Company Car Perquisite Tax Value Set to Rise Under Income Tax Rules 2026
The Draft Income-tax Rules, 2026 propose higher fixed tax values for company-provided cars, which will increase the taxable salary of employees who receive this benefit.
Company-provided cars will soon add a higher taxable value to many salary packages, based on the Income-tax Rules draft for 2026.
Under the Draft Income-tax Rules, 2026, perquisite valuation moves to Rule 15. The draft includes a revised table for motor car benefits, which sets higher fixed monthly values for cases where an employer provides a car and the employee uses it for personal travel or for a mix of official and personal use.
In the current Income-tax Rules, 1962, the tax value for company cars is computed using fixed monthly amounts in Rule 3, Table II. These amounts are lower.
For example, where the employer meets running and maintenance costs and the car is used for both official and personal purposes, the existing fixed values are Rs 1,800 per month for small cars and Rs 2,400 per month for larger cars. A separate set of values applies when the employee meets running costs, and a chauffeur benefit adds Rs 900 per month.
Also Read:Forms 3CA, 3CB & 3CD Replaced by New Tax Audit Form 26: Income Tax Act 2025
The draft rules raise these figures. In similar cases, the draft uses Rs 5,000 per month for small cars and Rs 7,000 per month for larger cars. For cases where the employee meets running costs, the draft uses Rs 2,000 per month for small cars and Rs 3,000 per month for larger cars. The chauffeur add-on also rises to Rs 3,000 per month.
This change will affect many senior employees who receive company cars as part of their compensation. A higher perquisite value will increase taxable salary and can raise monthly Tax Deducted at Source (TDS). It will also change how perquisites appear in Form 16 (Income Tax Act, 1961) since employers must report these values as part of salary income.
The draft keeps the compliance requirement that employees must maintain records when a car is used for official duties. Employers also need documentation to apply the correct valuation option under the table.
The rules are in draft form and will take final shape after the government process.
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