Using company car for personal use? Income Tax Rules 2026 may increase your tax; here’s how

Salaried employees who get company cars and use it for both office and personal errand will face higher income tax, according to the Income Tax Rules, 2026, that the parliament approved last week. These rules will take effect from April 1, 2026 and have to be read with income Tax Act, 2025. These changes will apply to both old and new tax regimes, as they relate to the valuation of perquisites associated with salary income, no matter which tax regime you chose.

The Income-tax Rules, 2026 largely retains the existing framework for valuation of perquisites as prescribed under the Income-tax Rules, 1962, with no fundamental change in the underlying principles governing taxation of such benefits.

That said, the main change is in the upward revision of monetary thresholds and valuation norms, many of which had remained unchanged for decades, thereby aligning them with current economic conditions and cost structures.


Just to give you an idea of how much more income tax you need to pay due to the new tax rules 2026, here are two examples:

• Your office has given you an EV or car with engine capacity of up to 1.6 litres, which you use for both office and personal errands. Earlier, the taxable value of this perquisite was Rs 1,800 per month. Now it is Rs 5,000, so a Rs 3,200 increase. In this example, expenses are borne by your employer and the car is hired/owned by the employer.
• Your office has given you an EV or car with engine capacity up to 1.6 litres, which you partly use for personal and office use. Earlier the taxable value of this perquisite was Rs 600 per month. Now, it is Rs 2,000 per month, a Rs 1,400 increase. In this example, expenses are borne by you only and the car is hired/owned by the employer.

For reference purposes, Kia Seltos naturally aspirated petrol (IVT automatic transmission and manual)’s engine size is 1497 cc (1.5 litres). Similarly, Tata Sierra’s Turbo petrol (T-GDI) engine’s size is 1498 cc (1.5 litres) with torque converter automatic transmission only.

Renault’s new Duster has two turbo petrol engines of sizes 1 litre (three cylinder) manual transmission and 1.3 litre (four cylinder) with dual clutch automatic transmission (DCT) and manual transmission. Duster’s strong hybrid petrol engine’s size is 1.8 litres (to be launched around Diwali 2026); this engine will be taxed higher in the perquisite slab.

Shalini Jain, Tax Partner, EY India, explained to ET Wealth Online: “The New Income Tax Rules, 2026 make the use of an employer‑provided car costlier for employees than the Old Rules. In contrast, employees using their own car, where the employer reimburses the running and maintenance expenses has become more economical compared to the Old 1962 Tax Rules.”

Chartered Accountant Suresh Surana says that under the Income-tax Rules, 2026, the tax impact of a company-provided car continues to depend largely on the nature of usage and structuring of the benefit.

Surana says: “Particularly, in case of mixed use (both for official and personal purposes), the valuation of perquisite would increase and there could be higher tax outgo for the employee.”

Also this perquisite is considered only when the benefit is actually provided and used by the employee. Surana says that if an employee does not receive a company car or reimbursement, no tax arises on this account.

The table below presents a comparative overview of the changes introduced in the valuation of perquisites under the Income-tax Rules, 2026 vis-à-vis Income-Tax Rules 1962:

Engine capacity up to 1.6 litres / EVs (Employer-owned / Employer-hired car)

Particulars	New Income Tax Rules 2026	Old Income Tax Rules 1962	Impact for employee
Used wholly for official purposes	Nil (subject to maintenance of prescribed records)	Nil (subject to maintenance of prescribed records)	No impact
Used wholly for personal purposes	Actual expenditure incurred by employer + chauffeur salary (if any) + normal wear & tear (10% p.a.) reduced by amount recovered from employee	Actual running & maintenance cost (incl. chauffeur salary + depreciation) reduced by any amount charged from employee for such use.
Used partly for official and partly for personal purposes (expenses borne by employer)	Rs 5,000 p.m. + Rs. 3,000 p.m. (chauffeur, if provided)	Rs 1,800 p.m. + Rs. 900 p.m. (chauffeur, if provided)	More Income Tax
Used partly for official and partly for personal purposes (personal expenses borne by employee)	Rs 2,000 p.m. + Rs 3,000 p.m. (chauffeur, if provided)	Rs 600 p.m. + Rs 900 p.m. (chauffeur, if provided)	More Income Tax

Source: Chartered Accountant Suresh Surana

Engine capacity up to 1.6 litres / EVs (Employee-Owned Car)

Particulars	New Income Tax Rules 2026	Old Income Tax Rules 1962	Impact for employee
Expenses reimbursed by employer – used wholly for official purposes	Nil (subject to maintenance of prescribed records)	Nil (subject to maintenance of prescribed records)	No impact
Expenses reimbursed by employer – mixed use i.e. official and personal use	The actual amount of expenditure incurred by the employee reduced by Rs 5,000 p.m. + Rs 3,000 p.m. (chauffeur, if provided)	The actual amount of expenditure incurred by the employee reduced by Rs 1,800 p.m. + Rs 900 p.m. (chauffeur, if provided)	More income tax

Source: Chartered Accountant Suresh Surana

Additionally, Surana says that the updated tax rules, 2026 has introduced specific provisions for valuation of electric vehicles (EVs), reflecting the growing adoption of sustainable mobility and bringing clarity to their tax treatment within the perquisite regime.

Other automotive conveyance (not being a motor car) where actual running and maintenance charges are met or reimbursed by employer

Particulars	Income Tax Rules 2026	Old Income Tax Rules 1962
Official use only	Nil (subject to maintenance of prescribed records)	Nil (subject to maintenance of prescribed records)
Mixed use i.e. Official and personal use	Actual reimbursement reduced by Rs 3,000 p.m.	Actual reimbursement reduced by Rs 900 p.m.

Source: CA Suresh Surana

Engine capacity exceeding 1.6 litres (Employee-Owned Car)

Particulars	Income Tax Rules 2026	Old Income Tax Rules 1962
Used wholly for official purposes	Nil (subject to maintenance of prescribed records)	Nil (subject to maintenance of prescribed records)
Used wholly for personal purposes	Actual expenditure incurred by employer + chauffeur salary (if any) + normal wear & tear (10% p.a.) reduced by amount recovered from employee	Actual running & maintenance cost (incl. chauffeur salary + depreciation) reduced any amount charged from employee for such use.
Used partly for official and partly for personal purposes (expenses borne by employer)	Rs 7,000 p.m. + Rs 3,000 p.m. (chauffeur, if provided)	Rs 2,400 p.m. + Rs 900 p.m. (chauffeur, if provided)
Used partly for official and partly for personal purposes (personal expenses borne by employee)	Rs 3,000 p.m. + Rs 3,000 p.m. (chauffeur, if provided)	Rs 900 p.m. + Rs 900 p.m. (chauffeur, if provided)

Engine capacity exceeding 1.6 litres (Employee-Owned Car)

Particulars	Income Tax Rules, 2026	Old Income Tax Rules, 1962
Expenses reimbursed by employer – used wholly for official purposes	Nil (subject to maintenance of prescribed records)	Nil (subject to maintenance of prescribed records)
Expenses reimbursed by employer – mixed use i.e. official and personal use	The actual amount of expenditure incurred by the employee reduced by Rs 7,000 p.m. + Rs 3,000 p.m. (chauffeur, if provided)	The actual amount of expenditure incurred by the employee reduced by Rs 2,400 p.m. + Rs 900 p.m. (chauffeur, if provided)

Does this motor vehicle perquisite as per the tax rules, 2026 apply for old tax regime and new tax regime both?

According to Surana, the valuation of motor car perquisites is applicable under both the old and the new tax regimes, as it is a part of the taxable salary in accordance with the prescribed perquisite valuation rules.

Surana says: “It is important to note that this is neither a deduction nor an exemption, but a method of determining the taxable value of a benefit. Accordingly, such perquisites are included in the employee’s taxable income under both regimes.”

Do all employees get this company car perquisite or only those who have this in their salary structure or company policy?

According to Surana, the motor car perquisite is not a universal entitlement available to all employees and it depends on the specific company policy. It arises only where the provision of a motor car facility whether by way of employer-owned/leased vehicle or reimbursement of expenses is specifically incorporated in the employee’s terms of employment, compensation structure, or governed by the employer’s policy framework.