Being aware of the tax treatment of the
perquisites provided by your employer, will help you plan your taxes better. Here we
present the tax implications of motor cars provided by the employer.
1. Director/Employee : It covers an employee who is
director in the employer company, it is immaterial whether the employee is a full time /
part-time director.
2. Employee who has substantial interest in
the employer company : It covers an employee who is a beneficial owner of equity
shares in the employer company, carrying 20% or more voting power.
3. Employee drawing in excess of
Rs.50000/-. This salary means income chargeable under the head salaries (exclusive of
the value of all benefits or amenities not provided by way of monetary payments) exceeds
Rs.50000/-. For computing this limit, all non-monetary payments, salary exempt under
provision Section 10 of the Income Tax Act, 1962, and amount deductible under Section 16
(Standard deduction, entertainment allowance and professional tax) are to be excluded.
The valuation of a perquisite in respect of
motor car as per IT Rule 3 is as under :
When a car is
owned by the employee:
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| a. When car expenses are met by the employee
himself |
Not a perquisite, hence not taxable |
b. When maintenance and
running expenses are met or reimbursed by the employer: |
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| If the car is used wholly for official
purposes |
Not a perquisite, hence not taxable |
If the car is used wholly for
private purposes |
Actual expenditure of the employer is taxable |
| If the car is partly used for
official purposes and partly for private purposes |
A reasonable proportion of the sum actually
spent by the employer which, in the opinion of the assessing officer , can reasonably be
attributed to the use of the car, for private purposes, is taxable. |
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When
car is owned by or hired by the employer : |
| a. When maintenance and running expenses are
met or reimbursed by the employer: |
|
If the car is used wholly for
official purposes |
Not a perquisite, hence not taxable |
If the car is
used wholly for private purposes |
Amount actually incurred by the employer for
the maintenance and running of the car; normal depreciation if it is owned by the
employer; or hire charges, if it is taken on hire and remuneration paid to the chauffeur,
is taxable. |
| If the car is partly used for
official purposes and partly for official purposes |
A reasonable proportion of the sum actually
spent by the employer for maintenance and running, normal wear and tear, if it is owned by
the employer, or hire charges, if it is taken on hire and salary of the chauffeur (if any)
attributable towards private use of the car, is taxable; if it is difficult to work out
such proportion, Rs.600/- per month, when h.p rating does not exceed 16 or Rs.800/- per
month when h.p rating exceeds 16, is taxable: if chauffeur is provided Rs.300/- per month
will also be added. |
| b. When the car expenses are met
by the employee |
|
If the car is
used wholly for official purposes |
Not a perquisite, hence not taxable |
If the car is
used wholly for private purposes |
Normal wear and tear, if the car is owned by
the employer, or hire charges, if the car is taken on hire, are taxable; in addition, if
chauffeur is provided the remuneration paid by the employer will be included. |
| If the car is partly used for
official purposes and partly for official purposes |
A reasonable proportion of normal wear and
tear, if it is owned by the employer, or hire charges, if it is taken on hire and
salary of the chauffeur (if any) attributable towards private use of the car, is taxable;
in case it is difficult to work out such proportion, Rs.200/- per month, when h.p rating
does nit exceed 16 or Rs.300/- per month when h.p rating exceeds 16, is taxable: if
chauffeur is provided Rs.300/- per month will also be included. |
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Example
Consider a case where X is provided a car by
his employer with a Horse Power rating of 17. He is also provided with a chauffeur, who is
paid by the employer.
The value of the perk in these two instances
– when expenses are met by the employer and met by the employee are shown below.
A) When maintenance
and running expenses are met or reimbursed by the employer :
(Car is used partly for official purposes and partly for personal purposes) |
B) When car expenses
are met by the employee :
(Car is used partly for official purposes and partly for personal purposes) |
Value of the
perquisite (Car) per annum |
Rs.9600/- |
Value of the cost
of chauffeur services per annum |
Rs.3600/- |
Total value of
the perquisite |
Rs.13200/- |
|
Value of the
perquisite (Car) per annum |
Rs.3600/- |
Value of the cost
of chauffeur services per annum |
Rs.3600/- |
Total value of
the perquisite |
Rs. 7200/- |
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