India’s tax administration is entering a decisive phase of structural modernisation. With the Income-tax Act, 2025 set to replace the six-decades-old 1961 law from 1 April 2026, the accompanying draft Income-tax Rules, 2026 have been released for public consultation.
These draft rules are not merely procedural updates; they recalibrate how the state tracks financial activity in an economy that has grown larger, more formalised, and increasingly digital.
Among the most consequential proposals are changes to the circumstances under which a taxpayer is required to quote their Permanent Account Number (PAN). PAN has long functioned as the backbone of India’s tax intelligence architecture, linking individuals and entities to high-value transactions across banking, real estate, financial services, and consumption.
The proposed changes signal a deliberate policy shift: moving away from low, transaction-level triggers that create routine compliance friction, towards higher, value-based thresholds that focus administrative attention where fiscal risk is greatest.
Cash Transactions: From Daily Scrutiny to Annual Aggregation
Under the current rules, quoting PAN is mandatory for cash deposits exceeding ₹50,000 in a single day in a bank account. The draft Income-tax Rules propose a fundamental redesign of this approach.
Instead of a daily trigger, PAN would be required only if the aggregate amount of cash deposited or withdrawn across one or more bank accounts reaches ₹10 lakh in a financial year.
This transition from a per-transaction rule to an annual threshold reflects a more nuanced understanding of cash usage in the economy. Many individuals and small businesses still rely on cash for legitimate operational reasons, particularly in semi-urban and rural settings.
The proposed framework reduces the need for repeated PAN disclosures for routine cash movements, while still preserving traceability for sustained or large-scale cash activity. From a regulatory perspective, the emphasis shifts from episodic monitoring to pattern-based oversight, which is better aligned with modern data-driven enforcement.
Motor Vehicle Purchases: Introducing a Monetary Filter
At present, PAN is required for virtually all motor vehicle purchases, regardless of value, with two-wheelers largely exempt. The draft rules propose a rationalisation by linking PAN disclosure to the value of the transaction. Under the new framework, PAN would be mandatory only if the purchase price of a motor vehicle exceeds ₹5 lakh, with the threshold applying uniformly, including to two-wheelers.
This change recognises that low-value vehicle purchases, particularly two-wheelers, are primarily mobility necessities rather than indicators of discretionary wealth.
By anchoring PAN requirements to transaction value, the rules aim to concentrate compliance and reporting on higher-end vehicle purchases, which are more relevant from a tax-risk and wealth-tracking standpoint. For consumers and dealers alike, this represents a meaningful reduction in routine paperwork without weakening fiscal oversight.
Immovable Property Transactions: Updating an Outdated Benchmark
Real estate transactions have long been a focal point of tax enforcement, given their historical association with under-reporting and unaccounted income. Currently, PAN must be quoted for property transactions exceeding ₹10 lakh. The draft rules propose raising this threshold to ₹20 lakh.
This revision acknowledges the reality that the existing threshold has become economically outdated due to inflation and sustained increases in property prices, even in smaller cities.
By doubling the limit, the rules seek to prevent smaller, bona fide transactions from being pulled into disproportionate compliance requirements, while retaining PAN tracking for transactions of material fiscal significance. The move reflects an attempt to balance transparency with proportionality in a sector that is both economically vital and administratively sensitive.
Hospitality and Event Expenditure: Reducing Friction in Services Consumption
The current requirement to quote PAN for payments exceeding ₹50,000 to hotels, restaurants, banquet halls, and event management services has increasingly captured routine corporate and family expenditures. The draft Income-tax Rules propose raising this threshold to ₹1 lakh.
In practical terms, this change aligns tax compliance with contemporary cost structures in the hospitality and events sector, where inflation and scale have rendered the earlier threshold overly restrictive.
By recalibrating the limit, the rules aim to focus reporting on genuinely high-value consumption rather than everyday professional or social engagements. For service providers, the revision also simplifies customer onboarding and billing processes.
Insurance Relationships: PAN at the Point of Entry
One of the more assertive proposals in the draft rules relates to insurance. Instead of linking PAN requirements solely to premium thresholds, the draft mandates quoting PAN at the time of initiating an insurance account itself.
This marks a strategic tightening of financial traceability. Insurance products, particularly those with savings or investment components, have occasionally been misused for layering or parking unaccounted funds.
By ensuring that every insurance relationship is PAN-linked from inception, the tax system gains early visibility into financial flows associated with these products. While this may marginally increase onboarding requirements for insurers and customers, it strengthens the integrity of financial reporting across the sector.
A Shift in Compliance Philosophy
Taken together, the proposed PAN-related changes in the draft Income-tax Rules, 2026 point to a broader evolution in India’s tax governance philosophy under the stewardship of the Income Tax Department. The emphasis is clearly on rationalisation rather than expansion of compliance. Low-value, high-frequency transactions are being progressively de-emphasised, while higher-value, structurally significant transactions remain firmly within the reporting net.
This approach reflects three underlying policy priorities. First, reducing unnecessary compliance burden for ordinary taxpayers and small businesses. Second, updating regulatory thresholds to reflect economic growth, inflation, and changing consumption patterns. Third, enabling tax administration to deploy analytical and enforcement resources more effectively by focusing on transactions that matter most from a revenue and risk perspective.
Conclusion
The draft Income-tax Rules, 2026 represent a careful recalibration of PAN requirements rather than a simple tightening or relaxation of norms. By shifting from rigid, low thresholds to more economically grounded benchmarks, the proposed rules seek to balance ease of doing business with the state’s legitimate interest in monitoring high-value financial activity.
As public consultations progress and stakeholder feedback is incorporated, the final rules will play a critical role in shaping how millions of taxpayers interact with India’s tax system from April 2026 onwards.
