New Labour Codes and Tax Rules 2026: 6 Business Documents You Need to Update Now

If you run a small business in India, 2026 has quietly rewritten a lot of your paperwork. The four labour codes came into force on 21 November 2025. The Income-tax Act, 2025 replaced the sixty-four-year-old 1961 Act on 1 April 2026, and the Income-tax Rules, 2026 were notified on 20 March 2026. GST rates were restructured a few months before that.

Most of the coverage went to the headline numbers. What got much less attention is the quieter consequence: several documents that businesses have been issuing the same way for twenty years now have to contain different things — and in one case, a format prescribed by law.

Here are six documents worth checking before your next payroll run or audit.

1. Appointment letters are now compulsory, and the format is prescribed

This is the big one, and the one most small employers have not acted on. Section 6(1)(f) of the Occupational Safety, Health and Working Conditions Code, 2020 requires every employer to issue a letter of appointment to every employee. Not just permanent staff. Not just factories.

Rule 6 of the OSH (Central) Rules, 2026 goes further and prescribes what the letter must contain — sixteen particulars, in this order:

1. Name of employee

2. Date of birth

3. Father's / mother's name

4. Aadhaar number (after obtaining consent)

5. Labour Identification Number (LIN) of the establishment

6. Universal Account Number and / or insurance number, if available

7. Designation

8. Type of employment: regular, fixed-term or contractual

9. Category of skill

10. Date of joining

11. Wages: basic pay and dearness allowance

12. Other allowances, including accommodation

13. Applicability of social security benefits

14. Broad nature of duties

15. Maternity benefit for women employees

16. Any other information

Two of those are new to almost every template in circulation: type of employment and category of skill. Aadhaar is on the list, but the rule says "after obtaining consent" — if an employee would rather not share it, leave it blank and move on.

One caveat worth knowing: the Central Rules apply directly where the Central Government is the appropriate government — railways, mines, major ports, banks, central PSUs. For most private businesses it is the state that prescribes the form, and states are adopting the same particulars. Check what your state has notified, but build the letter around these sixteen and you will be close.

If you need one: this appointment letter format as per the new labour codes prints all sixteen rows in the prescribed order, in English or Hindi, with an acceptance block for the employee to sign.

2. Salary slips: what changed is the definition of "wages"

Issuing wage slips is an obligation under the Code on Wages. The subtler change is the single definition of wages the codes now use for provident fund, gratuity, bonus and overtime alike.

Basic pay, dearness allowance and retaining allowance always count as wages. If the items the definition leaves out — house rent allowance, conveyance, and similar — add up to more than half of total pay, the excess is added back to wages. Salary structures built to keep basic pay low and allowances high therefore cost more in PF and gratuity than they used to.

Nothing forces you to restructure. But your slips should show basic pay and DA separately so the split is visible to you and to an inspector. A free salary slip format that separates earnings and deductions and prints the net pay in words takes about a minute per employee.

3. HRA: four more cities moved to the 50% limit

This is the change most salaried people have not heard about, and it is worth real money.

House rent allowance is exempt to the extent of the least of three amounts: the HRA actually received; rent paid minus 10% of salary; and a percentage of salary that depends on the city. That percentage used to be 50% in exactly four cities — Mumbai, Delhi, Kolkata and Chennai — and 40% everywhere else.

From FY 2026-27, rule 279 of the Income-tax Rules, 2026 lists eight cities at 50%: the original four plus Bengaluru, Hyderabad, Pune and Ahmedabad. HRA itself moved from section 10(13A) of the old Act to Schedule III, Table S. No. 11 of the Income-tax Act, 2025.

What that means in practice, for someone in Bengaluru with basic pay of ₹6,00,000, HRA of ₹3,00,000 and rent of ₹4,00,000 a year:

 

Same salary, same rent, same flat — ₹60,000 more exempt, because the city changed lists. If you live in one of the four new cities, it is worth recalculating. This HRA exemption calculator asks which financial year you mean and applies the right city list, which most calculators still do not.

Two practical notes. HRA exemption exists only in the old regime — under the new one the whole allowance is taxable. And above ₹1,00,000 of HRA a year you must give your landlord's name, address and PAN, and now also declare your relationship with them. Keep proper rent receipts and pay by bank transfer or UPI so there is a trail.

4. Old regime or new: the question has changed shape

Under the Income-tax Act, 2025 the new regime is section 202 (it was 115BAC) and the rebate is section 156 (it was 87A). The Act also drops "assessment year" in favour of "tax year". The rates themselves did not move in the Budget presented in 2026, so FY 2025-26 and FY 2026-27 share the same slabs.

The new regime is the default. A salaried person with no business income can still choose the old one each year — but has to actively choose it. With the rebate, a total income up to ₹12 lakh attracts no tax in the new regime, and with the ₹75,000 standard deduction a salary up to ₹12.75 lakh can come to nil.

That makes the old regime a harder sell, but not a dead one: if you claim HRA, a full 80C, health insurance, NPS and home loan interest, it can still win. The honest answer depends on your own numbers rather than any rule of thumb, so it is worth putting them into an old vs new tax regime calculator that shows both columns and the deduction level at which the old regime would catch up.

One trap to know about: just above ₹12 lakh, marginal relief caps your tax at the amount by which you crossed the line. On ₹12,10,000 the slab tax would be ₹61,500, but relief holds it to ₹10,000 plus cess. Without that rule a ₹10,000 raise would have cost more than it paid.

5. GST invoices: check your rate column

From 22 September 2025 the GST structure was simplified. The 12% and 28% slabs were removed: most 12% items moved to 5% and most 28% items to 18%, leaving 5% and 18% as the main rates, 40% on a short list of luxury and sin goods, and special rates such as 3% on gold continuing as before.

If your billing software, spreadsheet or printed book still offers 12% and 28% as defaults, someone will eventually pick one. It is worth a look at your invoice template and your item master. A GST invoice format with the current rates, automatic CGST/SGST or IGST and the amount in words removes the guesswork, and a GST calculator is handy for working backwards out of an inclusive price.

6. Relieving letters and the two-day settlement rule

When an employee resigns, or is removed, dismissed or retrenched, section 17(2) of the Code on Wages, 2019 requires the wages payable to be paid within two working days. Not the end of the month, not the next payroll cycle.

That single line has caught out a lot of employers whose full-and-final settlement takes forty-five days. It also changes what your relieving letter should say: if the settlement genuinely is not complete, the letter should say it will be processed separately rather than claim that no dues remain. A relieving letter format that records the resignation date, the last working day, the settlement position and the handover keeps that clean.

What to do this week

• Issue appointment letters to anyone on your rolls who never got one, using their original joining date.

• Add "type of employment" and "category of skill" to your template.

• Check that your salary slips show basic pay and DA separately.

• If you or your staff rent in Bengaluru, Hyderabad, Pune or Ahmedabad, recalculate the HRA exemption.

• Remove 12% and 28% from your invoice defaults.

• Make sure someone owns the two-working-day settlement deadline.

A disclosure: the document tools linked above are from FormatWala, a free project we built. Everything runs inside your browser — nothing you type is uploaded — and the formats download as PDF, and as Excel and Word files where that makes sense. It is free to use, in English and Hindi.

This article is general information, not legal or tax advice. Rules differ between states and situations; for anything significant, check with a chartered accountant or a labour law adviser.