Higher income tax for salaried people for using company car:
Taxable perquisite value to increase under the draft Income Tax Rule, 2026

Feb 9, 2026

New draft Income Tax Rules for 2026 significantly increase the taxable value of company-provided motor cars. These changes, affecting both old and new tax regimes, will lead to higher income tax for employees using employer-provided vehicles for mixed or personal use, with revised perquisite values now reflecting current economic realities.

The draft Income Tax Rules for 2026 have changed the definition of taxable value of motor vehicles. There are multiple changes with respect to the valuation of taxable perks when your employer provides you with a car. If Parliament approves these changes, they will apply to both old and new tax regimes, as this pertains to valuation of perks related to salary income, regardless of the chosen tax regime.

For example, in the categories where the perquisite value has been hiked, employees would have to pay more income tax on the perks as their value will be added to the employee’s salary income and then taxed accordingly.

For example, take the case when a employer has given a car to be used by you (the employee) for both office and personal use and you pay for the car’s fuel and maintenance. If the car’s engine size is less than 1.6 litre, then earlier the taxable perk value for you was Rs 600 per month, now it is Rs 2,000 per month.

For reference purposes, Hyundai Creta’s naturally aspirated MPi petrol engine’s size is 1.5 litre (1497 cm3). Volkswagen Virtus’s turbo petrol engine’s size is 1 litre (999 cc) and 1.5 litre (1498 cc), depending on the variant.

What has changed with the draft Income Tax Rules, 2026

Old: Rule 3(2), 1962 Rules

New: Rule 15(3), Draft Rules, 2026

Chartered Accountant Avinash Kumar Rao, Partner at Mohindra & Associates, says that the earlier 1962 Income-tax Rules have traditionally classified motor car benefits based on:

• The purpose of use (official, personal, or mixed),

• The person bearing running and maintenance expenses, and

• The availability of a chauffeur.

Rao says that the draft Income-tax Rules, 2026, retain the same structural classification but substantially revise the valuation figures to reflect present-day economic realities. This change has important implications for salary structuring and take-home pay and warrants early review by both employers and employees.

Table showing taxable value of perquisite:

A. Where motor car is owned / hired by employer
   

Source: CA Avinash Kumar Rao

B. Where motor car is owned by employee and expenses are reimbursed by employer
   

Source: CA Avinash Kumar Rao

According to Rao, If an employee claims that actual official usage exceeds standard limits and claims a higher deduction. This is allowed provided:

• Detailed journey records are maintained

• Purpose, distance, mileage recorded

• Employer certificate is furnished

Otherwise, standard slabs apply.

Rao says that the revised valuation reflects a conscious effort to align taxation with the actual economic benefit derived from employer-provided vehicles. By updating long-stagnant figures, the draft rules enhance transparency and improve equity in salary taxation.

Rao says: “While the increase is significant, it brings greater realism to compensation structures and encourages more efficient benefit planning. With timely review and appropriate restructuring, both employers and employees can adapt smoothly to the new framework.”

[The Economic Times]