Salary & compensation · Updated October 2026
How a car benefit is taxed depends on how it is structured. A fixed car allowance is plain taxable salary; a company car, or fuel and maintenance paid for a car also used personally, is a perquisite valued by flat monthly amounts in Rule 15 of the Income-tax Rules, 2026. For FY 2026-27 those amounts rose to Rs 5,000 for engines up to 1.6 litres or electric cars, Rs 7,000 above that, and Rs 3,000 more if a chauffeur is provided.
| Structure | Tax treatment |
|---|---|
| Fixed monthly car allowance in the salary | Taxable salary in both regimes |
| Company car used partly for private use, running costs paid by the employer | Flat monthly perquisite: Rs 5,000 (up to 1.6 litres or EV) or Rs 7,000 (above), plus Rs 3,000 for a chauffeur |
| Company car used wholly for official purposes | No perquisite, on the basis of documentation such as a logbook; confirm the conditions in Rule 15 |
| Employee’s own car, employer reimburses fuel and maintenance | Official use only, with records: not taxable. Mixed use: taxable to the extent the reimbursement exceeds the flat figures above |
The earlier values were Rs 1,800, Rs 2,400 and Rs 900 for the chauffeur, so the benefit is taxed at roughly three times the old figure. Take a company car with a 1.4-litre engine, a chauffeur, mixed use and fuel paid by the employer: Rs 5,000 + Rs 3,000 = Rs 8,000 a month, Rs 96,000 a year, added to salary. Under the old values it was Rs 2,700 a month. Different flat values apply where the employee meets some running costs; the table gives only the main case. The figures above come from secondary summaries of the notified Rules, so confirm them against the text of Rule 15.
A reimbursement that has no logbook is treated as private use. Another gap is an allowance dressed up as “fuel reimbursement” with no bills, which is salary. Perquisites are taxed in both regimes, so the old versus new choice does not rescue them. Ask HR to show the perquisite value inside your CTC workings. The employer adds the amount to taxable pay and works the tax under Section 192, which is Section 392 of the Income-tax Act, 2025 from April 2026.
Yes. A fixed allowance is salary regardless of how the car is used. The perquisite route applies only when the employer provides the car or reimburses its running costs.
Fuel reimbursed for genuine official use, backed by a log, is not a perquisite. If the same car also does private trips, the mixed-use formula applies. See perquisite valuation for how such benefits are valued.
It is added to taxable salary and reported in the employer’s annual salary tax certificate, which for FY 2025-26 is Form 16.
Estimate the tax effect of a car benefit with the Income Tax Calculator.