[Opinion] Draft Income Tax Rules, 2026 | Impact on Salary and Take-Home Pay

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

1. Motor Car Perquisite (Company Vehicle)
2. Interest-Free or Concessional Loans to Employees
3. Meal and Refreshment Benefits
4. Gifts and Festival Vouchers
5. Children Education and Hostel Allowances
6. House Rent Allowance (HRA) and Expansion of Metro Cities
7. Transport Allowance for Employees in Transport Systems
8. 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.

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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