One Perk Up, One Perk Down

The same draft Income-tax Rules, 2026 that handed salaried employees a genuine win on meal vouchers — the per-meal cap going from Rs 50 to Rs 200 — has quietly done the opposite on company cars. Under the draft Rule 15, which prescribes the valuation of perquisites in place of Rule 3(2) of the 1962 Rules, the monthly perquisite value of an employer-provided car is proposed to rise sharply from 1 April 2026, the date on which the new rules are intended to replace the 1962 framework. For employees whose CTC is structured around a company car and driver, the effective tax cost is on track to roughly triple. The numbers below are from the draft rule text and are subject to change before final notification; practitioners should read the enacted text as it stands on the date of advice.

What Actually Changed: the Three Numbers

When a motor car is owned or hired by the employer, the running and maintenance expenses are borne by the employer, and the car is used partly for official and partly for personal purposes, the monthly perquisite value under the draft Rule 15 is proposed as follows:

  • Cars with engine capacity up to 1.6 litres: Rs 5,000 per month, up from Rs 1,800 per month under the 1962 Rules.
  • Cars with engine capacity above 1.6 litres: Rs 7,000 per month, up from Rs 2,400 per month under the 1962 Rules.
  • Driver provided by the employer: an additional Rs 3,000 per month, up from Rs 900 per month under the 1962 Rules.

In percentage terms the small-car figure is up roughly 2.8x, the big-car figure roughly 2.9x, and the driver component is more than 3x. The hike is not indexation; it is a one-time reset of a number that has not moved in over a decade.

The Math at Three Salary Bands

The annual perquisite under the draft rule for a single employee with an above-1.6-litre car and a driver is Rs 7,000 + Rs 3,000 = Rs 10,000 per month, or Rs 1,20,000 per year — against Rs 2,400 + Rs 900 = Rs 3,300 per month, or Rs 39,600 per year under the 1962 Rules. The delta is Rs 80,400 added to taxable salary. The cash tax impact depends on the marginal slab, which is why the same perquisite lands very differently across CTC bands. The illustrations below are indicative, rounded, and assume the surcharge position does not change at the margin:

  • Rs 20 lakh CTC, small car only (no driver): extra annual perquisite of about Rs 38,400, roughly Rs 12,000 of additional tax at a 30% effective rate, or about Rs 1,000 per month in extra TDS.
  • Rs 30 lakh CTC, big car with driver: extra annual perquisite of about Rs 80,400, roughly Rs 25,000 of additional tax at a 30% effective rate, or about Rs 2,000 per month in extra TDS.
  • Rs 50 lakh CTC, big car with driver: the same Rs 80,400 delta, but the marginal rate is higher once surcharge kicks in; the annual cash hit is in the Rs 28,000 to Rs 32,000 range depending on exact surcharge applicability, or roughly Rs 2,500 per month in extra TDS.

These are back-of-envelope figures, not a tax computation for any individual. The point is directional: the rule change shifts a senior employee with a chauffeur-driven car into a noticeably higher monthly TDS bracket for the same underlying benefit.

Does the Regime Switch Save You? Probably Not

A common first instinct is to ask whether moving to the new regime under Section 115BAC helps. On the perquisite side, the honest answer is no — or at least, not directly. Perquisite valuation is housekeeping that sits in the rules under the rule-making power for perquisite valuation, not in the section-level exemption list that Section 115BAC switches off when an employee opts into the new regime. That means the higher Rule 15 numbers apply regardless of regime. The regime choice still matters for the overall tax bill because of slab rates and standard deduction, but it does not cushion the company-car hit specifically. Practitioners should check this alignment against the final notified rule text before drafting client advice.

Electric Vehicles: Where Do They Sit?

The draft rule text, as reported in public commentary, categorises cars by engine cubic capacity — a framework built around internal combustion engines. Electric vehicles do not have a cubic capacity in the same sense, and the draft has been flagged by practitioners for not spelling out a separate EV bracket. The pragmatic reading until the final notification lands is that EVs are likely to be treated under the lower (≤1.6 litre) bracket by default, but this is an area to watch. If the final rule carries a carve-out or a separate slab for EVs as part of the broader clean-mobility push, the valuation arithmetic for EV CTC structures will look different. Until then, assume the ≤1.6 litre number applies and flag the uncertainty in your working notes.

The Office-Use-Only Workaround

Rule 15, like the old Rule 3(2), carries a nil-perquisite route where the car is used wholly and exclusively in the performance of official duties and the employer maintains the prescribed documentation. The documentation burden is not trivial: a log of the date of each use, the places visited, the purpose, the distance, and a certificate from the employer that the expenditure was incurred wholly and exclusively for official duties and that the car was used only for that. In practice, a genuine office-use-only car is uncommon for a salaried employee because even the commute between home and office is treated as personal use under the settled position on the old rule. The workaround exists, but it is narrow and requires real paperwork, not a retrofit certificate.

The Employee-Owned Car Reimbursement Route

A second structuring option, which the rule preserves in substance, is the employee-owned car reimbursed by the employer. Where the car is owned by the employee and the employer reimburses running and maintenance expenses, the perquisite value is the actual expenditure incurred by the employer less a flat monthly amount per the rule for official use, with the same engine-capacity brackets. This route can be tax-efficient for senior employees in specific fact patterns, but it requires genuine ownership, genuine reimbursement against bills, and clean documentation — not a paper restructuring done in April to dodge a rule change.

What HR and Payroll Should Do in April

The rule change lands at the worst possible time from a payroll calendar perspective: right at the start of a new financial year, when the monthly TDS engine is being set for the whole year ahead. Three things to work through before the April payroll run, assuming the draft is notified in substantially its current form:

  • Refresh CTC templates. Any standard CTC letter that shows a car and driver line item with an assumed perquisite value needs to be updated. The gap between the letter and the payslip becomes a grievance source if this is skipped.
  • Rerun the TDS projection. Every employee with a company car needs an updated Form 12BB and a fresh monthly TDS number. Running the old numbers through April and catching up later creates a lumpy December correction no one enjoys.
  • Flag the regime interaction. Employees choosing between the old and new regime for FY 2026-27 should be told upfront that the car perquisite hike applies under either regime, so the regime comparison is being made on a higher perquisite base than last year.

Practitioner Checklist

  1. Confirm the final notified Rule 15 text and its effective date before locking client advice. The numbers cited here are from the draft as reported in February 2026 and are subject to change.
  2. Check whether the notified rule contains an express EV bracket or carve-out. If not, default to the ≤1.6 litre slab and say so in your working notes.
  3. Identify clients with senior employees on big-car-plus-driver structures and run an individual TDS impact before the April payroll cycle.
  4. Where a genuine office-use-only case exists, insist on a contemporaneous usage log and the employer certificate. A retroactive log is not documentation; it is a risk.
  5. Review employee-owned-car reimbursement structures for substance — real ownership, real bills, real reimbursement — before recommending them as an alternative.
  6. Update internal CTC calculators and new-joiner offer templates. A stale template is a compliance and HR issue rolled into one.
  7. Hedge every number in written advice until the final rule is notified. The draft has attracted industry commentary and the final text may differ.

The Bigger Picture

The meal voucher cap going from Rs 50 to Rs 200 and the company car perquisite going from Rs 1,800/2,400 to Rs 5,000/7,000 are, in a sense, two sides of the same updating exercise. Numbers that had been frozen for more than a decade are being reset to current-rupee reality. For the broad base of salaried employees, the meal voucher refresh is a clean win. For the narrower set of senior employees on CTC structures that lean heavily on a company car and driver, the Rule 15 reset is a real cash-flow hit. The asymmetry is worth naming when you explain the Income-tax Rules, 2026 to your clients; the package is not uniformly good news, and the people most affected by the car change are often the people who were not even watching the meal voucher debate.