CA Avinash Kumar Rao – [2026] 183 taxmann.com 231 (Article)
For more than six decades, salaried taxpayers have operated under the Income-tax Rules, 1962. Many of those provisions were framed when salary structures were simpler, urban costs were lower, and employee benefits were limited in scope.
Over time, while lifestyles and employment models evolved, several limits and valuation norms remained static. The Draft Income-tax Rules, 2026 represent the first serious attempt to realign personal taxation with present-day realities.
From an individual’s perspective, these changes directly affect take-home pay, monthly tax deductions, and long-term financial planning. A clear understanding is therefore essential.
In this article, based on my preliminary reading I have highlighted the most important individual-centric changes in a comparative and practical manner.
Key Topics Covered in This Article
- Motor Car Perquisite (Company Vehicle)
- Interest-Free or Concessional Loans to Employees
- Meal and Refreshment Benefits
- Gifts and Festival Vouchers
- Children Education and Hostel Allowances
- House Rent Allowance (HRA) and Expansion of Metro Cities
- Transport Allowance for Employees in Transport Systems
- Closing Reflections
1. Motor Car Perquisite
Rule Reference
- Old: Rule 3(2), 1962 Rules
- New: Rule 15(3), Draft Rules, 2026
Background
Company-provided vehicles have long been a common component of executive compensation in India, especially in managerial and senior positions. Recognising that such vehicles are often used for both official and personal purposes, the Income-tax Rules have traditionally classified motor car perquisites based on usage pattern, cost bearing, and chauffeur facility. However, these values remained static for decades.
Recognising the mixed nature of such usage—partly official and partly personal—the Income-tax Rules have traditionally classified motor car benefits based on:
- The purpose of use (official, personal, or mixed),
- The person bearing running and maintenance expenses, and
- The availability of a chauffeur.
The Draft Income-tax Rules, 2026 retain the same structural classification but substantially revise the valuation figures to reflect present-day economic realities.
This change has important implications for salary structuring and take-home pay and warrants early review by both employers and employees.
| Sl. No. | Nature of Use & Cost Bearing | Engine Capacity | Old Rules (1962) | Draft Rules (2026) | Practical Impact |
| 1 | Used exclusively for official purposes (with log book & employer certificate) | Any | Nil (Not taxable) | Nil (Not taxable) | No change. Documentation remains critical. |
| 2 | Used exclusively for personal purposes (employer bears all expenses) | Any | Actual cost + depreciation + driver – recovery | Same as old | No change. Full cost remains taxable. |
| 3 | Used partly for official & partly for personal purposes (employer bears fuel & maintenance) | = 1.6L | Rs. 1,800 pm + Rs. 900 (driver) | Rs. 5,000 pm + Rs. 3,000 (driver) | 3x increase. Significant TDS impact. |
| 4 | Used partly for official & partly for personal purposes (employer bears fuel & maintenance) | > 1.6L | Rs. 2,400 pm + Rs. 900 (driver) | Rs. 7,000 pm + Rs. 3,000 (driver) | Steep increase for larger cars. |
| 5 | Used partly for official & partly for personal purposes (employee bears fuel & maintenance) | = 1.6L | Rs. 600 pm + Rs. 900 (driver) | Rs. 2,000 pm + Rs. 3,000 (driver) | More than 3x increase. |
| 6 | Used partly for official & partly for personal purposes (employee bears fuel & maintenance) | > 1.6L | Rs. 900 pm + Rs. 900 (driver) | Rs. 3,000 pm + Rs. 3,000 (driver) | Substantial increase. |
| 7 | Employer reimburses expenses for employee-owned car (mixed use) | Any | Actual reimbursement – standard deduction | Actual reimbursement – revised deduction | Minor tightening. Requires stricter documentation. |
| 8 | Employer reimburses expenses for employee-owned car (official use only) | Any | Nil (with records) | Nil (with records) | No change. Log book essential. |
| 9 | Chauffeur provided (additional perquisite) | Any | Rs. 900 pm | Rs. 3,000 pm | More than 3x increase. |
Professional View
The revised valuation reflects a conscious effort to align taxation with the actual economic benefit derived from employer-provided vehicles. By updating long-stagnant figures, the draft rules enhance transparency and improve equity in salary taxation.
While the increase is significant, it brings greater realism to compensation structures and encourages more efficient benefit planning. With timely review and appropriate restructuring, both employers and employees can adapt smoothly to the new framework.
Overall, this reform strengthens the credibility and consistency of perquisite taxation in the long term.
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