Perquisites taxable in salary: valuation rules from FY 2026-27

Perquisites are taxable when an employer provides a benefit in kind, such as a company car, rent-free accommodation, an interest-free loan or gifts, rather than cash. Each perquisite is valued under the Income-tax Rules, added to the employee's salary, and taxed through monthly TDS under both the old and new regimes. From 01 Apr 2026 the valuation rules come from the Income-tax Rules, 2026 made under the Income-tax Act, 2025, and several values changed, including the flat monthly values for company cars.

This guide explains which perquisites are taxable, how the main ones are valued, what changed from tax year 2026-27, and how payroll should handle them, with a worked example. For the wider TDS process, see our salary TDS guide; for loans specifically, see our salary advance and employee loan policy.

What is a perquisite?

A perquisite is a benefit an employee receives because of employment, other than salary paid in cash. It is part of "salary" for income tax. Three broad groups exist:

• Taxable for everyone: for example rent-free or concessional accommodation, and any obligation of the employee that the employer pays (such as the employee's own utility bills or school fees paid directly).
• Taxable on valuation rules: for example a company car, interest-free loans, gifts and vouchers, club and credit card expenses, use or transfer of movable assets, and ESOP shares.
• Exempt or nil value: for example employer-provided telephone and internet, and certain medical facilities, subject to conditions.

Perquisites are taxable under both regimes. The new regime removes most deductions and exemptions, but it does not exempt perquisites.

What changed from 01 Apr 2026?

The Income-tax Act, 2025 replaced the 1961 Act from 01 Apr 2026, and the Income-tax Rules, 2026 replaced the 1962 Rules. Perquisite valuation moved from Rule 3 of the old Rules to Rule 15 of the new Rules, and the statement of perquisites given to employees, formerly Form 12BA, is now Form 123. Published summaries of the 2026 Rules, notified on 20 Mar 2026, report revised values for company cars, a higher small-loan exemption and revised thresholds for some other perquisites.

Because sections and rules were renumbered and some values were revised, verify the current rule text on the Income Tax Department website before you configure payroll. The figures below are the ones we have recorded from the published Rules; where we are not certain of a revised value, we say so.

How is a company car valued?

The value depends on who owns the car, who pays the running costs, how it is used and the engine size.

Car used wholly for official purposes

No perquisite, provided the employer keeps the records the rules require (such as a log of journeys and their official purpose) and certifies that the use was official.

Car used wholly for private purposes

Valued on the actual cost to the employer: running and maintenance expenses, the chauffeur's salary, and an allowance for wear and tear on the car, less any amount recovered from the employee. Check the current wear-and-tear rate in the 2026 Rules.

Car used partly for official and partly for private purposes

This is the common case, and it is valued at a flat amount a month. The values recorded for the two rule sets are:

Situation (car owned or hired by the employer)	Up to tax year 2025-26 (1962 Rules)	From tax year 2026-27 (2026 Rules)
Employer bears running costs, engine up to 1.6 litres	₹1,800 a month	₹5,000 a month
Employer bears running costs, engine above 1.6 litres	₹2,400 a month	₹7,000 a month
Employee bears running costs for private use, up to 1.6 litres	₹600 a month	₹2,000 a month
Employee bears running costs for private use, above 1.6 litres	₹900 a month	₹3,000 a month
Chauffeur provided, added to the above	₹900 a month	₹3,000 a month

Published summaries of the 2026 Rules place electric cars in the smaller band. Any amount the employee pays the employer for the private use is deducted from the value.

Employee's own car, running costs paid by the employer

If the employee owns the car and the employer reimburses running costs, the treatment depends on use: reimbursement for wholly official use is not a perquisite when supported by records; for mixed use, the reimbursement in excess of a prescribed amount is taxable. The prescribed amounts in the 2026 Rules are reported to have changed; check them before you configure a fuel and vehicle allowance in a flexible benefit plan.

How is rent-free accommodation valued?

Accommodation provided by the employer is valued by method rather than a flat rate:

Type of accommodation	Basis of value
Owned by the employer, unfurnished	A percentage of salary that depends on the population of the city
Leased or rented by the employer	The actual rent paid or the population-based percentage of salary, whichever is lower
Furnished	The above, plus a value for the furniture (a percentage of its cost if owned, or the hire charges if hired)
Hotel accommodation	A percentage of salary or the actual charges, whichever is lower, with an exemption for short stays on transfer
Government accommodation	The licence fee rules for central and state government employees

"Salary" for this purpose has its own definition, which broadly includes Basic, DA where it forms part of retirement benefits, bonus, commission and taxable allowances. The percentages, city population bands and the hotel and transfer exemptions are set in the rules, and the 2026 Rules may have revised them, so verify the current values. Any rent recovered from the employee is deducted from the value.

Interest-free and concessional loans

The interest saved on a loan from the employer is a perquisite. The benchmark is the State Bank of India rate for the same type of loan on the first day of the tax year, applied to the maximum outstanding monthly balance, less interest actually charged. Published summaries of the 2026 Rules report that the small-loan exemption rose from ₹20,000 to ₹2,00,000 in aggregate from 01 Apr 2026, and loans for treatment of specified diseases remain exempt subject to conditions. Our employee loan policy guide has a full worked example.

Gifts, vouchers, meals and other perquisites

Perquisite	Treatment in outline	Check
Gifts and vouchers	Exempt up to a prescribed annual value (₹5,000 under the 1962 Rules); the excess is taxable	The 2026 Rules are reported to have revised the limit
Free meals during office hours	Exempt within a prescribed value per meal; the excess is taxable	Current per-meal value
Club membership and credit card expenses	Taxable, except for documented official use	Records of official use
Use of movable assets	Under the 1962 Rules, 10% a year of the asset's cost (or the hire charge); computers and laptops nil	Current rates
Transfer of assets to the employee	Under the 1962 Rules, cost less depreciation for each completed year of use (higher rates for computers and cars), less the price paid	Current rates
Telephone and internet	Nil value	None in practice
ESOP and sweat equity shares	Fair market value on exercise less the price paid	See our ESOP taxation guide
Domestic staff (sweeper, gardener, watchman, personal attendant)	Actual cost to the employer, less any recovery	Who engages the staff
Education for employee's children	Taxable above an exempt amount per child in an employer-run school	Current exempt amount

Worked example: car and loan perquisites in tax year 2026-27

Rohan is a sales head with monthly salary of ₹2,50,000 under the new regime. From April 2026 the company gives him:

• A company-owned 2.0-litre car, used for official and private travel, with the company bearing all running costs and providing a chauffeur.
• An interest-free loan, but the aggregate balance stays at ₹1,80,000 all year.
• A Diwali gift voucher of ₹20,000 in October 2026.

Car perquisite: engine above 1.6 litres, employer bears costs, with chauffeur: ₹7,000 + ₹3,000 = ₹10,000 a month. For 12 months: ₹10,000 × 12 = ₹1,20,000. Under the 1962 Rules the same car would have been valued at (₹2,400 + ₹900) × 12 = ₹39,600, so the taxable value has roughly tripled.

Loan perquisite: the aggregate balance of ₹1,80,000 is within the ₹2,00,000 small-loan exemption reported for the 2026 Rules, so the perquisite is nil, provided the limit is confirmed and he has no other loans from the employer.

Gift voucher: if the exempt limit were still ₹5,000, the taxable part would be ₹20,000 minus ₹5,000 = ₹15,000. Use the limit in force for the year.

Total perquisites for the year: ₹1,20,000 + ₹0 + ₹15,000 = ₹1,35,000.

Effect on TDS: at the 30% slab plus 4% cess, the extra tax is ₹1,35,000 × 31.2% = ₹42,120, about ₹3,510 a month if spread evenly. Payroll should include the car perquisite in the projection from April, not discover it in March. If Rohan pays the company ₹2,000 a month for private use, the car perquisite falls to ₹8,000 a month, or ₹96,000 a year.

Model the effect with our TDS calculator.

How should payroll handle perquisites?

1. Keep a perquisite register. One row per employee per perquisite: category, start and end month, value basis, monthly value and any recovery.
2. Value month by month. Cars and accommodation change mid-year when an employee joins, leaves, changes car or moves house.
3. Include them in the TDS projection from the month they start, under both regimes.
4. Show them on the payslip or tax statement as non-cash income, so employees understand the TDS. Our guide to the payslip format in India covers presentation.
5. Issue the perquisite statement (Form 123, formerly Form 12BA) with the annual TDS certificate (Form 130, formerly Form 16). Check the current threshold above which the separate statement is required.
6. Collect evidence for exemptions: car logs, official-use certificates, medical certificates for loan exemptions.

The employer can also choose to pay the tax on non-monetary perquisites itself. Where it does, that tax paid by the employer is generally not treated as a further perquisite, but the employer cannot claim it as a business deduction. Check the corresponding provision in the 2025 Act before relying on it.

Common mistakes

• Keeping the old ₹1,800 or ₹2,400 car values in payroll after 01 Apr 2026.
• Treating perquisites as exempt under the new regime.
• Adding a car perquisite only in March, causing a large TDS spike.
• Ignoring the chauffeur value.
• Not deducting the employee's recovery from the perquisite value.
• Skipping the official-use records that make a wholly official car non-taxable.

FAQs

Are perquisites taxable under the new tax regime? Yes. Perquisites are part of salary and are taxable under both the old and new regimes.

What is the car perquisite value from 01 Apr 2026? For a car owned or hired by the employer and used partly for private purposes, with the employer bearing running costs, the values recorded from the 2026 Rules are ₹5,000 a month up to 1.6 litres and ₹7,000 above, plus ₹3,000 for a chauffeur. Verify against the current rules.

Is a company laptop or mobile phone a taxable perquisite? Use of computers and laptops has been valued at nil, and employer-provided telephone and internet is nil value. Transfer of a used laptop to the employee can create a perquisite.

Is Form 12BA still issued? Under the Income-tax Act, 2025, the statement of perquisites formerly called Form 12BA is Form 123, issued with Form 130 (formerly Form 16).

Can the employer pay the tax on perquisites? Yes, for non-monetary perquisites. The tax paid by the employer is generally not taxed again as a perquisite, but check the current rule.

How NeevHR helps

NeevHR payroll computes TDS under both regimes, including perquisites, and statutory compliance generates Form 16 and Form 12BA for the completed year, with Form 16 available to employees in self-service. Assets keeps the custody history of laptops and other company assets, and loans holds the loan balances that interest perquisites are calculated on. Book a demo to see a perquisite flow into monthly TDS.

This article provides general information for educational purposes. Statutory rules, thresholds, rates and filing requirements may change; verify with the relevant authority or a qualified professional. Last reviewed: 27 Oct 2026.