Salary taxation | India

Motor Car Perquisite Valuation under Income Tax Rules

When an employer provides a motor car or reimburses an employee's vehicle expenses, the taxable salary benefit depends on ownership, official or personal use, who pays the running costs, engine capacity and whether a chauffeur is provided.

Important transition: The Income-tax Act, 2025 and Income-tax Rules, 2026 apply from 1 April 2026. For earlier tax years, consult section 17(2) of the Income-tax Act, 1961 and Rule 3(2) of the Income-tax Rules, 1962. The 2026 rules expressly include electric vehicles in the lower-capacity column. Always apply the law relevant to the tax year.

Legal meaning and statutory basis

A perquisite is a benefit or amenity arising from employment that is included in taxable salary where the applicable law so provides. Motor-car benefits are valued under the prescribed perquisite valuation rules. Under the earlier framework, section 17(2) of the Income-tax Act, 1961 defines taxable perquisites and Rule 3(2) of the Income-tax Rules, 1962 prescribes vehicle valuation. Under the new framework, consult the notified Income-tax Rules, 2026 (official PDF), especially the motor-car table in Rule 15(3).

Employer-owned or employer-hired motor car

Use and expenses	Engine up to 1.6 litres / electric car	Engine above 1.6 litres
Wholly for official duties, with required records	Nil	Nil
Mixed official and personal use; employer meets running and maintenance expenses	Rs. 1,800 per month	Rs. 2,400 per month
Mixed use; employee fully meets private running and maintenance expenses	Rs. 600 per month	Rs. 900 per month
Wholly private use	Actual employer-borne costs, including applicable running expenses and chauffeur remuneration, plus prescribed wear and tear or hire charges, less amounts recovered from the employee.

Where a chauffeur is also provided by the employer, add Rs. 900 per month to the relevant standard mixed-use valuation. For exclusive personal use, apply the actual-cost method rather than the mixed-use flat rates.

Employee-owned motor car: employer reimburses expenses

When an employee owns the motor car and the employer meets or reimburses running and maintenance expenses, the treatment differs:

Official use only: Nil taxable perquisite where the prescribed records and employer certification support the claim.
Mixed official and private use: Start with the amount met or reimbursed by the employer and deduct the prescribed monthly official-use amount: Rs. 1,800 for an engine up to 1.6 litres or an electric car, or Rs. 2,400 for an engine above 1.6 litres; the chauffeur component is Rs. 900 per month where applicable. The deduction is subject to the statutory conditions and evidence rules.
Private use only: Employer-borne personal expenditure is taxable, subject to applicable reductions for employee recovery.

A higher actual official-use deduction may be claimed where the statutory records and certification support it.

Other employee-owned automotive conveyances

For an employee-owned automotive conveyance other than a motor car, reimbursement exclusively for documented official duties does not give rise to a taxable perquisite. For mixed use, the prescribed deduction is Rs. 900 per month from the amount reimbursed, subject to the applicable conditions and the possibility of substantiating a higher official-use amount.

Official-use documentation

To support nil valuation or a higher deduction for official use, the employer should maintain a journey log showing the date, destination, mileage and related expenditure, and certify that the claimed expenditure was incurred wholly and exclusively in performing official duties. Without adequate substantiation, the claimed official-use treatment may not be available.

More than one motor car

Where multiple employer-owned or hired cars are made available for non-exclusive official use, the rules generally value one car under the mixed-use provision and additional cars under the private-use provision. The actual facts and applicable statutory wording must be checked.

Example of monthly valuation

An employer provides a 1.5-litre petrol car used partly for work and partly for personal journeys, pays its running expenses and provides a chauffeur. The standard monthly value is Rs. 1,800 + Rs. 900 = Rs. 2,700. For 12 months, this is Rs. 32,400, assuming the same arrangement continues throughout the year. A car above 1.6 litres would generally give Rs. 3,300 per month in the same mixed-use circumstances.

The earlier Rule 3 also addresses other employer-provided benefits. These are distinct from motor-car valuation and should be assessed separately:

Domestic staff: Employer-borne costs of a sweeper, gardener, watchman or personal attendant, subject to the applicable rules.
Utilities: Employer-paid household gas, electricity or water, generally valued by supplier charges or production cost, less employee payments.
Education: Free or concessional educational facilities, subject to valuation and applicable thresholds.
Travel and holidays: Personal holidays funded by the employer, distinguished from eligible leave travel concessions.
Loans: Interest-free or concessional loans, subject to prescribed interest benchmarking and exceptions.
Meals, gifts and vouchers: Benefits valued under their respective prescribed exemptions and limits.
Credit cards and clubs: Personal expenditure borne by the employer, subject to documented official-use exceptions.
Assets and ESOPs: Use or transfer of movable assets and specified securities, each governed by separate valuation provisions.

Thresholds and exclusions for these other benefits may differ between the 1962 and 2026 rules; they should not be assumed to follow the motor-car rates.

Official references

This article explains general statutory valuation principles and does not replace the law applicable to a particular tax year or employee's facts.