Posted on: May 13, 2011 Author: Sudhir Kaushik
Salaried employees often ask us about the tax liability of owning a car and using it for both personal and official purpose. Here is a detailed analysis of tax benefits of leasing a car from your company vs. owning a car. In case the car is owned by employee and the expenses are reimbursed by the employer the perquisite value will be computed. The tax liability on perquisite for reimbursement of fuel and driver expenses will be as below:
1. In case car used for official purpose only - the value of perquisite will be NIL hence there will be no addition in your taxable salary. Below conditions need to be fulfilled for claiming higher expenses if used for official purposes:
A) The employer should maintain complete details of visits made for official purpose which include - date, place visited, mileage, and, expenditure
B) The employer certificate is necessary to confirm that the expenditure were incurred for official purposes.
2. In case car is used for private purpose only - The taxable perquisite will be the amount actually paid by employer i.e., Rs 10,000 p.m. will be added in your taxable salary (minus the amount recovered from employee, if any for car expense)
3. If the car is used partly for office purposes and partly for private purpose - The taxable perquisite will be computed as below:
a) amount actual incurred by employer
b) Less: Rs 1800 p.m. (for car below 1.6 litres) or Rs 2,400 p.m. (for car above 1.6 litres) and Rs 900 p.m. for driver
Taxable perquisite without records will be Rs 10,000 - Rs 1,800- Rs 900 = Rs 7,300 p.m. for 1.6L and Taxable perquisite without records will be Rs 10,000- Rs 2,400-Rs 900 = 6,700 p.m. for above 1.6L
The taxable amount can be NIL. The higher amount can be deductible if the records are kept to prove expense were for official purposes.
Below conditions need to be fulfilled for claiming higher expenses if used for official purposes:
A) The employer should maintain complete details of visits made for official purpose which should have - Date, Place visited, mileage, amount of expenditure.
B) The employer certificate is necessary to confirm that the expenditure was incurred for official purposes.
GO for company leased car
We recommend that you ask your employer and get car lease from the employer for tax optimization. In case the car is used partly for office purpose and partly for self use, its tax efficient to have car on company lease instead of owning a car.
Only Rs 2,700 p.m. (1.6 litres) and Rs 3,300 p.m. (above 1.6 litres) will be added as perquisite for car and driver in your taxable salary. The actual expense incurred by employer could be Rs 10,000 or even higher.
Sudhir Kaushik has been a practicing tax consultant for the last 17 years. He is a Fellow Chartered Accountant and conducts seminars in large companies to help salaried employees with income tax and investment queries. Sudhir brings domain knowledge of income tax laws and their compliance difficulties faced by individuals. He is the author of Income Tax Handbook For Salaried Employees for smart financial planning and investments for salaried people. He enjoys an excellent reputation and has a strong network in the corporate sector and public sector undertakings.
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