This tax-free perquisite value for salaried employee will see a positive change in New Tax Bill 2025
In the proposed Income Tax Bill, 2025 the phrase which determines tax free perquisite for a salaried employee for any expenditure incurred by the employer for the use of a vehicle has been tweaked.#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;} Earlier in the Income Tax Act, 1961 the language of the law restricted non-taxable perquisites for vehicles provided only by a company, which may have caused multiple tax court cases, etc. This resulted in court judgements taking precedence over the language of the law. Now in the proposed Income Tax Bill, 2025 the language has been made clear to remove any ambiguity.
Explanation to Section 17 of the Income Tax Act, 1961 said: “For the removal of doubts, it is hereby declared that the use of any vehicle provided by a company or an employer for journey by the assessee from his residence to his office or other place of work, or from such office or place to his residence, shall not be regarded as a benefit or amenity granted or provided to him free of cost or at concessional rate for the purposes of this sub-clause.”
However, the new tax bill, 2025 proposes to change the language to imply that the expenditure incurred by the employer for use of a vehicle by the employee not only provided by employer, but any vehicle shall not be treated as a taxable perquisite.
This perquisite, will remain tax free in the hands of employees only when used for the specified purpose. Clause 17 2(e) of New Tax Bill, 2025 says: “Any expenditure incurred by the employer for the use of any vehicle for journey by the assessee from his residence to his office or other place of work, or from such office or place to his residence.”
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What does this change in language of perquisite value in the new income tax bill, 2025 mean?
While earlier the meaning of the tax-free perquisite value had to be derived from legal court judgements, now it is expressly stated in the law.Shalini Jain, Tax Partner, EY India says, “The proposed amendment clarifies that even if employer does not provide the vehicle but bears expenditure for travel of the employee to and from office by any vehicle, then the expenditure will be treated as non-taxable perquisite in the hands of the employee.”
Chartered Accountant (Dr.) Suresh Surana agrees with Jain and adds that the proposed change in Section 17(2)(e) the Income Tax Bill, 2025, expands this exemption of tax-free perquisite, by focusing on any expenditure incurred by the employer for the use of any vehicle for an employee’s travel between residence and workplace, regardless of whether the employer provides the vehicle or not.
Chartered Accountant Ashish Karundia has different view and stressed that despite the change in language, the core intention of the tax free prerequisite remains unchanged.
“The only difference is that the language has been restructured for clarity and better understanding. The current Explanation to Section 17(2)(iii) has been interpreted in several cases, including landmark rulings like Industrial Credit and Investment Corporation of India ([1993] 47 TTJ (Mum.) 401 - ITAT Mumbai) and Reliance Industries Ltd. ([2008] 175 Taxman 367 - Gujarat HC), which concluded that such travel-related expenses cannot be treated as a ‘perquisite’ for the employee, regardless of who owns the vehicle—whether it's the employer, the employee, or a third party,” says Karundia.
What might be the impact of this proposed change in the new tax bill, 2025 for salaried individuals?
We have asked various experts about the possible impact for salaried individuals for this change in language of non-taxable perquisite. Here’s what they said:Any commuting related expenditure borne by employer may qualify for tax-free perquisite
Surana says, this tweak in the language means that under the new tax bill, 2025:If the employer provides a vehicle, the exemption still applies.If the employer incurs expenditure for the use of any vehicle (e.g., employer directly pays for a transport service or leased vehicle for the employee’s commute), the exemption applies.However, reimbursements or travel allowances paid to the employee would not qualify for exemption from perquisite. (It may apply for exemption/ deduction under any other section)
Dinkar Sharma, Company Secretary and Partner, Jotwani Associates, says, “The existing provision under Income Tax Act, 1961 specifically applies to vehicles provided by the employer, ensuring that only structured company transport benefits are tax-free. However, Income Tax Bill, 2025 extends this exemption to any commuting expenditure borne by the employer, which could lead to broader interpretations and potential revenue implications for the government.”
Sharma adds: “The proposed change creates ambiguity rather than resolving it. By allowing any expenditure incurred by the employer on an employee’s commute—regardless of the mode of transport—to be considered a non-taxable perquisite, the provision could be misused. For instance, high-value reimbursements for premium travel options could qualify for tax exemption, leading to a loss of revenue.”
Yogesh Kale, Executive Director, Nangia Andersen LLP agrees with Sharma and adds: “The proposed change widens the scope of non-taxable perquisites, as unlike the existing provision (where provision of a vehicle by the employer is necessary), incurring of expenditure by the employer on any vehicle used by the employees would suffice. This may benefit the employees who are travelling by private cabs / public transport and getting reimbursed for conveyance.”
There is no discrimination between payment made directly by the employer vis-à-vis the amount reimbursed by the employer
Jain from EY says: “The proposed provision provides that ‘any expenditure incurred by the employer’ for the use of any vehicle for journey by the employee from his residence to his office or other place of work, or from such office or place to his residence. These words (‘any expenditure incurred by the employer) indicate that non-taxability position will hold good under all circumstances –Where employer provides its own vehicle for such travelWhere employer directly pays the cab facilitator orWhere employer reimburses the travel expenditure incurred by the employee either by employee’s own vehicle or hired by the employee “The above interpretation is mainly on account of the language of provision which provides thrust on incurrence of expenditure by the employer rather than provision of vehicle by the employer. Thus, the proposed provision does not discriminate between payment made directly by the employer vis-à-vis the amount reimbursed by the employer,” says Jain from EY.
No more court disputes about tax free perquisite value of vehicle expenses incurred by employer on employee’s behalf
Divyasha Mathur - Assistant Professor of Legal Practice, Jindal Global, says, “Currently, the law clearly states that only vehicles provided by the employer fall outside the ambit of a taxable perquisite. However, when considering Rule 3(7), certain related expenses—such as reimbursement of actual running and maintenance costs—already have a NIL taxable value under specific conditions.”Mathur adds: “By explicitly allowing an exemption where the employer bears the cost of travel (not necessarily the vehicle itself), the amendment removes ambiguity and ensures that employees who receive travel reimbursements or employer-funded transport arrangements do not face unnecessary tax liability. This is especially relevant in the post-pandemic hybrid work model, where organizations are increasingly providing transportation allowances instead of company-owned vehicles.”
Compliance burden may increase on employees
Kale, says, The proposed change aims at simplifying the provisions, as all costs of employees for travel between place of residence and place of work borne by the employer would qualify as non-taxable perquisites. However, this may increase the compliance burden on the employers, who would have to verify and process such travel reimbursements which could be a cumbersome exercise.Mathur agrees with Kale and adds: “Tax authorities may require stricter checks to ensure that travel reimbursements are genuinely for office commutes and not disguised compensation. This could result in increased compliance burdens for both employers and employees.”
"The implementation and enforcement of this amendment will depend on clear CBDT guidance, particularly regarding documentation and compliance requirements. Employers will likely need to maintain detailed records of reimbursements (e.g., fuel expenses, tracking distance to and from home and office, driver's salary, invoices, travel logs) to substantiate that the expenses pertain to commuting and not personal travel. Tax authorities may require stricter checks to ensure that travel reimbursements are genuinely for office commutes and not disguised compensation. This could result in increased compliance burdens for both employers and employees," says Mathur.
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This story originally appeared on: India Times - Author:Faqs of Insurances
