The Draft Income Tax Rules, 2026 released for public consultation by the Central Board of Direct Taxes introduce a consolidated and structured framework for taxation and valuation of salary income and perquisites under the Income-tax Act, 2025.
While the charge of tax on salary flows from the Act, the operational provisions dealing with valuation, conditions, documentation, and reporting are primarily contained in the draft rules. These provisions are proposed to apply from 1 April 2026, that is, from financial year 2026-27, subject to final notification.
Legislative Context and Scope of the Draft Rules
The Income-tax Act, 2025 reorganises substantive provisions relating to salary income. Correspondingly, the Draft Income Tax Rules, 2026 rationalise and consolidate procedural rules that were earlier spread across multiple provisions in the Income-tax Rules, 1962.
For salary taxpayers and employers, the most significant operational provision is Rule 15, which governs valuation of perquisites for inclusion in taxable salary.
Rule 15 as the Central Provision for Perquisite Valuation
Rule 15 of the Draft Income Tax Rules, 2026 serves as the single, comprehensive rule for valuation of perquisites provided by an employer to an employee or to members of the employee’s household by reason of employment. This rule consolidates valuation mechanisms for:
- Residential accommodation.
- Motor car and other conveyance facilities.
- Employer-provided goods, services, and utilities.
- Loans, gifts, vouchers, and other fringe benefits.
The rule relies heavily on structured tables and fixed valuation norms, limiting discretionary interpretation and improving uniformity in payroll application.
Residential Accommodation: Rule 15(2) Read with Table I
Valuation of rent-free or concessional accommodation is governed by Rule 15(2) along with Table I. Key aspects include:
- Government accommodation valued on the basis of licence fee, reduced by rent recovered.
- Accommodation owned by employer valued as a percentage of salary, differentiated by city population as per Census 2011.
- Accommodation taken on lease or rent valued at lower of actual lease rent or a prescribed percentage of salary.
- Hotel accommodation valued with a salary-linked cap.
- Specific provisions for transfer cases involving dual accommodation.
- Inflation-linked cap where the same accommodation continues to be provided beyond one tax year.
- Separate valuation for furnished accommodation through addition of furniture-related value.
These provisions largely continue existing valuation principles but present them in a more coherent and structured form.
Motor Car and Conveyance Benefits: Rule 15(3) and Table II
Rule 15(3) read with Table II prescribes valuation for motor car and conveyance-related perquisites. Valuation depends on:
- Engine capacity.
- Nature of use, official, personal, or mixed.
- Ownership of the vehicle.
- Provision of chauffeur services.
Where a claim is made that the vehicle is used wholly for official purposes, Rule 15(3)(c) mandates maintenance of detailed journey records and employer certification. This reinforces documentation discipline while preserving relief for genuine business use.
Goods, Services, and Utilities: Rule 15(4) and Table III
Employer-provided benefits such as:
- Domestic staff.
- Gas, electricity, and water.
- Educational facilities for children.
- Transport facilities.
are covered under Rule 15(4) read with Table III.
Valuation is generally linked to actual cost incurred by the employer or market value of similar facilities, reduced by any amount recovered from the employee. Threshold-based relief for education facilities continues, offering continuity in salary structuring.
Other Benefits and Amenities: Rule 15(5) and Table IV
Rule 15(5) read with Table IV governs valuation of residual perquisites, including:
- Interest-free or concessional loans.
- Holiday and travel expenses.
- Free food and non-alcoholic beverages.
- Gifts, vouchers, and tokens.
- Credit card expenditure.
- Club membership fees.
Key monetary thresholds retained under the draft rules include:
- Loans up to Rs 2 lakh, subject to conditions.
- Gifts up to Rs 15,000 in aggregate during the tax year.
- Free meals during working hours up to Rs 200 per meal.
Retention of these limits provides continuity and certainty for employers and employees.
Forms and Reporting Implications Under the Draft Framework
Salary and perquisite valuation ultimately feeds into return of income forms prescribed under Appendix III of the Draft Income Tax Rules, 2026. Key compliance implications include:
- Standardised data fields across forms to reduce duplication.
- Smart form design enabling automated validation of salary and perquisite disclosures.
- Greater system-level scrutiny of perquisite valuation consistency.
Employers will need to ensure that payroll systems are aligned with Rule 15 tables and documentation requirements well before the new rules take effect.
Practical Impact for Employers and Salaried Taxpayers
From a practical standpoint, the draft rules signal:
- Reduced scope for subjective valuation.
- Increased reliance on rule-based tables.
- Greater importance of contemporaneous documentation.
- Need for early payroll system reconfiguration.
Compensation structures with significant perquisite components will require careful review to ensure tax efficiency and compliance under the new framework.
Implementation Gaps
The salary and perquisite provisions under the Draft Income Tax Rules, 2026 are more coherent, but certain limitations persist. The near-exclusive dependence on Rule 15 valuation tables enhances consistency but leaves limited room to address non-standard or evolving compensation structures, which could still trigger interpretational disputes. Reliance on Census 2011 data for city classification may no longer mirror present economic realities, particularly for rapidly growing urban centres. Documentation-heavy requirements for claiming official use of assets, especially motor vehicles, strengthen audit trails but also increase ongoing compliance effort for employers. In addition, the retention of long-standing monetary thresholds without inflation adjustment may dilute their practical relevance. The overall framework is directionally sound, but smoother implementation will hinge on updated guidance, realistic system design, and responsive fine-tuning in the final rules.
Conclusion
The salary and perquisite provisions under the Draft Income Tax Rules, 2026 represent consolidation rather than a policy shift. By anchoring valuation almost entirely within Rule 15 and its tables, the CBDT has aimed to improve clarity, uniformity, and system readiness.
The true effectiveness of this framework will depend on how smoothly employers adapt their payroll systems and how clearly the final notified rules and forms are supported through guidance and technology once they come into force from financial year 2026-27.
Sources:
CBDT Note on Draft Income Tax Rules and Forms 2026 inviting Comments
CBDT Draft Income Tax Rules 2026 dated 07/02/2026
CBDT Navigator/ Mapping of Income Tax Rules 2026 vis-a-vis Income Tax Rules 1962
CBDT Draft Forms under Draft Income Tax Rules 2026
CBDT Navigator/ Mapping of Income Tax Forms under 2026 Rules vis-a-vis 1962 Rules
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