Draft Income-tax Rules, 2026: Comprehensive Changes in Tax Treatment of Employee Perquisites

The draft Income-tax Rules, 2026 introduce a major revamp in the manner employee perquisites are valued and taxed. Provisions that were earlier dispersed and sometimes difficult to navigate have now been reorganized into a consolidated, table-driven structure under Rule 15 of the Income-tax Rules, 2026, replacing the existing framework under Rule 3 of the Income-tax Rules, 1962.

This shift is aimed at:

  • Simplifying interpretation and compliance for both employers and employees
  • Updating outdated monetary thresholds for common benefits
  • Providing a clearer, more consistent valuation methodology

Below is an in-depth analysis of the key proposed changes relating to some of the most common perquisites: motor cars, gifts, meal vouchers, education facilities, and medical treatment loans.

Transition from Rule 3 (1962 Rules) to Rule 15 (2026 Rules)

Structural Shift in Perquisite Valuation

Under the current regime, valuation of perquisites is largely governed by Rule 3 of the Income-tax Rules, 1962. The draft Income-tax Rules, 2026 propose to:

  • Move the entire perquisite valuation mechanism into a new Rule 15
  • Present various perquisites through structured tables (such as TABLE III and TABLE IV)
  • Align monetary limits with current cost realities

Note: While the structural format and monetary limits are being revised, the substantive concept that perquisites form part of “salary” income under the Income Tax Act 1961 remains unchanged. The primary impact is on how much and how easily such perquisites are valued and taxed.

Valuation of Motor Car Perquisite

One of the more frequently encountered benefits in employment is the provision of a motor car by the employer. The draft Rule 15 updates the standard perquisite valuation amounts that apply where the car is used for both official and personal purposes.

Car Used Partly for Official and Partly for Personal Use – Employer Bearing Running & Maintenance

Under the draft Rule 15 of the Income-tax Rules, 2026, where:

  • A motor car is provided by the employer
  • The car is used both for official and private purposes
  • Running and maintenance expenses are met or reimbursed by the employer

the perquisite value is to be computed at the following fixed monthly amounts:

  • Rs. 5,000 per month for a car with engine capacity up to 1.6 litres
  • Rs. 7,000 per month for a car with engine capacity exceeding 1.6 litres
  • An additional Rs. 3,000 per month if a chauffeur is also provided by the employer

Under the existing Rule 3 of the Income-tax Rules, 1962, the corresponding monthly valuation was significantly lower:

  • Rs. 1,800 per month for a car with engine capacity up to 1.6 litres
  • Rs. 2,400 per month for a car with engine capacity above 1.6 litres
  • An additional Rs. 900 per month where a chauffeur was provided

Thus, the draft rules substantially enhance the standardised perquisite values, reflecting increased running and ownership costs over the years.

Car Used Partly for Official and Partly for Private Use – Employee Bearing Private Running & Maintenance

In situations where:

  • The car is provided by the employer
  • The assessee uses the car both for official and personal purposes
  • The assessee bears the entire cost of private use, and the employer does not reimburse those private running and maintenance expenses

the draft Rule 15 proposes the following perquisite valuation:

  • Rs. 2,000 per month for a car with engine capacity up to 1.6 litres
  • Rs. 3,000 per month for a car with engine capacity exceeding 1.6 litres
  • An additional Rs. 3,000 per month where a chauffeur is provided by the employer

In contrast, under Rule 3 of the Income-tax Rules, 1962, the present monthly values are:

  • Rs. 600 per month for a car with engine capacity up to 1.6 litres
  • **Rs.