KPMG India Flags Urgent Compliance Updates Under New Income Tax Rules 2026

The payslips that landed in Indian employees' inboxes on April 1, 2026 were processed under a tax code that no longer legally exists. India's Income Tax Act 1961, a 65-year-old statute that had accumulated decades of amendments and cross-references, was formally repealed on March 31 and replaced by the Income-tax Act, 2025 — with the Central Board of Direct Taxes (CBDT) gazetting the companion Income-tax Rules, 2026 on March 20. The Income-tax Act, 1961 is officially repealed effective March 31, 2026, replaced by the Income-tax Act, 2025, and operationalised by the Income-tax Rules, 2026, notified as G.S.R. 198(E), Notification 22/2026, gazetted March 20, 2026. KPMG India's April 2 flash note, released just 24 hours after the rules took effect, maps the specific procedural and form changes practitioners must act on immediately.

The stakes are sharpest for three people on any KPMG India engagement right now.

Take a first-year tax associate who joined after university and has spent months learning section references from the 1961 Act. Every section number, every form designation she memorized is now obsolete. The new Act introduces the unified "Tax Year" concept, removing the Previous Year/Assessment Year distinction, uses plain language to reduce ambiguity and litigation, and introduces digital-first, faceless assessment procedures. That means client workpapers, tax return templates, and even internal training decks need recoding — a task that will fall disproportionately on junior staff who built their knowledge base on the old architecture.

The compliance burden is meaningfully heavier for expat assignees. The rules introduce new requirements for compulsory PAN quoting and propose significant changes to perquisite values and exemption thresholds for certain allowances. More consequentially, anyone claiming a Foreign Tax Credit now faces an additional procedural hurdle: the draft Form No. 44, which replaces existing Form No. 67, requires accountant certification in the case of a company and must include the taxpayer identification number of the country in which the foreign tax was paid. For a multinational employee managing dual-country tax exposure, that certification requirement adds a filing dependency that did not exist under the prior rules and could delay refunds if not anticipated early.

Transfer pricing teams face the most structurally significant change. Form No. 48, comprising eleven clauses across six parts, replaces Form No. 3CEB, which was required for taxpayers entering into international transactions with associated enterprises and specified domestic transactions. The CBDT on March 20, 2026 notified the final Income-tax Rules, 2026, with updates to safe harbor provisions, the advance pricing agreement process, and transfer pricing compliance effective April 2026. The expanded disclosure requirements in Form 48 include new fields for arm's-length price determination in APA-covered transactions — meaning historic filings prepared under Form 3CEB may now present comparison and disclosure gaps that clients need to evaluate before tax authorities do.

For KPMG teams advising Indian clients, the next week is a triage exercise. Payroll and withholding configurations must be updated to reflect new section numbering and the "Tax Year" terminology that the Act formally introduces; ERP systems that still reference the old Previous Year convention will generate mismatches on the first payroll run they are audited against. Starting April 1, 2026, the e-filing portal supports both Acts simultaneously, which gives clients a transitional window but also creates dual-compliance complexity that tax technology teams will need to manage through system patches rather than manual workarounds.

Transfer pricing and international tax leads should run a rapid triage of which clients filed Form 3CEB under the old rules and assess whether expanded Form 48 disclosures create retroactive exposure. Separately, any client with assignees claiming FTC needs to be briefed immediately that the accountant certification for Form 44 is now mandatory, not optional, and that missing that step could stall a credit claim at the assessment stage.

The CBDT has released detailed FAQs and guidance notes to accompany the approximately 167 prescribed forms under the new rules, covering TDS/TCS, transfer pricing, international taxation, and administrative filings. For practice leaders, these FAQs are the fastest path to client-ready communications this week. Junior and mid-level staff who build fluency in the new form architecture now will be the ones clients call when disputes over transition-year filings surface in 2027.