Salaried employees using company-provided cars may soon face a higher tax burden. Under the proposed Draft Income Tax Rules 2026, the taxable value of company car benefits is set to increase, which could significantly raise income tax liability if the rules are approved by Parliament in their current form.
According to estimates, an employee earning an annual salary of ₹15 lakh could see their tax bill rise by around ₹4,352 due to changes in the valuation of car-related perks. For those with an annual salary of ₹25 lakh, the additional tax impact could be approximately ₹8,387. These calculations are based on the new tax regime. Experts clarify that taxation of perks remains the same under both the old and new regimes, meaning the impact will apply regardless of which regime an employee chooses.
How company car perks are taxed
If a company provides a car for both official and personal use and also bears fuel and maintenance expenses, the taxable value of this benefit is proposed to be ₹5,000 per month. If a driver is also provided, an additional ₹3,000 per month is added. This takes the total taxable perk to ₹8,000 per month, or ₹96,000 annually, which is added to the employee’s taxable income.
What the draft rules say
Tax experts point out that Rule 15 of the Draft Income Tax Rules 2026—corresponding to Rule 3 of the Income Tax Rules, 1962—lays down how the value of employee perks will be calculated. While the new tax regime has lower slab rates and fewer exemptions, the valuation method for perks such as company cars remains unchanged. As a result, opting for the old or new tax regime does not reduce the taxable value of such benefits.
Under the proposed rules, if a company provides a car without covering fuel costs, the monthly taxable value will be ₹2,000 for cars with engines up to 1.6 litres and ₹3,000 for cars with engines above 1.6 litres. An additional ₹3,000 per month will be added if a driver is provided. Under the earlier 1962 rules, these figures were much lower at ₹600, ₹900, and ₹900 per month respectively.
