Weekly Round-up on Tax and Corporate Laws | 2nd to 7th February 2026

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from Feb 02^nd  to Feb 07^th 2026, namely:

1. CBDT Releases Draft Income Tax Rules, 2026 and Forms; Seeks Feedback from Stakeholders
2. Key Highlights of RBI’s Statement on Developmental and Regulatory Policies
3. State Can’t End Long-term Contractual Engagement Abruptly Without Reasons or a Speaking Order: SC
4. Alleged Role in Fake Firms and Clandestine Clearance; Bail Refused to Protect Investigation: HC
5. Electronic Filing of GST Appeal Held Valid as No Notification Mandated Physical Filing; Rejection on Technical Ground Set Aside: HC
6. Promotional Giveaways to Potential Distributors: Drawing the line between Revenue and Expense under Ind AS
7. ICAI Seeks Comments on Exposure Draft for Audits of Less Complex Entities

1. CBDT Releases Draft Income Tax Rules, 2026 and Forms; Seeks Feedback from Stakeholders

The Central Board of Direct Taxes (CBDT) has released a draft of the Income-tax Rules, 2026, for public consultation. The board has invited feedback/comments from stakeholders and the public on the draft rules and forms by February 22, 2026.

The drafting of new Income-tax Rules and forms has followed the same philosophy as that of the new Income-tax Act, 2025. The language of the rules has been simplified as much as possible. Formulas and tables have been provided wherever necessary.

Redundancy in the Income-tax Rules, 1961, has been sought to be eliminated. The draft aims to simplify and consolidate provisions, reducing the number of rules from 511 to 333 and the number of forms from 399 to 190. While preserving the policy’s overall content, certain changes have been introduced in line with the amendments to the Income-tax Act, 2025.

The forms in the draft rules have also been simplified to a large extent to make them easier for taxpayers. Standardisation of common information has been implemented across the forms to reduce the compliance burden on taxpayers. Forms have been designed to enable automated reconciliation and prefill, making filing more intuitive and less error-prone.

Read the Press Release

2. Key Highlights of RBI’s Statement on Developmental and Regulatory Policies

In a bid to make India’s financial system more secure, inclusive, and efficient, the Reserve Bank of India vide its press release dated February 6, 2026, introduced a Statement on various developmental and regulatory policies relating to:

(i) Regulations;

(ii) Payment Systems;

(iii) Financial Inclusion;

(iv) Financial Markets; and

(v) Capacity Building.

These measures aim to strengthen customer protection, enhance digital payment safety, curb the mis-selling of financial products, and ease compliance requirements for select financial institutions.

Key Highlights

Some of the key highlights are as follows:

2.1 RBI Keeps Policy Repo Rate Unchanged at 5.25 Per Cent and Continues With Neutral Monetary Policy Stance

The RBI has decided to keep the policy repo rate under the liquidity adjustment facility unchanged at 5.25%. Consequently, the standing deposit facility rate remains at 5.00 per cent and the marginal standing facility (MSF) rate and the Bank rate at 5.50 per cent. The MPC also decided to continue with the neutral stance.

2.2 Enhancement of Collateral-Free Loan Limit From Rs 10 Lakh to Rs 20 Lakh

To improve access to formal credit, support entrepreneurial activity, and strengthen last-mile credit delivery for Micro and Small Enterprises (MSEs) with limited collateral, the RBI has decided to increase the limit of collateral-free loans for MSEs from Rs 10 lakh to Rs 20 lakh. These provisions shall apply to all loans to MSE borrowers sanctioned or renewed on or after April 1, 2026. In this regard, instructions will be issued shortly.

2.3 Introduction of Derivatives to Strengthen the Corporate Bond Market

An active derivatives market can facilitate efficient credit risk management, improve liquidity and efficiency in the corporate bond market, while supporting issuance of corporate bonds across the rating spectrum.

Pursuant to the announcement made in the Union Budget speech delivered on February 1, 2026, the total return swaps on corporate bonds and derivatives on corporate bond indices will be introduced. Accordingly, a regulatory framework enabling the introduction of credit index derivatives and total-return swaps on corporate bonds will be issued shortly.

2.4 Review of the Voluntary Retention Route (VRR) for FPI Investment in Debt Instruments

The RBI introduced the Voluntary Retention Route (VRR) in March 2019 to provide an additional channel for FPIs with long-term investment interests in the Indian debt market. The VRR has witnessed active participation, with over 80% of its current investment limit of Rs 2.5 lakh crore utilised.

To ensure predictability in the availability of investment limits under the VRR and further improve ease of doing business, the RBI has decided that investments under the VRR will now be reckoned within the overall FPI investment limit under the General Route. Additionally, certain operational flexibilities will be provided to FPIs investing under the VRR.

2.5 Proposal to Issue a Discussion Paper on ‘Exploring Safeguards in Digital Payments to Curb Frauds’

To promote safe and secure digital payments, the RBI has proposed issuing a discussion paper on calibrated safeguards, such as delayed credit and additional authentication for specific user groups, including senior citizens. These measures are intended to mitigate fraud risks and strengthen customer protection.

2.6 Issuance of Comprehensive Guidelines on Advertising, Marketing and Sale of Financial Products and Services

The RBI has observed that the mis-selling of financial products by regulated entities harms both customers and institutions. To address this concern, especially for third-party products sold at bank counters, it will issue detailed guidelines on advertising, marketing, sales, customer engagement, product suitability, and alignment with customers’ risk profiles. A draft will be released soon for public consultation to ensure transparency and appropriateness.

2.7 Revised Framework Governing Facilities for Authorised Dealers

Banks and standalone primary dealers authorised under FEMA, 1999, access the foreign exchange market for market-making, balance-sheet management, and risk hedging.

The regulatory framework governing facilities for Authorised Dealers (ADs) has been reviewed, rationalised, and refined in line with prevailing domestic and global market practices. The revised framework provides greater flexibility to ADs in relation to foreign exchange products, risk management, and trading platforms. The draft directions in this regard will be issued shortly.

2.8 Revision in the Guidelines of the Kisan Credit Card (KCC) Scheme

The RBI has undertaken a comprehensive review of the KCC scheme to expand coverage, streamline operations, and address emerging requirements. A revised set of consolidated instructions for banks, covering agriculture and allied activities, is proposed for issuance. The proposed guidelines include standardising the crop season, extending KCC tenure to six years, and including expenses related to technological interventions.

Read the Press Release

3. State Can’t End Long-term Contractual Engagement Abruptly Without Reasons or a Speaking Order: SC

The Supreme Court, in the matter of Bhola Nath vs. State of Jharkhand [2026] 183 taxmann.com 59 (SC), ruled that the State cannot deny regularisation of long-serving contractual staff appointed against sanctioned posts without giving reasons or passing a speaking order.

3.1 Brief Facts of the Case

In the instant case, the appellants were appointed by the respondent-State against sanctioned posts of Junior Engineers (Agriculture), with the engagement being described from inception as contractual in nature.

The terms and conditions governing engagement stipulated that the appointment would be for an initial period of one year, extendable thereafter subject to satisfactory performance. The Respondent-State accordingly granted extensions to the appellants from time to time until 2023, when it was expressly clarified that the extension granted would be the last.

The appellants approached the High Court by filing writ petitions seeking a writ of mandamus directing the State to regularise their services. The Single Judge dismissed the writ petitions filed by the appellants seeking a writ of mandamus directing the respondent State to regularise their services.

In doing so, the Writ Court placed reliance on the terms and conditions of the employment agreement entered into between the appellants and the respondents. The Division Bench upheld the judgment of the Writ Court. Thereafter, an appeal was made before the Supreme Court.

3.2 Supreme Court Observations

It was noted that the respondent State had engaged the services of the appellants on sanctioned posts since the year 2012. It was only towards the end of the year 2022 that the respondents communicated that no further extension of the appellants’ engagement was likely to be granted.

Further, it was noted that the abrupt discontinuance of such long-standing engagement solely based on contractual nomenclature, without either recording cogent reasons or passing a speaking order, was manifestly arbitrary and violative of Article 14 of the Constitution of India.

Also, it was noted that the contractual stipulations purporting to bar claims for regularisation could not override constitutional guarantees. The acceptance of contractual terms does not amount to waiver of fundamental rights, and contractual stipulations cannot immunise arbitrary State action from constitutional scrutiny.

3.3 Supreme Court Ruling

The Supreme Court held that the State, as a model employer, could not rely on contractual labels or the mechanical application of Umadevi (State of Karnataka v. Uma Devi (2006) 4 SCC 1) to justify prolonged ad hocism or to discard long-serving employees in a manner inconsistent with fairness, dignity, and constitutional governance.

In view of the foregoing discussion, the respondent-State was directed to regularise the services of all appellants against sanctioned posts to which they were initially appointed. The appellants must be entitled to all consequential service benefits accruing from the date of this judgment.

Read the Ruling

4. Alleged Role in Fake Firms and Clandestine Clearance; Bail Refused to Protect Investigation: HC

The High Court held that bail could not be granted where prima facie material indicated the applicant’s active involvement in a large-scale, organised GST fraud involving fake firms, fraudulent e-way bills, and clandestine clearance of goods, as release could prejudice the ongoing investigation.

4.1 Facts

The accused-applicant was taken into custody pursuant to proceedings initiated by the Directorate General of GST Intelligence (DGGI) in connection with allegations of organised GST evasion in the marble trade, involving the creation and operation of multiple bogus firms, fraudulent generation of e-way bills, clandestine clearance of goods, and coordination with co-accused. It was submitted on behalf of the applicant that continued custody exceeding three and a half months was unwarranted since a charge-sheet had been filed, there were no criminal antecedents, the alleged offences were triable by a Magistrate and compoundable, and one co-accused was already in custody while the alleged mastermind remained unapprehended. The DGGI opposed the bail application, contending that the applicant had played an active role in setting up about thirteen fake entities, facilitating large-scale tax evasion through non-filing of returns and clandestine removals, and attempting to destroy documents recovered during search proceedings. It was further contended that the investigation was ongoing, and the quantum of alleged evasion continued to increase as the investigation progressed, and that custodial release could adversely affect the investigation. The matter was accordingly placed before the High Court.

4.2 Held

The High Court held that the allegations disclosed a large-scale and structured GST fraud with serious revenue implications. It held that the magnitude of alleged evasion had escalated and that the investigation was still at a crucial stage, with key conspirators yet to be apprehended. The Court held that the release of the applicant could impede tracing of proceeds and securing of revenue, particularly in view of the allegation relating to the attempted destruction of evidence. It further held that the precedents relied upon by the applicant were distinguishable and that economic offences warranted stricter scrutiny, and, finding prima facie material indicating an active role of the applicant, declined enlargement on bail and dismissed the application.

Read the Ruling

5. Electronic Filing of GST Appeal Held Valid as No Notification Mandated Physical Filing; Rejection on Technical Ground Set Aside: HC

The High Court held that rejection of a GST appeal merely for non-filing of a physical copy was unsustainable where the appeal had been duly filed electronically on the GST portal with the prescribed pre-deposit and documents. The Court held that Rule 108(1) permits electronic filing in the absence of any mandate for physical submission and that rejection without a hearing was unsustainable.

Facts

The petitioner challenged the rejection of its statutory appeal filed against the demand confirmed under Section 73 of the CGST Act and Jammu and Kashmir GST Act. It filed the appeal on the GST portal with the requisite pre-deposit and supporting documents for the specified period after a show cause notice was issued, alleging that the ITC claimed in Form GSTR-3B exceeded the ITC available in Form GSTR-2A. The appeal was rejected because the hard copy was not submitted. The matter was accordingly placed before the High Court.

Held

The High Court held that Rule 108(1) of the CGST Rules provides that an appeal shall be filed along with all relevant documents either electronically or otherwise as may be notified by the Commissioner, and therefore envisages electronic filing. The Court further held that the appeal could not be rejected solely on the ground that a hard copy was not filed, and that rejection on procedural grounds without granting an opportunity to be heard was unsustainable. Consequently, the Court set aside the rejection of the appeal and remanded the matter for a fresh decision on the merits.

Read the Ruling

6. Promotional Giveaways to Potential Distributors: Drawing the line between Revenue and Expense under Ind AS

Entities in the consumer goods sector often incur promotional costs to build brand visibility and expand their distribution network. One common practice is the free distribution of promotional items such as logo-bearing gifts and product catalogues to potential distributors. While such activities are undertaken with the expectation of future economic benefits, the key accounting question is whether these transactions fall within the revenue recognition framework of Ind AS 115, Revenue from contracts with customers or should be accounted for as expenses under other Ind AS.

Ind AS 115 applies only when there is a contract with a customer that creates enforceable rights and obligations and involves the transfer of goods or services in exchange for consideration. A “customer” is defined as a party that has contracted with the entity to obtain goods or services that are outputs of the entity’s ordinary activities for consideration. Performance obligations, and consequently revenue recognition, arise only within such contractual arrangements.

Where promotional gifts and catalogues are distributed free of charge to potential distributors, without any written, oral, or implied agreement. The recipients are not required to place orders or enter into distribution arrangements, and the distribution is not linked to any future performance obligations. As there is no contract, no consideration, and no transfer of goods as part of the entity’s ordinary revenue-generating activities, the transaction falls outside the scope of Ind AS 115.

The expenditure incurred on such promotional activities is aimed at generating future economic benefits but does not result in the creation or acquisition of a recognisable asset. In accordance with paragraph 69 of Ind AS 38, Intangible Assets, advertising and promotional expenditure is recognised as an expense when the entity obtains the right to access the goods or services. Accordingly, the cost of promotional gifts and catalogues distributed to potential distributors should be recognised as an expense when incurred, and not as revenue or a reduction from revenue.

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7. ICAI Seeks Comments on Exposure Draft for Audits of Less Complex Entities

ICAI has invited comments from members and stakeholders on the Exposure Draft of the Standard on Auditing for Audits of Financial Statements of Less Complex Entities (SA for LCE), issued by the Auditing and Assurance Standards Board. The proposed standard introduces a simplified audit framework for eligible unlisted, standalone entities with limited size and complexity, while continuing to emphasise audit quality through alignment with SQM 1.

Members may submit their comments and practical suggestions on the eligibility criteria, audit procedures, and reporting requirements prescribed in the Exposure Draft. The last date for submission of feedback is 20 March 2026, following which ICAI will review the responses received and proceed with finalisation of the standard.

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