Electric cars are quietly becoming part of corporate pay packages. What hasn’t changed is the tax rulebook that governs them.
For decades, employer-provided cars running on petrol or diesel have followed a familiar script. Payroll teams apply a fixed monthly value, tax is deducted, and the matter ends there. That certainty does not exist for electric vehicles.
Companies offering EVs and hybrids to employees are increasingly unsure how the benefit should be taxed. The rules don’t spell it out, and the assumptions used for conventional cars don’t translate well to electric ones. For now, most employers are improvising.
The contrast is sharp. In the case of petrol and diesel cars, the perquisite value is linked to engine size and limited variables. A standard monthly amount is added to taxable income, with a small adjustment if a driver is provided. Fuel and maintenance costs, when paid by the employer, are already factored in.
Electric vehicles break that simplicity. There is no engine capacity to anchor the calculation. Charging costs differ from employee to employee. Some charge at office premises, others at home. Battery-related costs complicate matters further. None of this sits comfortably within existing perquisite rules.
According to industry, the absence of specific guidance is now becoming an issue for employers. Companies are expected to deduct tax correctly, but without clear benchmarks, they are exposed on both ends—too little deduction invites questions later, too much creates friction with employees.
What makes the situation awkward is that EVs are often positioned as a sustainable alternative. Yet, from a tax perspective, employees are unable to clearly see whether choosing an electric car is beneficial or costly.
How does car perquisite policy impact employers?
The absence of a clear perquisite valuation framework for electric and hybrid vehicles has made employers hesitant to include them in standard corporate car policies. This regulatory ambiguity acts as a deterrent, slowing down the adoption of EVs within organisations, despite government incentives available under the Faster Adoption and Manufacturing of Electric Vehicles (FAME) and allied schemes.
An tax expert said, “In ICE vehicles valuation are clearly defined, whereas in Electric vehicles, it is a grey area. This is because there are a lot of unknowns, resulting in difficulty in calculating the valuation. The government can jump and provide EV-specific rules, and this will reduce compliance risk, ease tax withholding decisions for employers, and avoid interpretational disputes later.”
For now, the issue hasn’t exploded because EV penetration in corporate fleets is still limited. But that is changing. More companies are adding electric options, pushed by sustainability targets and employee demand. As volumes rise, inconsistent tax practices are likely to draw attention.
What experts want the government to do on car perquisite policy in Budget 2026?
Experts believe the Central Board of Direct Taxes (CBDT) should notify clear regulations for electric vehicles (EVs) to remove ambiguity in the taxation of car-related perquisites. According to another tax expert, such clarity would help employers accurately value EV perquisites while enabling employees to clearly understand their tax liability.
Experts recommend that the policy explicitly allow reimbursement for public charging expenses and electricity consumed for charging at home. Experts also suggest factoring in battery usage and replacement costs, along with providing a clear distinction between fuel-driven and electric components in the case of hybrid vehicles.
Importantly, experts emphasise that the existing car perquisite framework does not need a complete overhaul. Instead, a few focused and well-defined changes can ensure consistency, reduce disputes, and align the policy with the evolving adoption of EVs—while preserving continuity in the current tax structure.
With Budget 2026 approaching, the expectation is not for incentives, but for clarity. The government’s push for electric mobility is well established. Aligning perquisite taxation with that reality would simply close a gap that is already showing up on corporate balance sheets.
