Rule 3 vs Rule 15: 7 Key Changes in Salary Perquisite Valuation from Tax Year 2026-27

From 1 April 2026, salary perquisites are valued under Rule 15 of the Income-tax Rules, 2026, read with Section 17(1) of the Income-tax Act, 2025. Rule 15 replaces Rule 3 of the Income-tax Rules, 1962. It is more than a renumbering. The concept of taxing employer-provided benefits is the same, but several monetary limits that had not changed in decades have been revised, some sharply. Other parts, such as rent-free accommodation and ESOP valuation, are unchanged.

What is a salary perquisite?

A perquisite is a benefit or amenity an employer gives an employee, or a member of the employee's household, in addition to salary. Examples are rent-free housing, a company car, domestic help, utilities, children's education, interest-free loans, free meals, gifts, club and credit card expenses, and ESOPs. The value of these benefits is added to taxable salary, and the employer deducts TDS on it.

Because most perquisites are not paid in cash, the law prescribes how to value them. Rule 15 sets out that valuation in five parts, mostly as tables: accommodation (Table I), motor car (Table II), services and utilities (Table III), other benefits (Table IV), and ESOPs and other specified securities.

Which rule applies to which year

1. Residential accommodation (Rule 15(2))

The accommodation rules are unchanged in substance. For a non-government employer that owns the accommodation, the perquisite is a percentage of salary for the period of occupation, minus any rent the employee pays:

• Leased by the employer: actual lease rent or 10% of salary, whichever is lower.
• Government accommodation: the licence fee fixed by the government, less rent paid.
• Hotel: actual charges or 24% of salary, whichever is lower. Stays of up to 15 days on transfer are excluded.
• Furnished accommodation: add 10% a year of the cost of furniture and appliances, or the actual hire charges if the furniture is hired.
• Same house for more than one year: the value for later years cannot exceed the first-year value indexed by the Cost Inflation Index. The first year is tax year 2023-24 or the year the house was first provided, whichever is later.
• Transfer: if an employee keeps accommodation at both places, only the lower of the two is taxed for the first 90 days.

"Salary" for this purpose means basic, taxable allowances, bonus and commission. It excludes DA (unless it counts for retirement benefits), employer PF contribution, exempt allowances, perquisites and lump-sum terminal payments (Rule 15(8)(k)).

2. Motor car (Rule 15(3)), where the biggest change is

Two new points in Rule 15:

• Electric vehicles are explicitly valued at the lower (up to 1.6 litre) rate, whatever their size.
• The ₹5,000 / ₹7,000 deduction for an employee's own car also works in the employee's favour. A larger part of a car reimbursement can now be treated as official use without a logbook.

To claim a higher official-use share, or nil value, the employer must keep a record of each official journey (date, destination, mileage and cost) and certify that the expense was for official duties.

Worked example: An employee uses a company-owned 1.5-litre car with a driver for both office and personal travel. The company pays all running costs.

The employee's taxable salary rises by ₹63,600. That is not the extra tax. The extra tax depends on the employee's slab and regime. For someone in the 30% slab, with 4% cess and no surcharge, it is about ₹19,843 a year. Employers must spread the extra TDS across the remaining months of the year.

3. Services and utilities (Rule 15(4))

These are unchanged except for the education threshold.

• Sweeper, gardener, watchman or personal attendant: the salary paid for the service, less any amount the employee pays.
• Gas, electricity and water: the amount paid to the supplier, or the manufacturing cost per unit if supplied from the employer's own resources.
• Education for household members: the employer's actual cost. In an employer-owned or other institution, the perquisite is the cost of similar education nearby, but only where it exceeds ₹3,000 per child per month (₹1,000 under Rule 3).
• Free travel by a passenger or goods carrier (other than airlines and railways): the price charged to the public, less amount recovered.

4. Other fringe benefits (Rule 15(5), Table IV)

5. ESOPs and sweat equity (Rule 15(6) and (7))

The method is unchanged. The perquisite is the fair market value (FMV) on the date of exercise, minus the amount paid by the employee.

• Listed shares: the average of the opening and closing price on the exercise date. If listed on more than one exchange, use the exchange with the highest trading volume. If there was no trading that day, use the closing price on the closest earlier date.
• Unlisted shares and other specified securities: the value set by a SEBI-registered Category I merchant banker on the specified date. That is the exercise date, or any date up to 180 days before it.

What employers and payroll teams should do now

1. Update payroll masters for car, chauffeur, gift, meal and loan limits from April 2026 salary. If April to September 2026 was processed at the old values, correct the TDS in the remaining months of tax year 2026-27.

2. Recheck car-lease (CTC car) structures. The perquisite for mixed-use cars has nearly tripled, which cuts the tax benefit of these schemes.

3. Raise meal-card and gift policies to ₹200 per meal and ₹15,000 a year if you want employees to get the full exemption.

4. Review staff loans. Loans up to ₹2,00,000 in aggregate no longer create a perquisite.

5. Keep logbooks and certificates for official-use cars, credit cards and clubs. Without them, the default values apply.

6. Report correctly in Form 130 (formerly Form 16) and in the quarterly salary TDS return, Form 138 (formerly 24Q).

Old regime or new regime?

Rule 15 values perquisites under both tax regimes. The perquisite value is part of salary either way. The regime affects separate exemptions and deductions, such as allowances and HRA.

Meal vouchers are the one area to watch. Under the 1961 framework, the meal exemption under Rule 3 was not available to employees who opted for the new regime under Section 115BAC. Rule 15 does not repeat that restriction. Some commentators read this as making the ₹200 exemption available under both regimes. Until CBDT clarifies, check it against the regime provisions of the Income-tax Act, 2025 before applying it in payroll.

What employees should check

• The perquisite break-up in your Form 130 (formerly Form 16) and your payslips from April 2026
• That your company car is valued at the new ₹5,000 / ₹7,000 rate (and ₹3,000 for a driver), not the old rate
• That meal cards above ₹50 per meal, and gifts above ₹5,000 a year, are no longer taxed, as long as they stay within the new limits
• Any staff loan: no perquisite should be added if your total loans are ₹2,00,000 or less
• Rent-free accommodation: still 10%, 7.5% or 5% of salary, with rent you pay deducted

How Figment helps

TaxCPC prepares and validates salary TDS returns in Form 138, generates Form 130 certificates in bulk, and maps old 24Q and Form 16 data to the new forms. Perquisite values worked out under Rule 15 then flow into the TDS return without retyping. To find the new section number for any old section, use our free Income-tax section mapper. To see how a company car or other perquisite changes take-home pay, try the salary calculator.