Here’s how your company car might pinch your pockets!

Why are tax authorities reassessing car perks?

Company cars are considered a perquisite, which is basically a non-cash benefit included in your salary package.

Until now, the taxable value of this perk was modest. However, the draft Income Tax Rules, 2026, propose higher valuations, particularly when the car is used for personal purposes or when the employer pays for fuel, maintenance, or provides a driver.

The goal is to ensure that all perks are taxed fairly, including company cars.

How to calculate the taxable value of a company car?

Under the new draft rules, several factors determine how much of a car perk counts as taxable income:

• Car size: Smaller cars and larger cars have different valuations.
• Fuel and maintenance coverage: If the employer pays for these, the taxable benefit increases.
• Driver provided: Having a company-provided driver also adds to the taxable value.

Impact on salaries

For employees with a ₹15 lakh salary, a company car with fuel and maintenance can now be taxed at roughly ₹96,000 per year, compared with about ₹32,400 under the old rules. This results in an additional ₹4,352 in annual tax (depending on your tax slab).

At higher salary levels, such as ₹20 lakh or ₹25 lakh, the tax increase is proportionally higher. The more comprehensive the perk package (larger car, driver, full maintenance coverage), the greater the impact on take-home pay.

Tax regime choice doesn’t change the perk value

Some employees might wonder if opting for the new concessional tax regime could help. The answer is no. The taxable value of perquisites, such as company cars, remains the same under both the old and new regimes. So, regardless of which tax slab you choose, the higher valuation of the perk applies.

Who will be affected the most?

Employees most affected by the change are those whose companies:

• Provide a car for both personal and official use,
• Pay for fuel and maintenance, and
• Offer a driver as part of the package.

For employees whose cars are strictly for official use or who cover their own running costs, the change has little to no effect.

Should you rethink perks vs. salary?

Company car perks have traditionally been an attractive part of a salary package. However, with the revised valuations, you may want to consider the net after-tax benefit.

Some options to manage the impact include:

• Negotiating a higher basic salary instead of perks,
• Sharing the cost of fuel or maintenance with the employer, if possible,
• Review whether the provided driver is necessary.

With careful planning, you can minimise the extra tax bite while still enjoying the perks.

Conclusion

While company car perks remain valuable, the draft Income Tax Rules, 2026, highlight that non-cash benefits have real tax implications. You should review your CTC package and understand how these perks affect your overall tax liability. Proper planning can help ensure that perks remain an advantage, rather than a hidden tax burden.