Company car and fuel perquisite, explained for Indian employers
A company car and fuel perquisite is the benefit an employee gets when you provide a car and bear its running and fuel cost. Where the car is used partly for official and partly for personal work, the taxable value is a fixed monthly figure set under Rule 3, not the real spend.
That single line is why the company car tax question comes up so often in a pay review. The taxable amount is small and fixed, so a car with fuel can be one of the more sensible benefits you offer a senior hire. This page sets out the fixed values, who they suit, and how the car line sits in the offer letter. It is written for the person who signs off the package.
What is the company car and fuel perquisite?
A perquisite is a benefit in kind, something of value an employee receives beyond cash salary. A company car is one of the older and more familiar of these. When you hand a manager a car, pay for its fuel and its upkeep, and let them use it for both office trips and personal errands, the tax law does not ignore the private slice of that use. It puts a value on it and adds that value to the employee's taxable income.
The design is a mixed use one. The car is not purely a work tool, because the employee also drives it home and on weekends. It is not purely a private car either, because a good part of the mileage is official. Rather than ask anyone to keep a logbook splitting every kilometre, the rule fixes a flat monthly value for the personal portion. That is the number the employee is taxed on, and it is the number you should have in mind when you frame the role. A quick look at your wider salary structure guide shows where a benefit like this sits against the cash heads.
How is a company car with fuel taxed?
Here is the part most employers want in plain figures. Where you provide the car, it is used partly official and partly personal, and you bear the running and maintenance cost, the taxable perquisite is a fixed monthly value under the Rule 3 valuation. It does not track your actual fuel bill or service invoices. It is a set amount that turns on engine size, with a small addition when a driver comes with the car.
| What is provided | Fixed monthly perquisite value |
|---|---|
| Car up to 1600 cc | 1,800 rupees a month |
| Car above 1600 cc | 2,400 rupees a month |
| Chauffeur also provided | Add 900 rupees a month |
So a mid size car under 1600 cc with fuel is valued at 1,800 rupees a month. A larger car above 1600 cc sits at 2,400 rupees a month. Put a driver on it and you add 900 rupees a month either way. These are the whole figures. There is no separate charge layered on for the fuel you paid, because the fuel and the upkeep are already assumed inside the fixed value.
The point to hold on to is the gap between that fixed value and the money that really goes out. Fuel across a year, insurance, servicing and a driver's wage run to a sum many multiples of a few thousand rupees. The employee is taxed on the small number, not the large one. For general context on how the department lists car and other benefits, the Income Tax Department allowances page is the official reference, though the exact perquisite figures are best confirmed with your CA.
Why a company car with fuel is a tax efficient benefit
Think of the same value delivered two ways. You could raise a person's cash pay so they can buy fuel and run their own car, and every rupee of that raise is taxable in the normal way. Or you could give them a company car with fuel, where the taxable value is capped at 1,800 or 2,400 rupees a month, plus 900 for a driver. The second route puts a real benefit in the employee's hands while the tax follows only the small fixed figure.
That is the whole case for the benefit, and it is a narrow one. It works because the fixed perquisite value is usually far below the actual running cost of the car. For a senior role that clocks real mileage, the difference between what the car costs you and what the employee is taxed on is where the efficiency sits. It is not a loophole, it is the valuation the rule sets.
It suits some roles and not others. A field sales head, a plant manager, a founder who is on the road, these are the people for whom a car with fuel earns its place. For a desk based junior it rarely makes sense, since the running cost you carry outweighs the perk. Weigh the benefit against the cash alternative when you decide the mix, the same way you would weigh any head while reading what CTC actually means for the offer you are about to make.
What if the employee owns the car instead?
This page covers the employer provided car, which is the clean and settled case. There is a different arrangement where the employee owns the car and the employer reimburses fuel or running costs against bills. The treatment there is not the same, and this page does not set out figures for it.
If your plan leans that way, do not carry the 1,800 and 2,400 rupee values across to it. They belong to the employer provided car. The employee owned case has its own valuation and its own conditions, and it is exactly the kind of point to settle with your CA before you write it into a contract. Keep the two apart in your head, decide which one you are actually offering, and price the role from there.
How to put a car benefit in the offer letter and CTC
Once you have decided a role gets a company car, the benefit has to show up on paper. It sits as a line in the cost to company and appears in the offer letter, so the candidate sees the full package and there is no argument later about what was promised. This is where Offrd fits.
Offrd builds the salary structure with heads like Basic, HRA and other allowances, and it can carry a car benefit line in the CTC and on the offer letter and payslip. Basic defaults to 50 percent of CTC and HRA to 40 percent of Basic, both editable, and EPF, ESI, PT and gratuity are worked out in the structure. You generate the offer letter with the car line already in place, and the same figures flow through to the monthly payslip. Setup takes under two minutes.
Be clear on the boundary. Offrd documents the benefit, it does not compute the perquisite value and it does not file tax. Whether the taxable value is 1,800 or 2,400 rupees, how the driver adds in, the TDS on it and the Form 16 entry, all of that is the work of your CA or payroll consultant. Offrd's job is to structure and record the pay accurately, so what your consultant files starts from clean numbers. If you want to sanity check the take home behind an offer, the CTC to in hand calculator is the quick way.
More than 4,000 companies across 350 plus Indian cities use Offrd to produce offer letters, payslips and settlements in minutes.
Frequently asked questions
How is a company car with fuel taxed in India?
Where the employer provides a car used partly for official and partly for personal purposes and bears the running and maintenance cost, the taxable perquisite is a fixed monthly value, not the actual spend. It is 1,800 rupees a month for engine capacity up to 1600 cc and 2,400 rupees a month above 1600 cc, under the Rule 3 perquisite valuation.
What is the perquisite value for a car above 1600 cc?
For a car above 1600 cc that the employer provides for mixed official and personal use, with the employer bearing running and maintenance cost, the taxable perquisite is 2,400 rupees a month. Below or up to 1600 cc it is 1,800 rupees a month.
Does providing a chauffeur change the taxable value?
Yes. Where the employer also provides a chauffeur, another 900 rupees a month is added to the perquisite value, on top of the 1,800 or 2,400 rupees for the car itself. These are the fixed monthly figures under Rule 3.
Why is a company car with fuel a tax efficient benefit?
Because the employee is taxed on the small fixed monthly value, 1,800 or 2,400 rupees plus 900 for a chauffeur, rather than on what the car and fuel actually cost. The fixed value is usually far below the real running cost, so a company car with fuel is a tax efficient benefit for eligible roles.
What if the employee owns the car and claims fuel reimbursement?
The treatment differs from the employer provided car covered here, and the rules for the employee owned case are not set out on this page. If your arrangement is one where the employee owns the car, confirm the correct valuation and any reimbursement treatment with your CA.
Does Offrd calculate the car perquisite value?
No. Offrd can carry a car benefit line in the CTC and show it on the offer letter and payslip, so the package is documented clearly. It does not compute the perquisite value or file tax. Your CA or payroll consultant handles the perquisite valuation, TDS and Form 16.
Put the car benefit on the offer letter, cleanly
Offrd carries a car benefit line in the CTC and on the offer letter and payslip, with Basic, HRA, EPF, ESI and PT worked into the structure. Setup takes about two minutes.