The Central Board of Direct Taxes (CBDT) has officially notified the Income-tax (Amendment) Rules, 2026, introducing crucial modifications to Rule 128 of the Income Tax Rules, 2026. The amendments, issued via Notification No. 55/2026, will come into effect from April 1, 2026.
Key Highlights of the Amendment
1. Clarification on Pre-2017 Investments
The amended Rule 128 now explicitly provides that:
- Any income arising from the transfer of investments made before April 1, 2017, will be treated separately.
- Such income will not be subject to certain provisions linked with post-2017 arrangements , ensuring relief for taxpayers holding legacy investments.
2. Revised Scope of Chapter XI (GAAR Provisions)
The amendment strengthens the applicability of Chapter XI (General Anti-Avoidance Rules - GAAR) by stating:
- GAAR provisions will apply to any arrangement, regardless of when it was entered into.
- However, an exception has been carved out for income arising from investments made before April 1, 2017.
3. Retrospective vs Prospective Balance
The notification brings clarity by:
- Applying GAAR provisions prospectively on tax benefits arising on or after April 1, 2017
- While safeguarding income linked to pre-2017 investments, thereby reducing litigation risks and interpretational ambiguity.
Why This Amendment Matters
The update to Rule 128 is significant for taxpayers, multinational entities, and tax professionals as it:
- Provides certainty on the tax treatment of legacy investments
- Reinforces the intent and scope of GAAR provisions
- Helps avoid retrospective tax disputes
- Aligns with the government’s broader objective of transparent and predictable tax administration
Expert Insight
Tax experts believe that the amendment strikes a balanced approach ensuring anti-abuse rules are effectively applied, while protecting genuine past investments from unintended tax consequences.
Click here to view/download the official copy of the notification
Conclusion
With the Income-tax (Amendment) Rules, 2026 coming into force from April 1, taxpayers should carefully review their cross-border arrangements and historical investments to assess potential implications under the revised Rule 128 framework.
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