How the 2026 Salary Perquisite Rules Change Your Form 16

What changed in perquisite valuation under Income Tax Rules 2026? The Income-tax Rules 2026 apply from 1 April 2026 (tax year 2026-27). They raised the tax-free limit for employer-provided meals from Rs 50 to Rs 200 per meal and revised the company car perquisite values upward, while rent-free accommodation continues to be valued at 10%, 7.5% or 5% of salary depending on city population (rates in force since 1 September 2023). Your Form 16 for FY 2025-26 still uses the Income-tax Rules 1962. Form 12BAA, used to report TDS and TCS on other income to your employer, has existed since FY 2024-25.

The Income Tax Rules 2026 brought changes to how employers value and report some perquisites. For salaried employees receiving accommodation, company cars, meals or ESOPs, the rules affect both the TDS your employer deducts and the figures in Form 16. Knowing which rules apply to your current Form 16 versus next year's prevents errors in your ITR.

What Are Salary Perquisites Under Income Tax?

Perquisites are benefits provided by an employer to an employee that are taxable as salary under Section 17(2) of the Income Tax Act, 1961 (Section 17 of the Income-tax Act, 2025 from tax year 2026-27). For FY 2025-26 they are valued under Rule 3 of the Income-tax Rules, 1962 and itemised in Form 12BA, which accompanies Form 16.

Common perquisites include:

• Rent-free or concessional accommodation provided by the employer
• Company vehicle made available for personal use
• Stock options (ESOPs) on the date of exercise
• Interest-free or concessional loans where all such loans together exceed Rs 20,000
• Club membership fees, free meals above the per-meal limit (Rs 50 up to FY 2025-26, Rs 200 from tax year 2026-27), and gifts or vouchers of Rs 5,000 or more in a year

Perquisites are added to your gross salary before computing income tax. Your employer deducts TDS on the aggregate of monetary salary plus perquisite value. Incorrect perquisite valuation by the employer directly inflates or understates your Form 16 income and your ITR.

Rent-Free Accommodation: Current Valuation

Since 1 September 2023 (Notification 65/2023), accommodation owned by a private-sector employer is valued as follows, and the Income-tax Rules 2026 did not change these rates:

Where the employer takes the accommodation on lease or rent, the value is the actual rent paid or payable by the employer or 10% of salary, whichever is lower. In both cases, any rent recovered from you is reduced.

Salary for RFA valuation means basic salary, dearness allowance (if it forms part of retirement benefits), bonus, commission and all taxable allowances, but excludes employer contributions to PF and other retirement funds and the value of perquisites.

Example calculation: An employee in Hyderabad (population above 40 lakh in the 2011 census) earns Rs 1,20,000 a month as salary for perquisite purposes and lives in a flat owned by the employer.

• Perquisite value: 10% of Rs 14,40,000 = Rs 1,44,000 a year
• If the employee pays the employer Rs 5,000 a month as rent, the taxable perquisite is Rs 1,44,000 minus Rs 60,000 = Rs 84,000

Form 12BAA: Reporting Other TDS and TCS to Your Employer

Form 12BAA is not new with the 2026 Rules. It was notified in October 2024 after the Finance (No. 2) Act, 2024 widened Section 192(2B), and it has been available since FY 2024-25.

An employee uses Form 12BAA to tell the employer about:

1. TDS deducted on non-salary income, for example bank TDS on FD interest under Section 194A or TDS on dividends under Section 194
2. TCS collected, for example on foreign remittances under the Liberalised Remittance Scheme or on the purchase of a high-value car

Once submitted, the employer can take these credits into account and reduce TDS on salary. If you have significant FD interest or TCS, not submitting Form 12BAA means your employer deducts more TDS on salary than needed and you recover the excess only as a refund after filing. (Other income itself, such as house property income, is declared to the employer separately under Section 192(2B) with the relevant details.)

Company Car Perquisite

For FY 2025-26, where the employer owns or hires the car, meets the running expenses, and the car is used partly for personal purposes, Rule 3(2) of the 1962 Rules values the perquisite at:

The Income-tax Rules 2026 revised these values upward from 1 April 2026 (the rules published in February 2026 proposed Rs 5,000 and Rs 7,000 a month, plus Rs 3,000 for a chauffeur). Confirm the notified figures your payroll team applies from tax year 2026-27. If the car is used only for official purposes and the employer keeps the prescribed records, no perquisite arises.

ESOP and Stock Option Perquisites

The valuation framework for ESOPs was not materially changed:

• Taxable perquisite on exercise = FMV of shares on the date of exercise minus the exercise price paid by the employee
• Taxable as salary income in the year of exercise, with TDS under Section 192
• FMV for shares listed in India = average of the opening and closing price on the date of exercise on the recognised stock exchange
• FMV for unlisted shares (and shares listed only abroad) = value determined by a Category I merchant banker

For employees of eligible start-ups (DPIIT-recognised and certified under Section 80-IAC), tax on the ESOP perquisite is deferred and is payable within 14 days of the earliest of: 48 months from the end of the relevant assessment year, the date the employee sells the shares, or the date the employee leaves the company.

The gain on eventual sale of shares (sale price minus FMV at exercise) is taxed as capital gains, not as salary. The holding period runs from the date of allotment.

How to Read Your Form 16 Perquisite Values

Form 16 Part B contains the breakdown of your taxable salary. Perquisites are reported in Schedule 1 of Part B under "Value of perquisites under section 17(2)." Your employer must also issue Form 12BA, which provides a line-by-line itemisation of each perquisite and its computed value.

Check these items in your Form 16 Part B and Form 12BA:

1. Nature of perquisite: Is accommodation listed? Is the car perquisite included?
2. Salary used for RFA calculation: Cross-check the salary base (basic, DA forming part of retirement benefits, bonus, commission and taxable allowances, excluding perquisites)
3. City classification: Verify whether your city has been correctly placed in the 10%, 7.5% or 5% bracket based on its 2011 census population
4. Car perquisite month count: If you received the car mid-year, the perquisite should be pro-rated for the months it was available

For a detailed walkthrough on reading Form 16 and using it to file your ITR, refer to our Form 16 guide for AY 2026-27.

FY 2025-26 vs FY 2026-27: Which Rules Apply to Your Current Form 16?

This is a common source of confusion as employees receive their Form 16 in June 2026.

• Form 16 for FY 2025-26 (due by 15 June 2026): Perquisites are valued under the Income-tax Rules, 1962: rent-free accommodation at 10%, 7.5% or 5% of salary, company car at Rs 1,800 or Rs 2,400 a month (plus Rs 900 for a chauffeur), meals exempt up to Rs 50 per meal.
• Certificate for tax year 2026-27 (issued in 2027, Form 130 under the new Rules): Perquisites will reflect the Income-tax Rules 2026, including the Rs 200 meal limit and revised car values.

If you receive a corrected or revised Form 16 for FY 2025-26, it should still use the 1962 Rules values. Any employer applying the new rules to the current year's Form 16 is making an error that will create a mismatch with your ITR. Contact your payroll or HR team and raise it with Tax Garden support if the employer is unresponsive.

How to Verify and Report Perquisites in Your ITR

When filing your ITR, perquisite income flows into Schedule Salary under the head "Value of perquisites." The figures come directly from Form 16 Part B.

Steps to verify before filing:

1. Cross-check Form 12BA values against your own calculation using the applicable rules (old for FY 2025-26, new from FY 2026-27)
2. For accommodation, compute: applicable percentage (10%, 7.5% or 5%) x annual salary as defined for RFA, minus rent you paid
3. For company car, multiply monthly value by months of availability
4. For ESOPs exercised during the year, confirm the FMV used by your employer matches exchange records
5. If you find discrepancies, request a revised Form 16 from your employer before the ITR filing deadline

If the employer does not issue a revised Form 16, you must report the correct income as per your own computation, not the erroneous Form 16. Document the basis for your calculation in case of scrutiny. You can explore Tax Garden's ITR filing plans to have our tax experts review your perquisite computations alongside filing.

This article is based on Section 17(2) and Section 192 of the Income-tax Act, 1961, Rule 3 of the Income-tax Rules, 1962 (as amended by Notification 65/2023 for accommodation), the Form 12BAA notification of October 2024, and the Income-tax Rules 2026 for tax year 2026-27. Verify current values against the official Gazette notification before relying on them.

Frequently Asked Questions

What is Form 12BAA and why should I give it to my employer?

Form 12BAA is the statement an employee gives the employer under Section 192(2B) to report TDS and TCS on other income, such as TDS on FD interest or TCS on foreign remittances. It has been available since FY 2024-25. Once submitted, the employer can take these credits into account and reduce TDS on salary, instead of deducting extra tax that you would otherwise recover only as a refund after filing.

How is rent-free accommodation valued in my Form 16 for FY 2025-26?

For accommodation owned by a private employer, the perquisite is 10% of salary in cities with a population above 40 lakh as per the 2011 census, 7.5% in cities between 15 lakh and 40 lakh, and 5% elsewhere. These rates have applied since 1 September 2023. Where the employer leases the accommodation, the value is the actual rent or 10% of salary, whichever is lower, minus any rent you pay.

What should I do if my Form 16 shows a wrong perquisite value?

Ask the employer's payroll team to correct the valuation and issue a revised Form 16, along with a corrected TDS return if the TDS figures also change. If they do not correct it before you file, report the income you believe is correct under the valuation rules and keep your working and supporting documents. A difference between Form 16 and your return can lead to questions, so good records matter.

When are ESOPs taxed as a salary perquisite?

ESOPs are taxed as a perquisite in the year you exercise the option. The taxable value is the fair market value of the shares on the exercise date minus the price you paid, and your employer deducts TDS on it as salary. When you later sell the shares, the difference between the sale price and that fair market value is taxed as a capital gain, with the holding period counted from allotment.

Is an interest-free loan from my employer a taxable perquisite?

Yes, above a limit. Interest-free or concessional loans are taxed on the difference between SBI's lending rate for similar loans and the interest you actually pay. No perquisite arises if all such loans together do not exceed Rs 20,000 during the year, or if the loan is for treating specified diseases, subject to conditions. The employer includes the taxable value in Form 12BA and deducts TDS on it.