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.
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.
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.
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. No benefit can be availed by the employee in this regard. The amount reimbursed will be mentioned in the payslip 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.
Car owned by the employee
In a case where the car is owned by the employee and running and maintenance expenses are met or reimbursed by the employer:
Car is used wholly for official purposes, the value of the car would be similar to the point (1) above.
Car is used for personal purposes in addition to official ones, the expenditure incurred as reduced by below will be taxable:
If the car is owned/leased by the employer, the employee using that car will pay tax on a prerequisite of Rs 2,700 per month (car with engine capacity up to 1,600 cc) or Rs 3,300 per month (car with engine capacity more than 1,600cc) in respect of the aggregate of the actual lease rent, driver's salary, maintenance expenses and fuel expenses borne by the employer. If the employee owns the car, he will be entitled to an exemption of Rs 2,700 per month or Rs 3,300 per month in respect of the driver.car maintenance expenses and fuel expenses borne and reimbursed by the employer.