Draft Income Tax Rules, 2026 – Major Changes in Employee Perquisites Valuation

The draft Income-tax Rules, 2026 propose a simplified and more transparent framework for taxing employee perquisites. Provisions that were earlier spread across multiple rules have now been consolidated into a structured, table-based format, intending to make the the valuation rules easier to understand.

The draft rules also update several long-standing monetary limits for common perquisites. The valuation of perquisites, which was earlier governed by Rule 3 of the Income-tax Rules, 1962, is now proposed to be comprehensively covered under Rule 15 of the Income-tax Rules, 2026.

Key changes proposed under the draft rules include the following:

•  Valuation of Motor Car Perquisite – 

• Enhancement of Tax-Exempt Limit for Employer-Provided Gifts – As per Rule 15(5)(a) TABLE IV of the Income Tax Rules, 2026 [corresponding to Rule 3(7)(iv) of the Income Tax Rules, 1962], the annual tax exemption for gifts provided by employers to employees has been increased from Rs. 5,000 to Rs. 15,000, thereby allowing greater flexibility and higher tax-efficient non-cash benefits for employees.
• Proposed Increase in Tax-Exempt Limit for Employer-Provided Meal Vouchers – As per Rule 3(7)(iii) of the Income Tax Rules, 1962, free meals provided by an employer through paid vouchers which are non-transferable and redeemable only at eating joints are exempt from tax, subject to a monetary cap of Rs. 50 per meal. Rule 15(5)(a) TABLE IV of the draft Income-tax Rules, 2026 propose a significant relaxation of this limit. As per the draft, the exemption threshold for such meal vouchers has been enhanced to Rs. 200 per meal, provided all other prescribed conditions continue to be satisfied.
• Enhanced Perquisite Exemption Threshold for Employer-Provided Education Facilities – As per Rule 3(5) of the Income Tax Rules, 1962, free or concessional education provided by an employer to an employee’s children was treated as a taxable perquisite, with an exemption limited to Rs.1,000 per month per child, applicable only where the education was provided in an institution owned or maintained by the employer. However, as per Rule 15(4) TABLE III of the Income Tax rules, 2026, this monetary threshold has been enhanced to Rs. 3,000 per month per child, with amounts exceeding the revised limit continuing to be taxable as perquisites.
• Increase in Perquisite Tax Exemption Threshold for Employer-Provided Medical Treatment Loans – As per Rule 3(7)(i) of the Income Tax Rules, 1962, interest-free or concessional loans granted by an employer for medical treatment were treated as taxable perquisites, except where the aggregate loan amount did not exceed Rs. 20,000 or where the loan was provided for treatment of specified diseases in approved hospitals. As per Rule 15(5)(a) TABLE IV of the Income Tax Rules, 2026, the exemption has been significantly expanded, and employer-provided medical treatment loans up to Rs. 2,00,000 are not treated as taxable perquisites, with only the excess amount, if any, being subject to perquisite taxation.