Car Maintenance Allowance - Tax Benefit

As you climb up the ladder in your profession, it is commonly seen that the employer provides a car to ensure an easy commute for such employees. Such a car can be owned by the employer or the employee. In addition, the expenses related to the car can be sponsored by the employer or not. The car may be used for personal reasons at times, leading to confusion in the minds of employees in terms of tax liability.

Here is a list of possibilities and their respective tax liabilities.

IA .Car owned by the employer – Value of car used exclusively for official purposes

Irrespective of who owns the car, if the car provided by the employer is used solely for official purposes, no tax liability exists. For this to be non-taxable, the employer must maintain proper records as given below:

Details of all the official journeys must be maintained including details such as date, destination, mileage, bills, and other expenditures related to it.

The employer must also issue a certificate stating that the vehicle was used only for official purposes.

IB. Car owned by the employer – Value of car used for both official and personal purposes
When the car provided by the employer is used for personal purposes in addition to official ones, the expenditure will be considered under Rule 3(2)(A) and Table II of Value of Perquisites. The table below provides further information on the same.

DescriptionCubic Capacity within 1.6 litreCubic Capacity exceeding 1.6 litre
Expenses reimbursed by the employerRs.1,800 + Rs.900 (if a driver is provided by the employer)Rs.2,400 + Rs.900 (if the driver is provided by the employer)
Expenses directly met by the employeeRs.600 + Rs.900 (if the driver is provided by the employer)Rs.900 + Rs.900 (if the driver is provided by the employer)

IC.  Car owned by the employer – Value of car used only for personal purposes
If the car provided by the employer is solely used for personal reasons and if the expenditure is borne by the employer completely, the entire amount will be taxable.

Taxable Amount = All Expenses + 10% of actual cost/Hire charges + Driver's Salary

No benefit can be availed by the employee in this regard. The amount reimbursed will be mentioned in the pay slip and can be taxed according to the applicable income tax slab. Any amount recovered by the employer from the employee will be reduced in computing the taxable amount.

 

IIA. Car owned by the employee – Value of car used exclusively for official purposes

As said earlier, irrespective of who owns the car, if the car provided by the employer is used solely for official purposes, no tax liability exists.

IIB. Car owned by the employee – Value of car used for both official and personal purposes

Car is used for personal purposes in addition to official ones, the expenditure incurred as reduced by below will be taxable:

DescriptionCubic Capacity within 1.6 litreCubic Capacity exceeding 1.6 litre
Expenses reimbursed by the employerAll Expenses -[Rs.1,800 + Rs.900 (if a driver is provided by the employer)]All Expenses -[Rs.2,400 + Rs.900 (if the driver is provided by the employer)]

IIC. Car owned by the employee – Value of car used only for personal purposes 

If the car owned by the employee himself is used for personal reasons and if the expenditure is borne by the employer, the entire amount will be taxable.

Taxable Amount = All Expenses + Driver's Salary

 

Therefore,  if you are among the employees who use personal car or office ones, then make sure you are aware of the tax benefits mentioned above.

 

Disclaimer: - The articles are for information purposes only. Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. You must consult a financial advisor who understands your specific circumstances and situation before taking an investment decision.

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