Implications of Budget 2026 For Individual Salaried Employees

The Income-tax Rules, 2026, which accompany the new Income-tax Act, 2025, introduce significant changes to perquisite valuations, exemption limits, and compliance forms effective April 1, 2026.
 

1.   Revised Motor Car Perquisite Valuation 
The taxable value for cars used for both official and personal purposes has been substantially increased to reflect current economic costs.

A. Employer-Owned/Hired Car (Expenses met by Employer)

B. Employer-Owned/Hired Car (Expenses met by Employee)

C. Employee-Owned Car (Expenses reimbursed by Employer) 

The taxable perquisite is calculated as the Actual Expenditure incurred by the employer, minus the following statutory amounts:

2. Updated Exemption Thresholds & Benefits

Several long-standing limits have been revised upward, offering relief in specific categories. 

• Education Benefit: The threshold for tax-free education (provided in employer-owned/ related institutions) is raised from INR 1,000 to INR 3,000 per month per child.
   
• Loans: Interest-free or concessional loans are tax-exempt up to an aggregate limit of INR 200,000 (previously INR 20,000). Further loans for medical treatment in respect of diseases specified in Rule 18 are totally tax-exempt.
   
• Free Meals: The tax-exempt value of free food/beverages is increased from INR 50 to INR 200 per meal.
   
• Gifts & Vouchers: The annual limit for tax-free gifts/vouchers from employers is increased from INR 5,000 to INR 15,000.
   
• Leave Travel Concession (LTC):
  • Air Travel: Exemption is now based on the fare for the class the employee is entitled to via the shortest route (replacing the "national carrier economy fare" cap).
  • Bus Travel (No Public Transport Areas): Exemption is calculated at a flat rate of INR 30 per km (replacing the "AC 1st Class rail fare" cap).

3. Allowance Enhancements

Note on HRA: Ahmedabad, Bengaluru, Hyderabad, and Pune are now classified as "Metros" for HRA purposes, allowing for a 50% of salary exemption (up from 40%). This is in addition to the already classified Metro cities of Mumbai, Delhi, Chennai, and Kolkata

Important Reminder

These enhanced exemptions (HRA, Education, Hostel) are only available under the Old Tax Regime. If you opt for the New Tax Regime, these allowances are fully taxable.
 

4. Modernised Compliance & Forms

The CBDT has overhauled several forms to streamline reporting and align with the 2025 Act.

1. Form 130: Replaces Form 16 (TDS Certificate for Salaries). It features a three-part structure and a new annexure for senior citizens.
    
2. Form 124: Replaces Form 12BB (Investment Declaration). Mandatory disclosure of the relationship with the landlord is now required for HRA claims.
    
3. Form 141: A consolidated form replacing 26QB, 26QC, 26QD, and 26QE. It supports multiple co-owners/tenants in a single filing and requires detailed instalment tracking for property purchases.
    
4. Form 44: Replaces Form 67 (Foreign Tax Credit). Claims of INR 100,000 or more must now be verified by a Chartered Accountant (COP holder).
    
5. Forms 93 & 95: Replace 49A & 49AA (PAN Application). Non-residents must now provide passport numbers and citizenship status.
    
6. Form 157: A new declaration for Indian residents leaving the country who do not possess a PAN.