Fuel and car reimbursement: how it's taxed from 2026-27

Your own car, fuel paid by your employer

If you use your own car for both work and personal trips and your employer reimburses fuel and running costs, a fixed amount each month is treated as the official part. Only the rest is added to your salary.

Car	Official part, from 2026-27	Earlier
Engine up to 1.6 litres, or electric	₹5,000 a month	₹1,800
Engine above 1.6 litres	₹7,000 a month	₹2,400
Driver paid by the employer	₹3,000 a month more	₹900
Two-wheeler or other vehicle	₹3,000 a month	₹900

Example: your employer reimburses ₹8,000 a month for your 1.2-litre car. ₹5,000 is official, so ₹3,000 a month, or ₹36,000 a year, is taxable. At the 30% slab, that's ₹11,232 of tax. Under the old limit, ₹74,400 a year was taxable.

The rules link these amounts to records: your employer should keep details of official trips (date, destination, distance and cost) and certify that the expense was for official duties. If more than the fixed amount is genuinely official, those records let your employer treat the higher amount as official.

A company car

Company car used for work and personal trips	Taxable value a month
Employer pays running costs, engine up to 1.6 litres or electric	₹5,000
Employer pays running costs, engine above 1.6 litres	₹7,000
You pay personal running costs, engine up to 1.6 litres or electric	₹2,000
You pay personal running costs, engine above 1.6 litres	₹3,000
Driver provided, any of the above	₹3,000 more

A company car used only for official work has no taxable value, if your employer keeps the trip records and certificate. A car used only for personal trips is taxed on what your employer actually spends on it.

Both regimes

These values apply under the new and old regimes alike. They work out what's added to your salary; your slab rate does the rest.

Worth asking HR

• If your employer still uses ₹1,800 or ₹2,400 for 2026-27, your TDS is too high. Ask payroll to apply the new limits.
• If you get a flat fuel allowance in cash rather than a reimbursement against bills, the whole allowance is usually taxable. A reimbursement can be cheaper. Ask whether your company offers one.

Common questions

Two ways to sort this

Do it yourself

1. Find out how your employer pays for fuel: a reimbursement against bills, a company car, or a flat allowance.
2. Check your payslip. For 2026-27, the official part should be ₹5,000 or ₹7,000 a month for a car, and ₹3,000 for a two-wheeler.
3. Keep your fuel bills and a simple log of official trips (date, place, distance) and give them to payroll.
4. If your employer still uses the old ₹1,800 or ₹2,400, ask payroll to correct it so your TDS drops.

Let an expert do it

We read your payslip, check your car perk is valued under the new rules, and fix it in your return if it isn't.

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