Perquisite valuation under the Income-tax Act 2025: what changed

The one number that moved

Perquisite valuation mechanics — how you value free housing, a company car, or other employer-provided benefits — carry forward from the old Income-tax Act, 1961 largely unchanged. §17(2) becomes §17 of the Income-tax Act 2025, and the old Rule 3 becomes the Income-tax Rules 2026. The formulas are the same.

One number did move. The “specified employee” salary threshold — the line that decides whether certain perquisites are taxed at all — rose from ₹50,000 to ₹4,00,000. This is confirmed: CBDT Notification 22/2026, dated 20 March 2026, prescribes the ₹4,00,000 figure under Rule 15 of the Income-tax Rules 2026.

This single change deserves more attention than it usually gets. It quietly removes a large group of employees from certain perquisite-taxation rules they used to fall under.

Why the specified-employee threshold matters

Some perquisites — historically, things like free transport for certain categories of staff — are taxable only for employees classified as “specified employees.” Under the old ₹50,000 threshold, almost every salaried employee with a modest package met the threshold and counted as specified. The threshold had not moved in decades and inflation had made it nearly universal.

At ₹4,00,000, a meaningfully different, higher-paid group within the workforce now falls into the specified-employee category. Employees below that line, for the perquisites where this test applies, are outside the rule.

Illustrative: a company with 500 employees, where 350 earn below ₹4,00,000 a year in gross salary for this test, now has a materially smaller specified-employee population than it had under the ₹50,000 threshold. Every payroll system needs to re-run its own classification, since the effect depends entirely on the actual salary distribution.

What did not change

It is worth being explicit about what stayed the same, because the renumbering can create false confidence that everything shifted.

• Valuation formulas for rent-free or concessional accommodation are unchanged in substance.
• The employer-fund-contribution perquisite cap stays at ₹7,50,000, now under §17(1)(h) — the yearly limit above which employer retirement contributions become taxable pay for the employee — instead of §17(2)(vii)/(viia). The accretion on any excess is taxed under §17(1)(i). This is the rule that matters most for India shadow payroll on International Worker PF — see our Income-tax Act 2025 crosswalk and shadow payroll guide.
• The non-monetary perquisite gross-up shelter — the rule that lets an employer pay tax on housing or car perquisites without that tax itself becoming a further taxable perquisite — continues unchanged as Schedule III, S.No. 10, successor to the old §10(10CC).
• PF interest above ₹2,50,000 in a year remains taxable, now under Schedule II, Sl. 3–4.

The area still open

House rent allowance is in an unusual position. Its mechanics carry forward to Schedule III, S.No. 11, plus the equivalent of the old Rule 2A. But two questions are not settled from the verified base this guide uses:

The new regime is now the default under §202 (successor to §115BAC). Most employees will be placed in it unless they actively opt out, so this second question has real payroll consequence. Do not assume HRA exemption carries through to new-regime employees without confirming this directly.

What payroll teams should do

Re-run the specified-employee classification across the full employee census using the ₹4,00,000 threshold, not the old ₹50,000 figure. Do this before the next perquisite-valuation cycle, not retroactively at year-end.

Check whether any payroll or benefits system has the old threshold hardcoded. A vendor configuration file or an internal formula that still reads ₹50,000 will misclassify employees silently. This kind of error tends to become visible only when an employee questions their Form 16.

For any International Worker or expatriate population, re-check the §17(1)(h) perquisite cap exposure separately from the specified-employee question. The two rules interact but are not the same test. IW populations are the group most likely to exceed the ₹7,50,000 cap, given uncapped provident fund contributions on the full global package.

Finally, flag the HRA open items to your tax advisor before finalising this year’s Form 16 templates. A wrong assumption on new-regime HRA treatment affects every employee on that regime, not just a handful.

General guidance, not legal advice. Confirm the open items — particularly HRA treatment under the new regime — with your tax advisor before relying on this for a live filing.