Draft Income Tax Rules 2026 Propose Major Changes in Car Perks, Gifts, Meals and Employee Benefits

The government has proposed significant changes in the employee perquisite taxation under the draft Income Tax Rules, 2026. The key to these changes is to rationalise the existing monetary limits, align the current costs, and provide more realistic taxation of benefits given by employers to employees.

The government has proposed an amendment in the taxable perquisite value for motor cars partly for official and private purposes (running and maintenance paid/reimbursed by employer). As per the existing Income Tax Rules 1962, small cars were valued at Rs. 1,800 per month (with engine capacity up to 1.6L), or Rs. 2,400 per month (with engine capacity above 1.6L) in the case of large cars, plus Rs. 900 for a chauffeur (driver). Now, according to the new Income Tax Rules 2026 (draft version), the government has increased the taxable perquisite value for motor cars to Rs. 5,000 per month for cars up to 1.6L engine capacity and Rs. 7,000 per month for cars above 1.6L, along with Rs. 3,000 per month if a chauffeur (driver) is provided.

Similarly, an amendment has been proposed to the taxable perquisite value of motor cars partly for official and private purposes (private expenses borne by the employee). As per the existing Income Tax Rules 1962, cars were valued at Rs. 600 per month (with engine capacity up to 1.6 L) or Rs. 900 per month (with engine capacity above 1.6 L), plus Rs. 900 for a chauffeur (driver). Now, an increment has been proposed in these limits. As per the new Income Tax Rules 2026, the new revised taxable perquisite value is Rs. 2,000 per month for cars up to 1.6L engine capacity and Rs. 3,000 per month for cars above 1.6L, along with Rs. 3,000 per month if a chauffeur (driver) is provided.

Another key amendment concerns the tax exemption limit for gifts received from employers. Previously, as per the Income Tax Rules 1962, the said limit was Rs. 5,000 per year, and now this limit has been proposed to be increased to Rs. 15,000 per year. This proposal has been listed under Draft Perquisite Valuation Rules, 2026.

Next, the amendment relates to employer-provided meals. Presently, only Rs. 50 per meal is considered tax-free as per the old Income Tax Rules 1962. Under the new Income Tax Rules 2026, the government has proposed increasing this tax-free limit to Rs. 200 per meal. For employer-provided education facilities, the exemption limit has been proposed to be increased from Rs. 1,000 per month per child to Rs. 3,000 per month per child.

Next, amendments are regarding the tax exemption on employer-provided medical treatment loans. The said limit has been proposed to be increased from Rs. 20,000 to Rs. 200,000 as per the new Income Tax Rules 2026. Overall, the draft rules aim to simplify valuation and reflect modern salary structures and rising living costs.