🚗 Proposed Increase in Motor Car Perquisite Valuation – Draft Rules 2026



The Draft Income-tax Rules, 2026 have introduced a significant proposal that could impact salaried employees receiving company-provided car benefits. The government has proposed an increase in the taxable perquisite valuation of employer-provided motor cars that are used partly for official and partly for personal purposes.

If implemented from 1 April 2026 (subject to final notification), this revision may increase the taxable salary of employees enjoying company car facilities — especially senior executives and corporate professionals.

Let’s understand what this proposal means, how perquisite valuation works, and how it could affect your tax planning for FY 2026–27 and beyond.

📌 What Is a Perquisite?

A perquisite (or “perq”) is a benefit provided by an employer to an employee in addition to salary or wages. Under the Income-tax Act, certain perquisites are taxable and form part of the employee’s salary income.

Common examples include:

  • Company-provided car

  • Rent-free accommodation

  • Interest-free loans

  • Club memberships

  • Employer-paid utilities

The taxable value of such benefits is determined as per prescribed Income-tax Rules.

🚘 Current System of Motor Car Perquisite Valuation

When an employer provides a motor car to an employee and the car is used partly for official purposes and partly for personal purposes, a fixed perquisite value is added to the employee’s taxable salary.

Currently, the valuation is based on:

  • Engine capacity (up to or above 1.6 litres)

  • Whether driver facility is provided

  • Usage classification (official / personal / mixed)

The perquisite value is added monthly to salary and taxed as per the applicable slab rate of the employee.

📢 What Is Proposed Under Draft Rules 2026?

The Draft Income-tax Rules, 2026 propose an increase in the taxable valuation as follows:

🔹 Up to 1.6L engine capacity

Proposed taxable value: ₹5,000 per month

🔹 Above 1.6L engine capacity

Proposed taxable value: ₹7,000 per month

🔹 Driver facility

Additional ₹3,000 per month

📅 Proposed effective date: 1 April 2026 (subject to final notification)

This represents an upward revision compared to earlier valuation norms and reflects rising vehicle and maintenance costs over time.

💰 How Will This Impact Employees?

The impact depends on the employee’s income slab and the type of vehicle provided.

Let’s consider an example:

Example 1: Mid-Level Executive

  • Car: Above 1.6L engine

  • Driver provided

  • Perquisite value per month = ₹7,000 + ₹3,000 = ₹10,000

  • Annual perquisite addition = ₹1,20,000

If the employee falls under the 30% tax slab:

Additional tax burden = ₹36,000 (approx.) + cess

This effectively increases the employee’s annual tax liability significantly.

📊 Who Will Be Most Affected?

The proposal primarily affects:

1️⃣ Senior Executives

Employees with high-end vehicles and dedicated drivers.

2️⃣ Corporate Professionals

Managers and directors receiving car allowances as part of CTC packages.

3️⃣ Multinational Company Employees

Where structured perquisite packages are common.

4️⃣ Employees Under Old Tax Regime

Since perquisites are taxable under both regimes, slab rate planning becomes crucial.

🏢 Why Is the Government Revising Perquisite Values?

There are several possible reasons behind this proposal:

  • Outdated valuation limits compared to current vehicle costs

  • Inflation adjustment over the years

  • Aligning taxable benefits with actual economic value

  • Increasing transparency in salary structuring

The earlier valuation rates were set many years ago and may not reflect present-day automobile and maintenance expenses.

📌 Official vs Personal Use – Important Distinction

If a company car is used exclusively for official purposes and proper records are maintained (log books, fuel bills, usage documentation), the perquisite may not be taxable.

However, when the car is used partly for personal purposes — which is common — the prescribed fixed perquisite value applies.

Proper documentation and compliance will continue to be crucial even after the revision.

🧾 Impact on Salary Structuring

Many companies design Cost-to-Company (CTC) packages that include:

  • Car lease arrangements

  • Company-owned vehicles

  • Reimbursement models

  • Driver salary reimbursements

With higher perquisite valuation:

  • Employers may reconsider compensation structuring

  • Employees may renegotiate salary components

  • Companies may explore car allowance alternatives

HR and payroll departments will need to update systems accordingly.

🔄 Old Tax Regime vs New Tax Regime

Unlike deductions such as HRA or Section 80C, perquisites are taxable under both the Old and New Tax Regimes.

Therefore:

  • Employees cannot avoid perquisite taxation by shifting regimes

  • However, lower slab rates under the New Regime may reduce overall tax burden

  • Detailed comparison will be necessary before choosing a regime

Professional tax planning becomes more important with such revisions.

📈 Broader Financial Implications

This proposal may also influence:

🚘 Corporate Fleet Policies

Companies may reconsider providing high-engine vehicles.

💼 Compensation Planning

Employers might shift toward performance-linked pay instead of benefits.

📊 Executive Tax Planning

Senior employees may explore alternative asset ownership models.

🧮 Payroll Adjustments

Increased TDS deductions may reflect in monthly salary slips.

🧠 Strategic Planning Tips for Employees

If you are currently receiving or expecting a company car benefit, consider the following steps:

✔ Review your employment contract
✔ Estimate additional tax impact under new rules
✔ Compare tax regimes carefully
✔ Maintain usage documentation
✔ Consult a tax professional before FY 2026–27

Proactive planning can help minimise surprises once the rules become effective.

⚠ Important Points to Remember

  • The proposal is part of Draft Rules 2026

  • Final notification is awaited

  • Effective from 1 April 2026 (if approved)

  • Applies to cars used partly for personal purposes

  • Additional ₹3,000 applies if driver facility is provided

Until official notification is issued, taxpayers should monitor updates closely.

🔍 Final Thoughts

The proposed increase in motor car perquisite valuation under Draft Income-tax Rules 2026 signals a shift toward modernising outdated benefit valuations. While the revision may seem moderate on a monthly basis, its cumulative annual impact could significantly increase taxable salary for employees enjoying company car benefits.

Senior professionals, corporate executives, and HR departments must carefully reassess salary structures and tax liabilities before FY 2026–27 begins.

Early planning and professional consultation will be key to optimising tax outcomes and avoiding unexpected liabilities.

📞 Contact us today: +91 7305701454
📧 Email: auditsiva2@gmail.com
🌐 Website: www.taxlaservices.com

#PerquisiteValuation #CompanyCar #IncomeTaxUpdate #DraftRules2026 #SalaryTax #TaxPlanning #BestAuditorInTamilnadu #TaxlaServices

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