2026MONTHLY NEWS & UPDATES FOR FEBRUARY 2026

Executive Summary

Income Tax

• SECTION 80-IAC of the INCOME-TAX ACT, 1961-Startup
• Draft Income Tax Rules and Forms, 2026
• Governments of India and France sign the Amending Protocol to amend the India-France DTAA

Goods And Service Tax (GST)

• Order No. 01/2026 – HSNS Cess – proper officers appointed for administration and enforcement of HSNS Cess on notified goods – Dated 29-01-2026, Effective 01-02-2026.
• Order No. 02/2026 – HSNS Cess – registration procedure and compliance framework prescribed for taxpayers liable under HSNS Cess – Dated 29-01-2026, Effective 01-02-2026.
• Notification No. 21/2026 – Customs (N.T.) – amendment to Notification No. 77/2023-Customs (N.T.) revising All Industry Rates (AIR) of Duty Drawback for certain export goods including jewelry articles under the Customs and Central Excise Duties Drawback Rules – Dated 16-02-2026 – Effective from 16-02-2026.
• Advisory No. 04/2026 – HSNS Cess – procedure prescribed for filing HSNS Cess declaration and compliance by taxpayers dealing in notified tobacco products through CBIC portal – Advisory dated 09-02-2026.
• Flexible utilisation of CGST & SGST ITC allowed for IGST liability after exhausting IGST credit – Advisory dated 19-02-2026 – Applicable from Feb-2026 tax period.

Companies Act 2013/ Other Laws

• Reorganisation of Regional Directors (RD) Offices
• ROC Adjudication Structure Revised (Section 454)
• One-Time Compliance Facilitation Scheme (Proposed)
• FEMA (Export and Import of Goods and Services) Regulations, 2026
• Amendment to Voluntary Liquidation Process Regulations, 2026

A. SECTION 80-IAC OF THE INCOME-TAX ACT, 1961- DEDUCTIONS – IN RESPECT OF SPECIFIED BUSINESS – STARTUP INDIA [19-02-2026]

This notification is being issued in supersession of the Gazette Notification No. G.S.R. 127(E), dated February 19, 2019.

1. In this notification,
2. ‘Startup’ means an entity which—
3. is incorporated or registered in India as a private limited company (as defined in the Companies Act, 2013) or registered as a partnership firm (registered under section 59 of the Partnership Act, 1932) or a limited liability partnership (under the Limited Liability Partnership Act, 2008) or a Multi-State Cooperative Society registered with the Central Registrar of Cooperative Societies (under the Multi-State Co-operative Societies Act, 2002) or a Cooperative Society registered under any State or Union Territory Cooperative Societies Act with the respective Registrar of Cooperative Societies in India;
4. is within a period of ten years from the date of its incorporation or registration.

iii. has a turnover for any of the financial years since incorporation or registration not exceeding two hundred crore rupees; and

1. is working towards innovation, development or improvement of products or processes or services, or is a scalable business model with a high potential of employment generation or wealth creation:

Provided that, in the case of an entity recognized as a ‘Deep Tech Startup’ under this notification:

(a)   the period specified in clause (ii) shall be up to twenty years from the date of its incorporation or registration; and

(b)   the turnover limit specified in clause (iii) shall be three hundred crore rupees for any of the financial years since incorporation or registration.

Provided further that, an entity formed by splitting up or reconstruction of an existing business shall not be considered a Startup.

Provided that, in the case of an entity recognized as a Deep Tech Startup under this notification, such entity shall cease to be a Deep Tech Startup on completion of twenty years from the date of its incorporation or registration, or if its turnover for any previous year exceeds three hundred crore rupees. a clearing corporation by SEBI.

B. DRAFT INCOME-TAX RULES AND FORMS, 2026

1. Income-tax Act, 2025 is to come into force from the 1st of April, 2026.
2. 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 to the extent possible. Formulas and tables have been provided wherever necessary. Redundancy in the Income-tax Rules, 1961 has been sought to be eliminated. While preserving the larger content of the policy, certain changes have been introduced in line with the changes in the Income-tax Act, 2025.
3. The Income-tax Rules, 1962, contain 511 rules and 399 forms. As a result of the changes proposed in new rules and forms, including removal of redundancy and consolidation of rules wherever possible, draft Income-tax Rules, 2026 contains 333 rules and 190 forms.

C. GOVERNMENTS OF INDIA AND FRANCE SIGN THE AMENDING PROTOCOL TO AMEND THE INDIA-FRANCE DOUBLE TAXATION AVOIDANCE CONVENTION [23-02-2026]

1. During the recent visit of the President of France to India, the Government of the Republic of India and the Government of the French Republic have signed a Protocol amending the India-France Double Taxation Avoidance Convention, signed on 29 September 1992 (‘India-France DTAC’).
2. The Amending Protocol provides full taxing rights in respect of capital gains arising from sale of shares of a company, to the jurisdiction where such company is a resident. The Amending Protocol also deletes the so-called Most-Favoured-Nation (MFN) Clause from the Protocol to the DTAC, thereby bringing to rest all issues relating to it. The Amending Protocol also modifies the taxation of income from dividends by replacing a single rate of 10% of tax with a split rate of 5% for those holding at least ten percent of capital and 15% of tax for all other cases. It also modifies the definition of ‘Fees for Technical Services’ by aligning it with the definition in India US Double Taxation Avoidance Agreement and expands the scope of ‘Permanent Establishment’ by adding Service PE.
3. The Amending Protocol also updates the provisions on Exchange of Information and introduces a new Article on Assistance in Collection of Taxes, as per international standards. This would enable and facilitate seamless exchange of information and strengthen mutual tax cooperation between India and France. The Amending Protocol also incorporates within the DTAC, the applicable provisions of BEPS Multilateral Instrument (MLI), that had already become applicable consequent to the signing and ratification of MLI by India and France.
4. The changes introduced through the Amending Protocol shall enter into effect subsequent to the completion of internal procedures under the laws of both the countries and subject to the terms agreed between the two countries.
5. The Amending Protocol updates the India-France DTAC to the latest international standards, in a manner that balances the interests of both India and France and updates it in accordance with international standards. The Amending Protocol will provide greater tax certainty to the taxpayers and boost flow of investment, technology and personnel between India and France, and thereby strengthen the economic relationship between the two countries.

A. Order No. 01/2026 – HSNS Cess – Appointment of Proper Officers for Administration of HSNS Cess – Dated 29-01-2026 (Effective 01-02-2026)

Implementation of HSNS Cess – Appointment of Proper Officers

CBIC has issued Order No. 01/2026 – HSNS Cess appointing proper officers responsible for administration, assessment and enforcement of Health Security at National Security (HSNS) Cess on notified goods.

• The order establishes the administrative framework for implementation of HSNS Cess.
• Designated officers will be responsible for assessment, verification and enforcement of cess compliance.
• The cess primarily applies to specified tobacco and related products.
• Businesses dealing in such goods may face enhanced regulatory monitoring and compliance checks.

B. Order No. 02/2026 – HSNS Cess – Registration Procedure and Compliance Framework – Dated 29-01-2026 (Effective 01-02-2026)

Registration Procedure Prescribed for HSNS Cess

CBIC has issued Order No. 02/2026 – HSNS Cess prescribing the registration procedure and compliance framework for taxpayers liable to pay HSNS Cess.

• Taxpayers dealing in notified tobacco products must register on the CBIC HSNS portal.
• Registration requires submission of PAN/GST details and business information
• Registered taxpayers must file HSNS declarations and pay applicable cess through the portal.
• Businesses should ensure timely registration and compliance to avoid penalties or enforcement action.

C. Notification No. 21/2026 – Customs (N.T.) – Revision of Duty Drawback Rates –Dated 16-02-2026 (Effective 16-02-2026)

Revision in Duty Drawback Rates for Certain Export Goods

The Government has issued Notification No. 21/2026 – Customs (N.T.) amending Notification No. 77/2023 – Customs (N.T.) to revise the All-Industry Rates (AIR) of Duty Drawback for certain export goods including jewellery articles.

• Revised drawback rates aim to align with the actual incidence of duties on exported goods.
• Exporters dealing in gold and silver jewellery articles may benefit from updated rates.
• Businesses should review the revised drawback schedule for applicable products
• The change may help improve export competitiveness and cost recovery for exporters.

D. Advisory No. 04/2026 – HSNS Cess – Procedure for Filing HSNS Cess Declaration – Dated 09-02-2026

Procedure for Filing HSNS Cess Declarations

CBIC issued Advisory No. 04/2026 – HSNS Cess prescribing the procedure for filing HSNS Cess declarations through the CBIC portal.

• Taxpayers dealing with notified tobacco products must submit declarations electronically.
• The portal enables digital filing and tracking of HSNS Cess liabilities.
• Businesses must ensure timely submission of declarations to remain compliant.

E. GSTN Advisory – Flexible ITC Utilisation for IGST Liability – Dated 19-02-2026

Flexible Utilisation of Input Tax Credit

GSTN introduced a system enhancement allowing taxpayers to utilize CGST and SGST input tax credit in any order for payment of IGST liability, after exhausting available IGST credit.

• The change improves efficient utilisation of available ITC balances.
• It may reduce the need for cash payment of GST liabilities.
• Businesses should review ITC utilisation logic in accounting or ERP systems.

A.REORGANIZATION OF REGIONAL DIRECTORS (RD) OFFICE

MCA issued Notification S.O. 699(E) dated 10 February 2026 revising the list of Regional Directors exercising powers under the Companies Act.

The updated RD offices are located at Ahmedabad, Bangalore, Chandigarh, Chennai, Guwahati, Hyderabad, Kolkata, Mumbai, Navi Mumbai, New Delhi

Effective Date: 16 February 2026.

B. ROC ADJUDICATION STRUCTURE ADVISED (SECTION 454)

The Ministry of Corporate Affairs (MCA), vide Notification S.O. 698(E) dated 10 February 2026, has revised the adjudication framework under Section 454 of the Companies Act, 2013. Pursuant to this notification, the Registrars of Companies (RoCs) have been designated as Adjudicating Officers with a revised territorial jurisdiction mapping across India. The notification clarifies the jurisdiction of RoCs state-wise and district-wise, with the objective of removing ambiguities and facilitating faster adjudication of penalties under the Act. These changes have come into effect from 16 February 2026.

C. ONE-TIME COMPLIANCE FACILITATION SCHEME (PROPOSED)

The Ministry of Corporate Affairs (MCA) has proposed a One-Time Compliance Facilitation Scheme to enable companies to regularize their pending statutory filings, including financial statements and annual returns. Under the proposed scheme, companies may be allowed to file overdue documents by paying approximately 10% of the applicable additional fees, thereby providing significant relief from the otherwise higher penalties. The scheme is expected to be available for a limited window from 15 April 2026 to 15 July 2026. The objective of the initiative is to encourage defaulting companies to complete pending compliances and bring them back into the regulatory framework while reducing the burden of heavy additional fees.

A. FEMA (EXPORT AND IMPORT OF GOODS AND SERVICES) REGULATIONS, 2026

The RBI has issued Notification No. FEMA 23(R)/2026-RB dated 13 January 2026, introducing the Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2026, which will replace the earlier Export of Goods and Services Regulations, 2015. These regulations consolidate rules governing exports and imports of goods, services, and software under a single framework to improve compliance and monitoring of foreign exchange transactions. Key provisions include requirements for filing Export Declaration Forms (EDF) and revised procedures for receipt and payment related to export-import transactions. The regulations are scheduled to come into force from 1 October 2026.

A. AMENDMENT TO VOLUNTARY LIQUIDATION PROCESS REGULATIONS, 2026

IBBI notified the Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) (Amendment) Regulations, 2026 on 25 February 2026. The amendment introduces an explanation in Regulation 3 requiring that registered valuers prepare valuation reports and maintain supporting documentation in a format specified by the Board through circulars. The objective of this amendment is to standardize valuation reporting, improve reliability of valuation exercises, and strengthen regulatory oversight in voluntary liquidation proceedings.

 Disclaimer Information in this note is intended to provide only a general update of the subjects covered. It is not intended to be a substitute for detailed research or the exercise of professional judgment. KNM accepts no responsibility for loss arising from any action taken or not taken by anyone using this publication. Updates for the period 28.02.2026