Budget 2026: Industry experts seek tax clarity on employer-provided EVs and hybrid cars

EV

• Employers face tax uncertainty on EVs in pay packages due to unclear rules
• Experts urge clear EV perquisite tax guidelines in Budget 2026
• Regulatory ambiguity slows corporate EV adoption despite sustainability goals

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Electric cars are slowly finding their way into corporate compensation packages, but the tax framework around them hasn’t kept pace.

For years, employer-provided petrol and diesel cars have been governed by a clear, predictable system. A standard monthly value is added, tax is deducted through payroll, and the process ends there. That clarity, however, is missing when it comes to electric vehicles.

How a combustion engine vehicle is taxed

When the car is used for both personal and official needs, the car's cubic capacity determines the value of perquisite. With engine capacity up to 1.6 litres, Rs 1,800 per month is added to taxable income, while for cars with higher engine capacity, the value is Rs 2,400 per month. If a driver is provided by the employer, an additional Rs 900 per month is added.

Companies offering EVs and hybrids to employees are 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.

Budget 2026: Experts push for clear tax rules on EV, hybrid cars given by employers

The Income tax Rules provide a detailed mechanism for calculating the car perquisite for fuel vehicles; the same clarity is absent for EVs.

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 Deloitte, 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.

Puneet Gupta, Director - S&P Global 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 Divya Baweja, Partner, Deloitte, 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.