Tax experts are urging the government to establish clear perquisite taxation rules for electric and hybrid vehicles in the upcoming Budget 2026, as employers increasingly struggle with uncertainty over how to tax EV benefits provided to employees.

Current Tax Framework Creates EV Uncertainty

For decades, employer-provided petrol and diesel cars have followed established tax guidelines with fixed monthly perquisite values based on engine capacity and limited variables. However, electric vehicles break this simplicity as they lack engine capacity for calculation anchoring, have varying charging costs between employees, and involve complex battery-related expenses that don't fit existing perquisite rules.

According to Deloitte, this absence of specific guidance has become a significant issue for employers who must deduct tax correctly but lack clear benchmarks, exposing them to risks from both inadequate and excessive deductions.

Impact on Corporate EV Adoption

The regulatory ambiguity is actively deterring employers from including electric and hybrid vehicles in standard corporate car policies, slowing EV adoption within organizations despite government incentives available under the Faster Adoption and Manufacturing of Electric Vehicles (FAME) and allied schemes.

Puneet Gupta, Director at S&P Global, explained: "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."

While the issue hasn't reached critical levels due to limited EV penetration in corporate fleets, increasing company adoption driven by sustainability targets and employee demand is making inconsistent tax practices more problematic.

Expert Recommendations for Budget 2026

Tax professionals are calling for the Central Board of Direct Taxes (CBDT) to notify clear regulations specifically addressing electric vehicle perquisite taxation. According to Divya Baweja, Partner at Deloitte, such clarity would help employers accurately value EV perquisites while enabling employees to understand their tax liability clearly.

Key Policy Recommendations:

• Charging Expenses: Explicit allowance for reimbursement of public charging costs and home electricity consumption
• Battery Costs: Clear framework for factoring battery usage and replacement expenses
• Hybrid Vehicles: Distinct guidelines separating fuel-driven and electric components
• Framework Continuity: Focused changes rather than complete overhaul of existing car perquisite structure

Alignment with Government EV Push

Experts emphasize that the expectation for Budget 2026 is not additional incentives but regulatory clarity that aligns perquisite taxation with the government's established electric mobility initiatives. The proposed changes would close existing gaps appearing on corporate balance sheets while maintaining consistency in the current tax structure and reducing potential disputes over EV benefit valuation.

The Union Budget 2026 remains a pivotal event for India's stock market trajectory, despite relatively muted public discourse around fiscal policy. Government spending has emerged as the primary driver behind the sustained bull run witnessed over the past 12 years, making budgetary allocations crucial for market participants and investors.

Government Spending as Market Catalyst

The significance of the Union Budget extends beyond traditional fiscal policy, serving as a roadmap for government expenditure patterns that directly influence market sentiment. Historical data demonstrates that government spending initiatives have consistently provided the foundation for market growth, creating a direct correlation between budgetary announcements and stock market performance.

Fiscal Deficit: The Determining Factor

The fiscal deficit stands as the single most important metric that determines the government's spending capacity and, consequently, its ability to stimulate economic growth. This financial parameter represents the gap between government expenditure and revenue, indicating how much the government needs to borrow to fund its operations and development programs.

The relationship between fiscal deficit and market performance has become increasingly evident, as higher deficit levels typically translate to increased government spending, which in turn stimulates various sectors of the economy. This spending creates a multiplier effect, benefiting infrastructure, manufacturing, and service sectors.

Market Expectations for 2026

Financial markets are closely monitoring the upcoming budget presentation, as it will provide clarity on the government's fiscal strategy for the year ahead. The finance minister's approach to balancing fiscal responsibility with growth-oriented spending will likely determine market sentiment and investment flows throughout 2026.

Investors and market analysts recognize that while public attention toward budget discussions may appear limited, the document's impact on market dynamics remains substantial. The budget's influence on sectoral allocations, infrastructure spending, and overall economic policy continues to shape investment decisions across various market segments.