Ask most salaried professionals — resident or NRI on an India payroll — what happens to the company flat, the company car, the school-fee reimbursement and the Diwali voucher, and you will hear a version of the same claim: "Those are perks. The company pays for them. They don't show up in my income." A second version is more sophisticated and equally wrong: "They're taxed, but on what the company spent, so if the company got a cheap deal I pay less." Neither is how the law works. Perquisites are taxed on a statutory valuation that has nothing to do with your gratitude and often nothing to do with the employer's actual cost — and as of 1 April 2026, every one of those valuation numbers has changed.

What the law actually says

Perquisites sit in the salary head. Under the old law that was Section 17(2) of the Income-tax Act, 1961, with valuation mechanics in Rule 3 of the Income-tax Rules, 1962. Under the new law it is Section 17 of the Income-tax Act, 2025 (ITA 2025), read with Schedule III, which lists what counts as a perquisite, and the corresponding valuation rules now sit in the Income-tax Rules, 2026, notified by CBDT on 20 March 2026 (G.S.R. 198(E)) and in force from 1 April 2026. The Rules 2026 replaced the Income-tax Rules, 1962 wholesale.

Three points of law that people skip:

One — the charge is on value, not on cost. The statute fixes a formula. If the formula says the taxable value of your rent-free flat is 10% of salary, that is the number, whether the employer owns the flat outright, rents it for less, or rents it for triple. Only in a small set of cases (leased accommodation, for instance) does actual rent enter the calculation, and even then it is capped by the statutory percentage.

Two — "reimbursement" is not a magic word. An employer discharging an obligation that is legally yours — your club bill, your child's school fee, your personal loan interest — is a perquisite in your hands. Routing it as a reimbursement rather than as salary changes the accounting entry, not the tax.

Three — perquisites are taxed under both regimes. The default regime under ITA 2025 removes most Chapter VI-A style deductions, but perquisite valuation is not a deduction — it is an inclusion. Switching regimes does not make a company car disappear from your taxable salary.

The terminology also moved. ITA 2025 uses Tax Year in place of "Previous Year" and "Assessment Year". Your perquisites for the twelve months ending 31 March 2027 belong to Tax Year 2026-27, and the salary certificate reporting them is Form 16, drawing on the TDS statement your employer files.

What actually changed on 1 April 2026

This is the part worth reading twice, because the Rules 2026 moved thresholds that had been frozen for over a decade.

Rent-free accommodation. The population-based slabs remain, but with a redrawn top tier. Employees in cities with population above 40 lakh are valued at 10% of salary; the intermediate band at 7.5%; smaller places at 5%. The number the perquisite is computed on is "salary" as defined for this purpose — basic plus dearness allowance where it enters retirement benefits, plus bonus, commission and taxable allowances, but excluding the value of perquisites themselves. Getting that base wrong is the single most common Form 16 error I see.

Motor car. Valuation continues to turn on engine capacity, not on the car's price. Engines up to 1.6 litres — and electric vehicles — are valued at Rs.5,000 per month; above 1.6 litres at Rs.7,000 per month. Where the employer also provides a driver, add Rs.3,000 per month. So a Rs.90 lakh large-engine car with a driver adds Rs.1,20,000 a year to taxable salary. At a 30% marginal rate that is Rs.36,000 of tax on a car you do not own. Conversely, an expensive electric car falls in the lower slab — a genuine planning point, not a loophole.

Children's education. The per-child threshold rose from Rs.1,000 to Rs.3,000 per month. Employer-provided or employer-funded education up to that value per child is outside the charge; the excess is taxable in full, not just the excess over the old limit.

Free food and beverages. The exemption per meal moved from Rs.50 to Rs.200. A meal card loaded at Rs.200 a working day is now genuinely tax-free; the same card at Rs.400 a day carries a taxable perquisite of Rs.200 a day.

Gifts and vouchers. The annual tax-free ceiling is Rs.15,000. This is a cliff, not a slab — cross it and the whole amount becomes taxable, not merely the excess. A Rs.16,000 anniversary voucher is a Rs.16,000 perquisite.

Interest-free and concessional loans. The old Rs.20,000 de-minimis has been raised to Rs.2,00,000. Below that aggregate, no perquisite arises. Separately, loans granted for the medical treatment of specified diseases carry no perquisite value at all, regardless of amount. Above the threshold, the taxable value is the difference between SBI's benchmark lending rate as at the first day of the tax year and the rate you actually pay.

ESOPs. The perquisite arises at exercise, not at grant and not at sale, and equals fair market value on the exercise date minus the price you paid. For unlisted shares, that FMV must come from a merchant-banker valuation. The subsequent sale is a separate capital gains event with the exercise-date FMV as your cost of acquisition. Eligible start-up employees continue to get the deferral of TDS on that perquisite — deferral of the withholding, not forgiveness of the tax.

Practical implications

Take a Bengaluru-based employee on Rs.36,00,000 basic, with a company flat, a 2.0-litre car with driver, two children in a school where the employer pays Rs.4,000 per child per month, a Rs.1,50,000 interest-free loan, and a Rs.15,000 Diwali voucher.

Accommodation: 10% of Rs.36,00,000 = Rs.3,60,000
Car with driver: (Rs.7,000 + Rs.3,000) x 12 = Rs.1,20,000
Education: (Rs.4,000 - Rs.3,000) x 2 children x 12 = Rs.24,000
Loan: Rs.1,50,000 is below the Rs.2,00,000 threshold = nil
Voucher: exactly at the Rs.15,000 ceiling = nil

Total perquisite value: Rs.5,04,000, added to salary and taxed at the marginal rate. At 30% plus cess that is roughly Rs.1,57,000 of tax arising from benefits where no cash ever reached the employee's bank account. If the employer under-deducted through the year, the shortfall lands on the employee as advance tax and interest — not on the employer.

Two situations deserve separate attention.

If you are an NRI on an Indian payroll or on deputation into India. Perquisites attaching to services rendered in India are Indian-source income and are taxable here irrespective of where the salary is credited. A housing perquisite in Mumbai is Indian income even if the employment contract is Singaporean and the money never touches an Indian account. Where a treaty applies, relief comes through the DTAA employment-income article and requires a tax residency certificate plus Form 10F — it is not automatic.

If you left India mid-year. Split-year situations are where employers most often mis-compute. The perquisite is apportioned to the period of Indian service; the employer's twelve-month projection method has to be re-run at the point of departure, and rarely is.

Step-by-step: what to do

Pull your current-year salary structure and list every non-cash benefit separately — accommodation, car, driver, education, meals, vouchers, loans, club, ESOP grants. Do not rely on the CTC sheet; it uses employer cost, which is the wrong number.
Value each item under the Income-tax Rules, 2026, not the 1962 Rules. Payroll systems that have not been reconfigured since March 2026 are still applying Rs.50 meal limits and Rs.1,000 education limits — over-taxing you — or old accommodation slabs — under-taxing you into a March demand.
Verify the "salary" base used for accommodation. Confirm it excludes perquisite value and includes only the components the rule specifies. A wrong base propagates through the whole computation.
Check the Rs.15,000 voucher aggregate across the full year, including gifts from different departments or events. This is the threshold employees breach without noticing.
Reconcile your Form 16 Part B against your own computation before the employer files. Corrections before filing are administrative; corrections after are a revised return.
File Form 12BB with your declarations early in the tax year so the employer's projection is right from month one rather than compressed into a February catch-up deduction.
If an ESOP exercise is coming, model the perquisite before you exercise. The tax falls in the year of exercise even if you cannot sell the shares that year — a liquidity problem that has caught a lot of unlisted-company employees.

FAQ

Does the new regime under ITA 2025 exempt perquisites?
No. Perquisites are an inclusion in salary, not a deduction from it. Both regimes tax them identically. What differs between regimes is the deductions available after your gross salary — including perquisite value — has been computed.

My employer owns the flat and pays no rent. Is my perquisite nil?
No. Employer-owned accommodation is valued at the statutory percentage of salary — 10%, 7.5% or 5% depending on the city's population band. The employer's actual outlay is irrelevant to your taxable value.

I got a Rs.16,000 gift voucher. Is only Rs.1,000 taxable?
The full Rs.16,000 is taxable. The Rs.15,000 annual limit operates as a cliff, not as a basic exemption. Employers who want to stay within it should track the aggregate across all gifts in the tax year.

I'm an NRI paid entirely offshore, but my employer gives me a company flat in India during project visits. Taxable?
Yes, to the extent it relates to services rendered in India. The place of payment does not determine source; the place of performance does. Treaty relief may reduce or eliminate the charge, but you must claim it with a tax residency certificate and Form 10F — it does not apply by default.

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Harun Raaj & Associates — NRI and personal tax advisory.

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