| 📅 Updated as on: 08 June 2026 | ⚡ Subject to amendment — verify at incometax.gov.in |
Every salaried employee who receives a company car, rent-free accommodation, ESOP grants, interest-free loans, or free meals from their employer deals with perquisite taxation. Under the Income Tax Act, 1961, perquisites were defined and valued under Section 17(2) and Rule 3 of the Income Tax Rules, 1962.
From 1 April 2026, the governing provisions have changed. Section 17(1) of the Income Tax Act, 2025 now defines perquisites as part of the salary computation framework, and Rule 15 of the Income Tax Rules, 2026 is the master rule for perquisite valuation — replacing old Rule 3.
Critically, this is not just a renaming exercise. Several perquisite values have changed significantly. The most impactful: company car perquisite values have increased nearly three times. Meal benefit limits have quadrupled. Commuting perquisites are expanded. Every employer running a CTC structure with in-kind benefits must recalculate their TDS liability for Tax Year 2026-27.
Part 1 — What Changed in the Framework
| 📌 OLD vs NEW — PERQUISITE FRAMEWORK OLD — Income Tax Act, 1961: Definition: Section 17(2) of the Income Tax Act, 1961 Valuation rules: Rule 3 of the Income Tax Rules, 1962 Tax year concept: Previous Year / Assessment Year TDS certificate: Form 16 (Part B — salary computation) NEW — Income Tax Act, 2025: Definition: Section 17(1) of the Income Tax Act, 2025 Valuation rules: Rule 15 of the Income Tax Rules, 2026 (master perquisite rule) Tax year concept: Tax Year 2026-27 TDS certificate: Form 130 Part C — Annexure I (salary computation) RULE 15 consolidates all perquisite valuation into one master rule: Rule 15(1): Accommodation valuation Rule 15(2): Car/motor vehicle valuation Rule 15(3): Meals and refreshments Rule 15(4): Education benefits Rule 15(5): Domestic servants Rule 15(6): Interest-free/concessional loans Rule 15(7): ESOP and stock options Rule 15(8): General definitions including salary for perquisite purposes |
Part 2 — Complete Perquisite Valuation Table: Old vs New
| Perquisite | Old Valuation | New Valuation (Rule 15) | Changed? |
| Rent-free accommodation — Govt employee | License fee as per GoI rules | Same — unchanged | Same |
| Rent-free accommodation — Non-Govt (<10L pop city) | 7.5% of salary | 7.5% of salary | Same |
| Rent-free accommodation — Non-Govt (10L-25L pop) | 10% of salary | 10% of salary | Same |
| Rent-free accommodation — Non-Govt (>25L pop) | 15% of salary | 15% of salary | Same |
| Leased accommodation by employer | 15% of salary or lease rent (lower) | 15% of salary or lease rent (lower) | Same |
| Company car — owned, <=1.6L engine, no driver | Rs.1,800/month | Rs.5,000/month | Changed |
| Company car — owned, >1.6L engine, no driver | Rs.2,400/month | Rs.7,200/month | Changed |
| Company car — owned, with driver | Add Rs.900/month | Add Rs.2,700/month | Changed |
| Car used partly for official, partly personal | Notional value less official use | Same principle, new values | Changed |
| Meals and food vouchers (employer-provided) | Rs.50 per meal (tax-free) | Rs.200 per meal (tax-free) | Changed |
| Meal benefit — regime availability | Old regime only | Both old and new regime | Changed |
| Commuting — employer vehicle to/from work | Only employer vehicle exempt | Vehicle + transport service + reimbursement | Changed |
| Interest-free loan from employer | SBI PLR differential | SBI PLR differential | Same |
| ESOP — at allotment | FMV minus exercise price | FMV minus exercise price | Same |
| ESOP — startup deferral | Available — old Section 192 | Continues — new Rule 15(7) | Same |
| Laptop/mobile for official use | Fully exempt | Fully exempt | Same |
| Gift from employer (>Rs.5,000) | Taxable above Rs.5,000 | Taxable above Rs.5,000 | Same |
| Domestic servant provided by employer | Actual cost to employer | Actual cost to employer | Same |
| Medical treatment outside India | Partly taxable as perquisite | NOT a perquisite — exempt | Changed |
| Educational benefit for children | Rs.1,000/month per child (exempt) | Rs.1,000/month per child | Same |
Part 3 — Key Changes Explained
Change 1: Company Car Values Nearly 3x Higher
| 🆕 Car perquisite values revised upward — Rule 15(2), IT Rules 2026 — effective 1 April 2026 |
This is the single largest operational change for employers who provide company cars as part of their CTC structure. Under old Rule 3 of the IT Rules 1962, the notional perquisite value for a company car was Rs.1,800/month (engine ≤1.6 litres) and Rs.2,400/month (engine >1.6 litres) with an additional Rs.900/month for a driver. These values had not been revised since 2009.
Under Rule 15(2) of the IT Rules 2026, effective 1 April 2026, the revised values are:
- Car owned by employer, engine ≤1.6 litres, no driver: Rs.5,000 per month (was Rs.1,800)
- Car owned by employer, engine >1.6 litres, no driver: Rs.7,200 per month (was Rs.2,400)
- Driver provided in addition to car: Rs.2,700 per month additional (was Rs.900)
- Car used partly for official use and partly personal: Only the personal use portion is taxable at above rates
The practical impact on CTC car leasing structures is significant. If an employer arranges a car on lease as part of CTC, only the notional perquisite value (not actual lease rent) is taxed in the employee’s hands. The employee benefits if the actual lease rent exceeds the notional value. However, with the 3x increase, many employees with sub-Rs.1.6L engine cars will now see their taxable perquisite increase from Rs.21,600/year to Rs.60,000/year — a Rs.38,400 jump in taxable income.
| ✅ ACTION: Employers: Recalculate TDS on salary for all employees with company cars from April 2026. Use new Rule 15(2) values. Update Form 130 Part C computation accordingly. Employees: Factor the higher car perquisite into your tax planning for Tax Year 2026-27. |
Change 2: Meal Benefit Limit Raised 4x — Now Available in New Regime
| 🆕 Meal perquisite limit: Rs.50 -> Rs.200 per meal | Available in both regimes — effective 1 April 2026 |
The tax-free limit for employer-provided meals and food vouchers (sodexo/food cards) was Rs.50 per meal under old Rule 3. This limit had not been revised since 2009. From 1 April 2026, Rule 15(3) of the IT Rules 2026 raises the limit to Rs.200 per meal.
This means:
- Food card/voucher of up to Rs.200 per meal — tax-free in the employee’s hands
- Meals provided in office cafeteria up to Rs.200 per meal — tax-free
- Amount above Rs.200 per meal — taxable as perquisite
Importantly, the meal benefit exemption is now also available to employees who have opted for the new tax regime. Under the old Act, this exemption was only available in the old regime. From Tax Year 2026-27, employees in the new regime can also receive tax-free employer meals up to Rs.200 per meal.
At two meals per working day and 250 working days per year: Tax-free meal benefit = Rs.200 x 2 x 250 = Rs.1,00,000 per year. This is a meaningful addition for employees using the new regime who previously had very few exempt perquisites.
| ✅ ACTION: HR and payroll teams: Update food card/voucher structures to Rs.200 per meal limit for maximum tax efficiency. Employees in new regime: You can now benefit from meal perquisites without switching to old regime. |
Change 3: Commuting Perquisite Scope Expanded
| 🆕 Commuting exemption expanded beyond employer vehicle — Rule 15, IT Rules 2026 |
Under the old Act, the commuting perquisite exemption applied only when the employer provided a vehicle (bus, car) to transport employees between their residence and workplace. Employees using Ola/Uber cabs paid by the employer, or reimbursements for travel to work, were not clearly exempt.
Under the Income Tax Act, 2025 and Rule 15, the commuting perquisite exemption now covers three scenarios:
- Employer-provided vehicles (bus, car, van) for commuting — exempt (continues)
- Employer paying directly to transport service providers for employee commute — now explicitly exempt
- Employer reimbursing employees for commuting expenses using private or hired vehicles — now exempt
Note: This exemption applies to actual commuting (residence to workplace and back). Lump-sum travel stipends or fixed travel allowances without specific commuting proof may not qualify.
| ✅ ACTION: Employers offering cab reimbursements or transport allowances: Restructure as direct payment to transport service provider or reimbursement-on-actual-cost basis to qualify for the expanded exemption under Rule 15. |
Change 4: Medical Treatment Travel Outside India — No Longer a Perquisite
Under the old Act, employer expenditure on medical treatment travel outside India for the employee or their family member was partly taxable as a perquisite subject to RBI-approved limits. Budget 2025 and the new Income Tax Act, 2025 clarify that such expenditure is not a perquisite at all — it is excluded from the definition of perquisite under Section 17(1) of the new Act.
This simplifies tax calculations significantly for employers in the healthcare, pharma, and MNC space who send employees abroad for medical treatment. The full employer expenditure on medical travel outside India is now exempt — no partial taxation, no RBI limit compliance required for this specific item.
| ✅ ACTION: Employers who have been treating medical treatment travel outside India as a partly taxable perquisite: Update your computation. From Tax Year 2026-27, this is fully outside the scope of perquisite taxation. |
Change 5: ESOP Taxation — Same Framework, New Rule
ESOP (Employee Stock Option Plan) taxation continues on the same principles under the new Act:
- At allotment: Perquisite value = (Fair Market Value on date of exercise) minus (Exercise price paid by employee). Added to salary income and subject to TDS.
- At sale: Capital gains arise on the difference between sale price and FMV on date of exercise. STCG (if sold within 12/24 months) or LTCG (if held longer).
- Startup employee ESOP deferral: Employees of DPIIT-recognised startups can defer perquisite tax to the earlier of (a) date of sale, (b) 5 years from allotment, or (c) date of leaving employment. This continues under Rule 15(7) of the IT Rules 2026.
Employers must obtain and verify the FMV certificate from a Category I Merchant Banker at the time of allotment. The valuation method and merchant banker certification requirement continue unchanged under the new Act.
| ✅ ACTION: Startups issuing ESOPs: Ensure DPIIT recognition is current to maintain the tax deferral benefit for employees. Update ESOP plan documents to reference Rule 15(7) of IT Rules 2026 from Tax Year 2026-27. |
Part 4 — Specified Employees: Who They Are and Why It Matters
Certain perquisites (for example, concessional interest loans below Rs.20,000, and services performed by domestic servants) are taxable only if the employee is a “specified employee.” A specified employee is:
- A director of the company, OR
- An employee who has a substantial interest (20%+ equity) in the employer company, OR
- An employee whose monetary salary (excluding non-monetary perquisites) exceeds Rs.50,000 per year
In practice, the Rs.50,000 threshold means almost every regular employee in formal employment qualifies as a specified employee and faces full perquisite taxation. The concept continues unchanged under the new Act — same conditions, same thresholds, now referenced from the new Act definitions.
Part 5 — Action Checklist for Employers and HR Teams
With perquisite rules changed from 1 April 2026, the following must be done before or immediately after the start of Tax Year 2026-27:
1. Update payroll software with new Rule 15(2) car perquisite values — Rs.5,000/month (≤1.6L) and Rs.7,200/month (>1.6L) plus Rs.2,700/month for driver. Old values of Rs.1,800/Rs.2,400/Rs.900 are incorrect from 1 April 2026.
2. Update meal card/voucher structures to Rs.200 per meal limit and ensure the benefit is available to both old and new regime employees.
3. Review commuting arrangements — direct payments to transport providers or reimbursements now qualify for exemption. Restructure lump-sum travel allowances accordingly.
4. Remove medical treatment travel outside India from perquisite computation — it is no longer taxable.
5. Update Form 130 Part C Annexure I template to use Rule 15 references instead of old Rule 3. Issue Form 130 (not Form 16) by 15 June 2027.
6. File quarterly salary TDS returns in Form 138 (not Form 24Q) from Q1 Tax Year 2026-27 onwards.
Key Takeaways
- Section 17(1) of IT Act 2025 (was Section 17(2) of old Act) defines perquisites. Rule 15 of IT Rules 2026 governs valuation (was Rule 3, IT Rules 1962).
- Company car perquisite values nearly 3x higher: Rs.5,000/month for ≤1.6L engines (was Rs.1,800), Rs.7,200/month for >1.6L engines (was Rs.2,400).
- Meal benefit limit: Rs.200 per meal (was Rs.50). Now available under both old and new tax regimes.
- Commuting perquisite expanded: Direct payments to transport providers and actual reimbursements now exempt.
- Medical treatment travel outside India: No longer a perquisite — fully exempt from Tax Year 2026-27.
- ESOP taxation: Same framework (perquisite at allotment, capital gains at sale, startup deferral). New rule reference: Rule 15(7), IT Rules 2026.
- TDS certificate: Form 130 Part C (not Form 16). Filed using Form 138 quarterly returns (not Form 24Q).
Frequently Asked Questions
| Q: My employer provides a 1.5L engine car. How much extra tax will I pay from April 2026? A: The monthly perquisite value for your car increases from Rs.1,800 to Rs.5,000 under Rule 15(2) — an increase of Rs.3,200/month. Annually, this is Rs.38,400 extra in taxable income. At a 20% tax rate (new regime), this means approximately Rs.7,680 additional tax per year. At 30%, it is approximately Rs.11,520. The exact amount depends on your income slab and regime. Q: We provide sodexo food cards of Rs.1,500/month (Rs.75/day, 20 days). Is the full amount tax-free from April 2026? A: Under new Rule 15(3), the tax-free limit is Rs.200 per meal. If your employees take 2 meals per working day: Rs.200 x 2 = Rs.400/day. Over 20 working days: Rs.8,000/month tax-free. Your Rs.1,500/month (Rs.75/day for 1 meal) is well within the Rs.200/meal limit — fully tax-free. You can actually increase the benefit significantly without creating a taxable perquisite. Q: Our company pays for employees to use Ola cabs for daily commuting. Was this a perquisite earlier? A: Under the old Act, there was ambiguity. Under the new Act, direct employer payments to transport service providers for commuting are explicitly exempt from perquisite taxation under Rule 15. This covers Ola/Uber corporate accounts, van services, and contracted bus services for commuting. Ensure the arrangement is structured as a direct payment to the transport provider — not as a lump-sum cash allowance to employees. Q: We grant ESOPs to employees. Does anything change in how we compute TDS? A: The computation method is unchanged — perquisite at exercise = (FMV on exercise date minus exercise price), added to salary. TDS is deducted by the employer at this point. The new references are Section 17(1) of IT Act 2025 and Rule 15(7) of IT Rules 2026. For startup DPIIT employees, the deferral benefit continues — TDS deferred to the earlier of sale/5 years/departure. Update your ESOP trust documents and payroll records to reference the new rule. |
| Section 17(1), IT Act 2025 + Rule 15, IT Rules 2026 — effective Tax Year 2026-27 Company car: Rs.5,000/month (<=1.6L) | Rs.7,200/month (>1.6L) | +Rs.2,700 for driver Meal benefit: Rs.200/meal (was Rs.50) | Now available in both old and new regime Commuting: Vehicle + transport service payments + reimbursements — all exempt Medical travel outside India: Not a perquisite — fully exempt ESOP: Same framework — perquisite at allotment, capital gains at sale, startup deferral continues Form 130 Part C (not Form 16) | Form 138 quarterly return (not Form 24Q) |
⚠ DISCLAIMER This article is published for general informational and educational purposes only and does not constitute legal, tax, or professional advice. Perquisite valuation rules under Rule 15 of the Income Tax Rules, 2026 are subject to amendment by CBDT notifications. Values, rates, and thresholds mentioned reflect the law as understood on the date of publication. Perquisite valuation depends on individual facts — salary, city of residence, employer type, and specific benefit structure. Employers and employees are strongly advised to consult a qualified Chartered Accountant for accurate perquisite valuation and TDS computation. For professional support: info@fimaco.in | fimaco.in.