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As you climb up the ladder in your profession, it is commonly seen that the employer provides a car to ensure 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.
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:
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.
| Description | Cubic Capacity within 1.6 litre | Cubic Capacity exceeding 1.6 litre |
| Expenses reimbursed by the employer | Rs.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 employee | Rs.600 + Rs.900 (if the driver is provided by the employer) | Rs.900 + Rs.900 (if the driver is provided by the employer) |
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.
In a case where the car is owned by the employee and running and maintenance expenses are met or reimbursed by the employer:
| Description | Cubic Capacity within 1.6 litre | Cubic Capacity exceeding 1.6 litre |
| Expenses reimbursed by the employer | Rs.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 employee | Rs.600 + Rs.900 (if the driver is provided by the employer) | Rs.900 + Rs.900 (if the driver is provided by the employer) |
Consider that Kumar Associates Ltd. has taken a car on lease and provided it to the new manager. This car is permitted by the employer to be used both for personal and official purposes. The employer does not provide a driver for this car. Let us say that the car’s cubic capacity is above 1.6 litres. In this case, the value of perquisites will be Rs.2,400 per month, i.e. Rs.28,800 per annum. Rs.900 is not included here as the employer has not provided a driver for the car as per the statement above. Even in a case where the employer provides the manager with Rs.1 lakh as reimbursement, the value of the perquisite taxable would be Rs.32,400 and Rs.39,600. The difference between the value of perquisites and the reimbursement will not be taxable for him.
If your employer provides one car for your use and another car for your family member’s use, the benefits from the value of perquisites will be applicable to only one car. The other car will be considered solely for personal purposes and will not be eligible for any tax benefits.
