Accounting
Company Car or Your Own Car: How the Perquisite Is Taxed
- Where the rule lives
- The two columns
- Case 1: the employer owns or hires the car
- Case 2: the employee owns the car, the employer reimburses
- More than one car
- The documents that make “no value” stick
- Normal wear and tear
- Which arrangement suits you
- Where this fits
- Source
If your employer gives you a car, you are taxed on it. Not on what the car is worth, and not on what it costs the company, but on a figure the rules fix per calendar month according to how the car is owned and how it is used.
The amounts are small enough that most people never check them, and structured in a way that makes one arrangement materially better than another. This is what the rules actually say.
Where the rule lives
Perquisites are charged under section 17 of the Income-tax Act, 2025, which came into force on 1 April 2026 and replaced the Income-tax Act, 1961. The valuation machinery is in rule 15 of the Income-tax Rules, 2026, headed “Valuation of perquisites”. Motor cars are dealt with in rule 15(3), and the figures are in Table II, expressed as a value of perquisite per calendar month.
⚠ If you are working from a figure you remember from an earlier year, check it against the table below. The operative amounts for tax year 2026-27 are the ones in the notified 2026 Rules, and they are not the same as the numbers many older references carry.
The two columns
Every case in Table II splits on engine size:
- Column C: cubic capacity of the engine does not exceed 1.6 litres, or the motor car is an electric vehicle
- Column D: cubic capacity exceeds 1.6 litres
The placement of electric vehicles is worth noticing. An EV is taxed in the lower column regardless of its engine equivalent or its price. For an employee choosing between a large petrol car and an EV on the same package, the perquisite difference is ₹2,000 a month in the mixed-use case.
Case 1: the employer owns or hires the car
| Use | ≤1.6L or EV | >1.6L |
|---|---|---|
| (a) Wholly and exclusively for official duties | No value, if the documents specified in rule 15(3)(c) are maintained by the employer | |
| (b) Exclusively private or personal, running and maintenance met by the employer | Actual expenditure incurred by the employer on running and maintenance, including chauffeur remuneration, increased by normal wear and tear, reduced by any amount charged to the employee | |
| (c)(i) Partly official, partly private, employer meets running and maintenance | ₹5,000 (+₹3,000 if a chauffeur is provided) | ₹7,000 (+₹3,000 if a chauffeur is provided) |
| (c)(ii) Partly official, partly private, employee meets the private running costs | ₹2,000 (+₹3,000 if a chauffeur is provided) | ₹3,000 (+₹3,000 if a chauffeur is provided) |
Two things follow immediately.
The chauffeur is a flat ₹3,000 a month in every mixed-use case, and it does not vary with engine size. In case (c)(ii) on a small car the driver costs more in perquisite than the car does.
Paying your own fuel is worth a lot. Moving from (c)(i) to (c)(ii) on a car over 1.6 litres takes the monthly value from ₹7,000 to ₹3,000. Whether that is a good trade depends on what you actually spend on private running.
Worked example
An employee is provided a 2.0 litre company car with a driver, used partly for work and partly privately, with the company paying for fuel and maintenance. That is case (1)(c)(i), column D.
Perquisite = ₹7,000 + ₹3,000 = ₹10,000 per month, so ₹1,20,000 for the year added to taxable salary.
At a 30% marginal rate, the tax cost is roughly ₹36,000 a year before surcharge and cess. The employer may be spending several times that on the car. That gap is the entire reason a company car remains attractive.
Put the same employee in an electric company car and the perquisite becomes ₹5,000 + ₹3,000 = ₹8,000 a month, ₹96,000 a year, a tax cost of about ₹28,800.
Case 2: the employee owns the car, the employer reimburses
| Use | ≤1.6L or EV | >1.6L |
|---|---|---|
| (a) Reimbursement for use wholly and exclusively for official purposes | No value, if the rule 15(3)(c) documents are maintained | |
| (b) Partly official, partly personal | Actual expenditure incurred by the employer, reduced by the amount at Sl. No. (1)(c)(i), that is ₹5,000 or ₹7,000 per month, if the rule 15(3)(c) conditions are met | |
This is the structure most people miss. If you own the car and your employer reimburses running costs, the taxable perquisite is the reimbursement minus ₹5,000 or ₹7,000 a month, not the whole reimbursement.
So an employee owning a 1.4 litre car, reimbursed ₹8,000 a month, is taxed on ₹8,000 − ₹5,000 = ₹3,000 a month. Reimbursed ₹5,000 or less, the perquisite is nil.
Other vehicles
Rule 15(3) also covers an employee who owns any other automotive conveyance, a two-wheeler for instance. Wholly official use with documents gives no value. Partly official use gives actual expenditure reduced by ₹3,000 a month. The over-1.6-litre column is marked not applicable for this case.
More than one car
Rule 15(3)(b) deals with an employer providing several cars for non-official use. One car is valued under Table II Sl. No. (1)(c)(i), the ₹5,000 or ₹7,000 line. Every other car is valued under Sl. No. (1)(b), which is the full actual-expenditure basis including chauffeur and wear and tear.
The second car is therefore treated far more harshly than the first.
The documents that make “no value” stick
Every “no value” outcome above, and the reduced amounts in cases 2(b) and 3(b), depend on rule 15(3)(c). An employer or employee claiming that a vehicle is used solely for official duties, or that official-use expenses exceed the deductible amounts, may claim the higher official figure only if:
- the employer has maintained complete details of journeys undertaken for official purposes, which may include the date, destination, mileage and amount of expenditure; and
- the employer gives a certificate that the expenditure was incurred wholly and exclusively for the performance of official duties.
Without both, “wholly official” is not available, and the mixed-use figures apply instead. A logbook nobody keeps is the most common reason a claimed nil perquisite fails.
Normal wear and tear
Where actual expenditure is the basis, meaning case (1)(b) and second and subsequent cars, the value is increased by normal wear and tear. Rule 15(3)(d) fixes this at 10% per annum of the actual cost of the car.
On a ₹20,00,000 car that is ₹2,00,000 a year added to the perquisite before running costs. Exclusively private use of an employer-owned car is an expensive arrangement, which is the point of taxing it that way.
Which arrangement suits you
There is no universal answer, but the structure rewards three things.
Keep the use mixed, not exclusively private. The gap between a fixed ₹7,000 a month and full actual cost plus 10% wear and tear is very large.
Consider paying your own private running costs. Case (c)(ii) values a large car at ₹3,000 against ₹7,000. If your private fuel bill is under ₹4,000 a month, you are ahead.
Keep the logbook. It is the only thing standing between a mixed-use valuation and a nil one, and it costs nothing but discipline.
If you are weighing the company car against leasing or buying privately, the cost comparison itself is a different question. The lease calculator handles the lease-versus-buy arithmetic, and the perquisite figures above are what you add to the employment side of that comparison.
Where this fits
- Lease against outright purchase: lease calculator
- What the car does to your take-home: salary breakdown calculator and take-home on ₹12 LPA
- If the company owns the car, it also depreciates it: income tax vs Companies Act depreciation and the depreciation calculator
- Financing a car personally: vehicle loan calculator
- Terms used here: taxation glossary
Source
Income-tax Rules, 2026, rule 15 “Valuation of perquisites”, sub-rule (3)(a) and Table II, with sub-rules (3)(b), (3)(c) and (3)(d), as notified in the Gazette of India, Extraordinary, Part II section 3(i), 20 March 2026. Perquisites are charged under section 17 of the Income-tax Act, 2025. Every figure above is taken from that table; none is estimated.