New Tax Bill 2025: Salaried Employees to Benefit From this Tax-Free Perquisite

The Income-Tax Bill, 2025, was proposed in Lok Sabha on February 13, 2025. It was introduced to replace the Income Tax Act, 1961. Its objective is to simplify the complex language and remove redundant provisions. Under this new tax bill, 2025, the sentence that specifies a tax-free perquisite for a salaried individual for any expenditure incurred by the employer for using a vehicle has been modified.

Under the Income Tax, 1961, the language limited the tax-free perquisite for vehicles provided only by a company; this led to confusion and may have caused disputes and court cases. Now in the new Income Tax Bill, 2025, the language has been simplified to clear the doubts and confusions of the taxpayers.

Section 17 of the Income Tax Act, 1961, mentioned that: For the removal of doubts, it is hereby declared that the use of any vehicle provided by a company or an employer for a 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 a concessional rate for the purposes of this sub-clause.”

However, under the proposed new income tax bill 2025, changes have been made in the language of the law. The tax-free benefit will apply only if the vehicle provided by the employer is used for a specific purpose. Clause 17 2(e) of the New Tax Bill, 2025, states: “Any expenditure incurred by the employer for the use of any vehicle for a journey by the assessee from his residence to his office or other place of work, or from such office or place to his residence.”

In simpler words, If the employer covers the cost of a vehicle used only for commuting between the employer’s residence and workplace, this benefit will remain tax-free for the employee.

According to an expert, the proposed changes clear the confusion that even if the employer does not provide the vehicle but is covering the cost for travel of the employee to and from the office by any vehicle, then the cost incurred will be considered a non-taxable perquisite in the hands of the employee.

However, as per another expert, the idea behind these tax rules still has not changed. He explained that the New Tax Bill, 2025, has only simplified the language for better clarity and understanding. He further highlighted that the current explanation to Section 17(2)(iii) has already addressed many cases, such as the Industrial Credit and Investment Corporation of India ([1993] 47 TTJ (Mum.) 401 – ITAT Mumbai) and Reliance Industries Ltd ([2008] 175 Taxman 367 – Gujarat HC).

These cases confirmed that travel-related expenses for commuting should not be treated as a taxable perk, regardless of who owns the vehicle — whether it’s the employer, the employee, or a third-party service. The updated language in the new tax bill simply reinforces this point to prevent further confusion.

How will this Change affect the Salaried Employees?

Many experts have given their opinions about the possible impacts on the salaried individuals.

 No difference between Employer’s Direct Payments and Reimbursements

The phrase “any expenditure incurred by the employer” makes it clear that this tax-free benefit applies in all cases, whether:

• The employer offers a company-owned vehicle for the employee’s commute.
• The employer directly pays for a cab or other transport service.
• The employer reimburses the employee for travel expenses, whether the employee uses their own vehicle or hires one themselves.

The above explanation only focuses on the language of the provision. It mentions the employer incurring the expense, rather than the employer specifically providing the vehicle. This means that whether the employer directly pays for the travel or reimburses the employee’s travel costs, the tax-free benefit will still apply. The new provision ensures there’s no distinction between these two methods of payment.

Increased Compliance Burden on the Employees

As per an expert, the changes are introduced to simplify the language of the rules In income tax. All the expenses incurred by the employee for the travel between home and workplace covered by the employer will be treated as non-taxable perquisites. However, this change might create an extra burden for employers. They will now have to verify and process travel reimbursement claims, which could be time-consuming and difficult to manage.

Tax authorities might introduce stricter rules to confirm that travel reimbursements are genuinely for home-to-office commutes. As a result, both employers and employees might have to face more paperwork and detailed documentation requirements to prove that these expenses are legitimate.

End of Court Disputes Over Tax-Free Perquisite Covered by Employers

According to another expert, under the current law, only employer-provided vehicles are treated as tax-free perks. However, under Rule 3(7), the reimbursement of actual running and maintenance costs already has NIL taxable value under specific conditions.

The new amendment makes it clear that if an employer pays for an employee’s travel expenses (even if they don’t provide a company-owned vehicle), it will still be treated as a tax-free benefit. Therefore, it removes any confusion about whether travel reimbursements or employer-paid transport services should be taxed or not.

The new rule makes things clearer and fairer for taxpayers. It confirms that if an employer pays for an employee’s travel to and from work — whether through a travel allowance, reimbursement, or hiring a transport service — it will still be tax-free. Overall, the updated rule simplifies things and prevents confusion for both employers and employees.