Some of these figures had not moved since the early 2000s. A children's education allowance exempt at Rs 100 a month was a real benefit when it was set and a rounding error by 2026. The Income-tax Rules, 2026 finally repriced the lot, and the direction of travel is not the same for every item.
From 1 April 2026 the taxable value of an employer-provided car rose from Rs 1,800 to Rs 5,000 a month for smaller cars and from Rs 2,400 to Rs 7,000 for larger ones. Meal vouchers, education and hostel allowances moved sharply the other way, in your favour. Four more cities now qualify for the 50% HRA exemption.
These are valuation rules. They do not change your salary or your slab; they change what portion of a non-cash benefit is treated as income in your hands. For anyone with a company car and a driver, the arithmetic got noticeably worse. For anyone with school-age children and a meal card, it got better.
The bottom line
Company car with chauffeur: the monthly taxable value roughly quadrupled once the chauffeur component is included.
Children's education allowance: Rs 100 to Rs 3,000 per child per month. Hostel allowance: Rs 300 to Rs 9,000.
HRA at 50% of basic now reaches Ahmedabad, Bengaluru, Hyderabad and Pune, alongside the four original metros.
The company car, in numbers
This is the change people noticed first, because it is the one that costs money.
Where the employer owns or hires the car and meets the running expenses:
| Car | Old value | New value |
|---|---|---|
| Up to 1.6 litres, or electric | Rs 1,800 / month | Rs 5,000 / month |
| Above 1.6 litres | Rs 2,400 / month | Rs 7,000 / month |
| Chauffeur, added to either | Rs 900 / month | Rs 3,000 / month |
Where the employer provides the car but the employee meets the running expenses:
| Car | Old value | New value |
|---|---|---|
| Up to 1.6 litres, or electric | Rs 600 / month | Rs 2,000 / month |
| Above 1.6 litres | Rs 900 / month | Rs 3,000 / month |
| Chauffeur, added to either | Rs 900 / month | Rs 3,000 / month |
An employee with a large company car and a driver, fully expensed, goes from Rs 3,300 a month of taxable perquisite to Rs 10,000. Over a year that is Rs 1,20,000 added to taxable income instead of Rs 39,600. At a 30% marginal rate the extra tax is roughly Rs 24,000 a year.
Note that electric vehicles sit in the lower bracket alongside cars up to 1.6 litres, whatever their actual power.
The changes that go in your favour
Most of the other revisions raised exemption limits that inflation had made meaningless.
| Benefit | Old limit | New limit |
|---|---|---|
| Children's education allowance | Rs 100 / month per child | Rs 3,000 / month per child |
| Children's hostel allowance | Rs 300 / month per child | Rs 9,000 / month per child |
| Free or subsidised education | Rs 1,000 / month per child | Rs 3,000 / month per child |
| Meal vouchers | Rs 50 per meal | Rs 200 per meal |
| Gifts and vouchers | Rs 5,000 / year | Rs 15,000 / year |
| Transport allowance | Rs 10,000 | Rs 25,000, or 70%, whichever is lower |
| Interest-free loan, specified medical treatment | Rs 20,000 | Rs 2,00,000 |
The meal voucher change is the one most employees will feel monthly. At Rs 50 per meal the exemption covered almost nothing in a metro; at Rs 200 it covers a real lunch.
The education allowance moving from Rs 100 to Rs 3,000 per child per month is a thirtyfold increase, which tells you how long it had been left alone.
HRA: four cities join the 50% list
House rent allowance exemption is the lowest of three figures: the actual HRA received, the rent paid minus 10% of salary, or a percentage of salary that depends on where you live.
That last percentage was 50% for Delhi, Mumbai, Kolkata and Chennai and 40% everywhere else, a list that had not been revisited as other cities grew and their rents with them.
The 2026 Rules add Ahmedabad, Bengaluru, Hyderabad and Pune to the 50% group. An employee renting in Bengaluru can now compute the exemption on 50% of basic salary rather than 40%, which on a Rs 12,00,000 basic is a Rs 1,20,000 difference in the ceiling before the other two limbs are applied.
The declaration you give your employer now also asks you to state your relationship with the landlord. Rent paid to a parent or spouse has always attracted scrutiny where the arrangement was not genuine; the form now asks the question directly rather than leaving it to be discovered.
Worked example
An employee in Bengaluru has basic salary of Rs 12,00,000 a year, pays Rs 30,000 a month in rent, has two children in school, uses a meal card, and drives a company-provided 1.4 litre car with a chauffeur, fully expensed.
Car: Rs 5,000 plus Rs 3,000 for the chauffeur is Rs 8,000 a month, so Rs 96,000 of taxable perquisite for the year. Under the old rules that was Rs 2,700 a month, or Rs 32,400. An extra Rs 63,600 in taxable income.
Education allowance: two children at Rs 3,000 a month each is Rs 72,000 a year exempt, against Rs 2,400 previously.
Meal card: at Rs 200 a meal for around 22 working days, roughly Rs 4,400 a month exempt instead of Rs 1,100.
HRA: the salary-based ceiling rises from Rs 4,80,000 to Rs 6,00,000. Whether that helps depends on the other two limbs, since rent of Rs 3,60,000 minus 10% of salary gives Rs 2,40,000, and the exemption is the lowest of the three.
On these facts the education and meal changes roughly offset the car increase. Change the car to a 2 litre model and the balance tips the other way.
What to do about it
- Ask your payroll team which perquisite values they are applying from April 2026, since some systems were slow to update.
- If you have a company car, work out the annual cost at the new valuation before renewing the arrangement. A cash allowance may now be cheaper for you.
- Claim the education and hostel allowances if you have children and were ignoring a Rs 100 limit as not worth the paperwork. At Rs 3,000 it is.
- Check whether your meal card limit was set at the old Rs 50 and ask for it to be revised.
- If you rent in Ahmedabad, Bengaluru, Hyderabad or Pune, make sure your employer is computing HRA at 50%.
- Keep rent receipts and the landlord's PAN where required, and answer the landlord-relationship question honestly.
Common mistakes
- Assuming the car perquisite is still Rs 1,800. It is the single largest increase in the set.
- Treating an electric car as exempt. It sits in the lower bracket, which is not the same as nil.
- Forgetting the chauffeur component, which more than tripled on its own.
- Leaving education and hostel allowances unclaimed out of habit from when they were negligible.
- Assuming your city is on the 50% HRA list. Eight cities qualify now, not all large ones.
- Overstating rent paid to a relative, when the declaration now asks about the relationship directly.
- Expecting these to apply under the new tax regime, when several exemptions of this kind are tied to the old regime. Check which regime you are in before planning around them.
Frequently asked questions
When did the new perquisite values take effect? 1 April 2026, with the Income-tax Rules, 2026.
How much is a company car taxed at now? Rs 5,000 a month up to 1.6 litres or electric, Rs 7,000 above that, plus Rs 3,000 if a chauffeur is provided, where the employer meets running costs.
Are electric cars treated better? They fall in the lower bracket with cars up to 1.6 litres, rather than being exempt.
Which cities get 50% HRA now? Delhi, Mumbai, Kolkata and Chennai, joined by Ahmedabad, Bengaluru, Hyderabad and Pune.
What is the meal voucher exemption? Rs 200 per meal, up from Rs 50.
How much children's education allowance is exempt? Rs 3,000 per month per child, up from Rs 100, with hostel allowance at Rs 9,000 up from Rs 300.
Do these apply if I am on the new tax regime? Several of these exemptions are associated with the old regime. Confirm which regime you have opted for before relying on them.
Why does my form ask about my landlord? The declaration now requires you to state your relationship with the landlord, which makes rent paid to a family member a disclosed fact rather than an assumed one.