Tax Benefits When Car is Provided by Employer to Employee

We can see this generally that company is providing Cars to its employees for doing the official duties. These cars are generally provided by the employer of your company and are used by employees. Cars are used for both official and personal purposes. Employees get confused about the tax-ability of owning car and leasing a car from your company. Here you can find all aspects of taxes when car is provided to employee by employer.

Motor car facility provided by the employer is included in the income under head ‘Salaries’ under section 17(2)(iii) read with Rule 3(2). Motor car facility is the perquisite and perquisites are the part of taxable income subject to the provisions of the act.

There are two situations of providing car to employee

  1. Car owned/ hired by the employer.
  2. Car owned by the employee.

When Car Owned/Hired by employer

Click the picture to zoom.

tax ability when car provided by employerIn case the motor car is provided by the employer, the provisions as per income tax act and income tax rules are:

1) Value of Motor car when it is used wholly & exclusively for official purposes

If the car is used only for business in the performance of office duties and expenses are met by employer, then it will not be taxable. For availing this tax benefit employer has to comply with some conditions i.e. employer has to maintain required documents & detailed record of:

  1. Complete details of the journey undertaken for the official purpose is maintained by employer such as date, bills, destination, and expenditure incurred.
  2. Issue a certificate confirming that the car was used only for official purpose.

Note:- In case the expenses are met by employee then also the provisions are same as discussed above i.e. value of perquisite is NIL, hence not taxable.

2) Value of Motor car perquisite when it is used wholly for personal purpose

Situation 1 – Car is used for the personal purpose of his own and his family, expenses are met by employer
When the cubic capacity of the engine is upto 1.6 liter or More than 1.6 Liter

-> Amount spent by employer on running and maintenance + Chauffer’s remuneration (if provided by employer) + 10% p.a. cost of asset – Amount charged from employee = value of perquisite

Situation 2 – Car is used for the personal purpose of his own and his family, expenses are met by employee.
When the cubic capacity of the engine is upto 1.6 liter or More than 1.6 Liter

-> 10% p.a. Cost of asset

 3) Value of Motor car perquisite when it is used partly for official purposes and partly for personal purposes

Sr No.

Situation

When the cubic capacity of the engine is upto 1.6 litre

When the cubic capacity of the engine is more than 1.6 litre

1Car is used for partly personal purpose of his own and his family and partly for official purposes, expenses are met by employer.Rs.1800 p.m. plus Rs.900 p.m. if driver is also provided by the employerRs.2400 p.m. plus Rs.900 p.m. if driver is also provided by the employer
2Car is used for partly personal purpose of his own and his family and partly for official purposes, expenses are met by employee.Rs.600 p.m. plus Rs.900 p.m. if driver is also provided by the employerRs.900 p.m. plus Rs.900 p.m. if driver is also provided by the employer

When Car Owned by Employee

Click the picture to zoom.

taxability when car provided by employer to employee1) Expenses are met by employer

In case the car is owned by the employee, the provisions as per income tax act and income tax rules are:

  • Value of Motor car perquisite when it is used wholly and exclusively for the official purposes

If the car is used only for business in the performance of office duties, then it will not be taxable. For availing this tax benefit employer has to comply with some conditions i.e. employer has to maintain required documents & detailed record of:

  1. Complete details of the journey undertaken for the official purpose is maintained by employer such as date, bills, destination, and expenditure incurred.
  2. Issue a certificate confirming that the car was used only for official purpose.

Value of Motor car perquisite when it is used wholly for personal purpose.

Sr No.

Situation

When the cubic capacity of the engine is upto 1.6 litre

When the cubic capacity of the engine is more than 1.6 litre

1Car is used for the personal purpose of his own and his family, expenses are met by employer.Amount spent by employer on running and maintenance including actual salary of driver (-)

Amount charged from employee

= Value of perquisite

Value of Motor car perquisite when it is used partly for official purposes and partly for personal purposes

Sr No.

Situation

When the cubic capacity of the engine is upto 1.6 litre

When the cubic capacity of the engine is more than 1.6 litre

1*Car is used for partly personal purpose of his own and his family and partly for official purposes, expenses are met by employer.Actual amount of expenditure (-) Rs.1800 p.m.

(-) 900 p.m. if driver provided    by employer

(-) amount charged from employee if any

Actual amount of expenditure (-) Rs.2400 p.m.

(-) 900 p.m. if driver provided by employer

(-) amount charged from employee if any

 *If actual expenses on running and maintenance for official is more than Rs.1800/2700 or Rs.2400/3300 as the case may be the employee can claim such actual amount of deduction which he has incurred for official purpose, but he must maintain same documents as discussed in ‘ Value of motor car perquisite used wholly for official purpose.’

2) Expenses are met by Employee

In case the car is owned by employee and expenses are also met by employee there is NO Perquisite and hence, no question of tax-ability.

Important points

  • Conveyance facility provided to High Court Judges and Supreme Court Judges is not taxable.
  • The perquisite value shall be computed for each calendar month. If car is given in between of a month, then that month shall be ignored.
  • If a vehicle has been provided by the employer for commuting from residence to office and back, in such a case there shall be no perquisite value of such vehicle. { Explanation to Sec 17(2)(iii) }
  • If the motor car is owned by employee himself and is being used for personal purpose and the employer has given reimbursement for expenses of motor car, in such a case the perquisite value shall be covered under section 17(2)(iv)e. monetary perquisite and the entire amount reimbursed will taxable in the hands of employee.

In case when employer provides more than one motor car

If the employer has provided more than one motor car for official as well as personal use, in such case, only one car shall be considered to be used for official/ personal purpose and all other cars shall be considered to be used for personal purposes.


About the Author

arpit goyalArpit Goyal is pursuing CA and B.com & also working as an article assistant in Gurgaon. He has an immense interest in Taxation. He loves to use technology to spread knowledge about taxation & accounts.

Categories Salary

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