Tax-Free Allowances and Perks in 2026-27: The New Limits
The Income-tax Rules, 2026 raised meal vouchers to ₹200 a meal, employer gifts to ₹15,000, children's education allowance to ₹3,000 a month and car perk values. What each regime now allows.
Updated 27 September 2026 · 6 minute read
The Income-tax Rules, 2026 raised most of the limits on tax-free allowances and perks from 1 April 2026, many of them for the first time in decades. Meal vouchers go from ₹50 to ₹200 a meal and now count in the new regime too. Gifts from your employer are tax-free up to ₹15,000 a year. Children's education allowance goes from ₹100 to ₹3,000 a month per child, though only in the old regime. And a company car is now valued much higher as a perk, which raises tax for anyone who has one.
The rules were notified on 20 March 2026 alongside the Income-tax Act, 2025, and apply from tax year 2026-27.
The new limits at a glance
| Benefit | Until 31 March 2026 | From tax year 2026-27 | Regime |
|---|---|---|---|
| Meals at work, or non-transferable meal vouchers | ₹50 a meal | ₹200 a meal | Both |
| Gifts, vouchers and tokens from your employer | ₹5,000 a year | ₹15,000 a year | Both |
| Interest-free or cheap loans from your employer | No perk up to ₹20,000 | No perk up to ₹2 lakh | Both |
| Free education for your child at a school the employer arranges | Not taxed up to ₹1,000 a month | Not taxed up to ₹3,000 a month | Both |
| Children education allowance, up to two children | ₹100 a month per child | ₹3,000 a month per child | Old only |
| Children hostel allowance, up to two children | ₹300 a month per child | ₹9,000 a month per child | Old only |
| Transport allowance in transport jobs, without daily allowance | ₹10,000 a month or 70% | ₹25,000 a month or 70% | Old only |
| HRA at the 50% rate | 4 cities | 8 cities | Old only |
The "both" rows are perks valued under the rules, so the new regime's ban on exemptions does not touch them. The "old only" rows are allowance exemptions, which the new regime does not allow.
Meal vouchers now work in the new regime
Under the old rules, the ₹50 meal exemption carried a specific proviso that denied it to anyone in the new regime. Rule 15(5)(a) of the 2026 rules, which replaces it, has no such proviso. So from tax year 2026-27, meals your employer provides during working hours, or pays for through non-transferable vouchers usable only at eating places, are tax-free up to ₹200 a meal in either regime. A cash food allowance is still fully taxable.
One meal every working day, at 22 days a month, comes to ₹52,800 a year. If your employer swaps that much taxable allowance for vouchers, the saving depends on your slab:
| Your top slab, new regime | Tax saved on ₹52,800 a year, with cess |
|---|---|
| 15% | ₹8,237 |
| 20% | ₹10,982 |
| 30% | ₹16,474 |
If your taxable income is ₹12 lakh or less, you pay no tax anyway and vouchers save nothing. The income tax calculator shows which slab your salary reaches.
Gifts, loans and children's education
- Gifts. Diwali vouchers, gift cards and similar gifts from your employer are tax-free while they total ₹15,000 or less in the tax year. The rule treats the perk as nil only up to that limit, so the usual reading is that a total above ₹15,000 is taxed in full, not just the excess.
- Loans. A loan from your employer carries no perk value if all such loans together stay within ₹2 lakh, or if the loan is for treating one of the specified diseases. Above that, the interest you save is taxed as a perk.
- School fees your employer pays or arranges. Free or cheap education for your child is not taxed while its value is ₹3,000 a month per child or less, up from ₹1,000.
- Education and hostel allowances. These are cash allowances, so they only help in the old regime: up to ₹3,000 a month per child for education and ₹9,000 a month per child for hostel, for at most two children.
A company car now costs more tax
For a car your employer owns or hires, used for both work and personal trips, the monthly amount added to your taxable salary has gone up sharply:
| When the employer pays the running costs | Old value | New value |
|---|---|---|
| Engine up to 1.6 litres, or an electric car | ₹1,800 a month | ₹5,000 a month |
| Engine above 1.6 litres | ₹2,400 a month | ₹7,000 a month |
| Chauffeur, extra | ₹900 a month | ₹3,000 a month |
If you pay the running costs of personal use yourself, the values are ₹2,000 and ₹3,000 a month, up from ₹600 and ₹900, plus the chauffeur amount. Electric cars now sit in the lower band, which settles a question the old rules never answered.
What the new regime still leaves tax-free
The new regime drops most exemptions, but these still apply to salaried people in tax year 2026-27:
- The ₹75,000 standard deduction, with no paperwork. See how the standard deduction works.
- Your employer's NPS contribution, up to 14% of basic plus DA under section 124. See employer NPS in the new regime.
- Meal vouchers at ₹200 a meal, gifts up to ₹15,000 and employer loans up to ₹2 lakh, as above.
- Conveyance for official duty, travel on tour or transfer, and daily allowance on tour.
- Transport allowance for employees with disabilities, which now has a much higher, city-linked limit in place of ₹3,200 a month.
- A laptop or phone your employer provides for work.
- Gratuity and leave encashment when you leave, within their limits. See the gratuity rules and leave encashment exemption.
What stays old-regime only
HRA, LTA, the education and hostel allowances, the transport-worker allowance, section 123 (the old 80C), health insurance under section 126 and home loan interest on a house you live in all need the old regime. The 2026 rules made the old regime more generous in places: HRA's 50% rate now covers Bengaluru, Hyderabad, Pune and Ahmedabad as well as the four metros, and LTA air fares are now capped at the class you are entitled to rather than economy.
Whether that is enough to switch depends on how much you can claim. At a ₹15 lakh salary the old regime only wins with deductions above about ₹5.4 lakh, and the bar rises with salary; the new vs old regime guide has the break-even figures, and the HRA calculator uses the new eight-city list.
Frequently asked questions
Are meal vouchers tax-free in the new tax regime?
Yes, from tax year 2026-27. Meals at work and non-transferable meal vouchers are tax-free up to ₹200 a meal in both regimes, because the 2026 rules dropped the proviso that used to deny the benefit in the new regime.
How much gift from an employer is tax-free?
Up to ₹15,000 in a tax year, counting gifts, vouchers and tokens together. The limit was ₹5,000 until 31 March 2026.
What is the children education allowance limit for 2026-27?
₹3,000 a month per child, and ₹9,000 a month per child for hostel, for up to two children. Both are exempt only in the old regime.
Which allowances are allowed in the new tax regime?
Conveyance and travel allowances for official work, daily allowance on tour and transport allowance for employees with disabilities. Perks valued under the rules, such as meal vouchers, gifts and employer loans, also stay tax-free within their limits.
Is HRA exempt in the new regime?
No. HRA exemption needs the old regime. In the new regime the whole HRA is taxed as part of your salary.
Did the tax on a company car go up?
Yes. The monthly perk value for a car used for work and personal trips went from ₹1,800 to ₹5,000 for cars up to 1.6 litres and from ₹2,400 to ₹7,000 above that, plus ₹3,000 for a chauffeur.