by-Country Reports.

  • General documentation: Every person entering into an international transaction must maintain records, including ownership structures, group profiles, business descriptions, and detailed functional analyses (functions performed, risks assumed, and assets employed). These must be kept for nine years.
  • Master File (Form No. 56): This is required for a constituent entity if the consolidated group revenue exceeds INR 500 crore and the aggregate value of international transactions exceeds INR 50 crore (or INR 10 crore for intangible property). It includes global supply chain details, intangible property strategy, financing arrangements, and consolidated financial statements.
  • Country-by-Country report (Form No. 59): This report is mandatory for international groups with a total consolidated revenue of INR 6,400 crore or more. It provides a jurisdiction-by-jurisdiction overview of income allocation, taxes paid, and business activities.

Safe harbour rules

Safe Harbour rules provide a “bright-line” approach where the tax authorities accept the declared transfer price if it meets specified thresholds, providing certainty and reducing litigation.

  • Eligible transactions: These include IT services, knowledge process outsourcing (KPO), intra-group loans, corporate guarantees, and R&D services relating to generic pharmaceutical drugs.
  • Threshold examples:
    • IT services: An operating profit margin of at least 15.5%.
    • Corporate guarantees: A commission or fee of at least 1% per annum on the guaranteed amount.
    • R&D (drugs): An operating profit margin of at least 24%.
  • Procedure: To opt-in, an assessee must furnish Form No. 49. Once validly exercised for IT services, the option remains in force for five consecutive tax years.

Advance pricing agreements (APAs)

APAs allow taxpayers to agree with the Board to determine the transfer pricing methodology or the ALP for a future period, which can be unilateral, bilateral, or multilateral.

  • Application process: Eligible persons can apply via Form No. 51 with a fee of INR 20 lakh. The process includes an optional pre-filing consultation (Form No. 50) to discuss the scope and suitability of the agreement.
  • Rollback provisions: An APA may include “rollback” provisions for up to four preceding tax years, provided the transactions are the same as those covered in the main agreement. An additional fee of INR 5 lakh applies for rollback requests.
  • Compliance: Once an APA is signed, the assessee must file an Annual Compliance Report (Form No. 52). The Transfer Pricing Officer conducts a compliance audit for each year covered by the agreement.

Perquisites and employee benefits

There are specific guidelines for valuing non-monetary benefits provided to employees, such as rent-free accommodation, company cars, and educational facilities.

Tax deduction (TDS) and collection (TCS) at source

The rules outline detailed reporting requirements for various payments, including salaries, rent, and transfers of immovable property. Specific forms are designated for quarterly statements and certificates for both residents and non-residents.

Virtual digital assets (VDA) and crypto-assets

A significant portion of the rules is dedicated to the reporting and tax deduction requirements for transfers of VDAs and other crypto-assets. Exchanges and service providers are required to maintain detailed records and submit quarterly and annual statements.

Non-Profit Organisations (NPOs) and charitable trusts

Procedures for provisional registration, final registration, and approval for tax exemptions are clearly defined. NPOs must follow strict rules regarding the application and accumulation of income and are subject to mandatory audits.

Special business deductions

Guidelines are provided for claiming deductions for specified businesses, including affordable housing projects, semiconductor wafer fabrication units, and agricultural extension projects.

Dispute resolution and appeals

The framework for appealing orders before the Joint Commissioner (Appeals) or the Income-tax Appellate Tribunal is detailed, along with procedures for the Dispute Resolution Committee and obtaining Advance Rulings.

Administrative and compliance procedures:

  • Reporting and documentation: The rules prescribe a vast array of forms (over 180) for various declarations, applications, and statements. Many of these must be filed electronically under digital signature.
  • Audit requirements: Several sections mandate audits by qualified accountants for preliminary expenses, research and development facilities, and NPOs to ensure compliance and “true and fair” views of accounts.
  • Recovery of arrears: Detailed procedures for the Tax Recovery Officer include issuing notices, attaching and selling movable and immovable property, and, in certain cases, the arrest and detention of defaulters.
  • Transparency and information sharing: The rules provide for an Annual Information Statement (Form No. 168), which consolidates information on tax deductions, financial transactions, and pending proceedings for each assessee. There are also provisions for the exchange of information with foreign jurisdictions for tax administration.