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Motor car allowance is one of the widely provided facility to the employee by the employer. But did you know this perquisite is taxable to an extent in your hands. This guide by H&R Block will help you get better understanding on the same.

Car Allowance and its Tax Benefits

Last Update Date : May 19, 2018

car allowance

As the saying goes “Hard work always comes with dedication and reward” how inspiring is when your employer rewards you a motor car for your praiseworthy efforts in the organisation. Barring the fact that the Income-tax department wants perquisite value of the motor car as usual.
Let us understand the valuation of motor car perquisites and exemptions if available in this guide by H&R Block.

What is Motor Car Allowance?

Generally, if the employer provides a motor car and its related facilities to the employee in case of a salaried person it is termed as perquisites and taxable to an extent in the hands of employee provided he/she is an employee of a specified category.

Valuation of Motor Car perquisites

Rule 3(2) of Income Tax Act lays down the valuation of perquisites of a Motor Car or any other automotive conveyance. Let us learn in details about the same.

Motor car is owned or hired by employer and running and maintenance are borne by the employer:

1. Motor Car is wholly and exclusively for official purposes:

In case the motor car is used for wholly and exclusively for official purposes irrespective of who owns the car i.e. the employer or employee, no taxable perquisites arises in the hands of employee .provided that the specified documents are maintained by the employer.

2. Motor Car is exclusively for the private, personal or family purpose of the employee:

When an employee uses the motor car perquisites fully for personal or private purposes it is fully taxable in the hands of the employee.

The value of perquisite will be:

  • Actual expenditure incurred by the employer on running and maintenance of the car
  • ADD: Salary of Chauffer
  • ADD: Normal wear and tear of the car (10% of Actual cost)
  • LESS: Any amount charged by the employer from the employee.

Therefore, the value of perquisite to be taxed can be computed as below:

  • Find out the amount spent by the employer on running and maintenance of car including depreciation, the salary of chauffeur, etc.
  • LESS: Any amount paid or reimbursed by the employee
  • Value of perquisite to be taxed.

3. Motor Car is used partly for personal and partly for private purposes:

Conditions Motor Car below 1.6 ltrs. engine capacity  Motor Car Above 1.6 ltrs. engine capacity If chauffeur provided by employer to run the motor car, an additional amount as below is also charged
Car owned/hired by employer and expenses on maintenance and running are met or reimbursed by the employer Rs. 1,800
per month
Rs. 2400
per month
Rs. 900
per month
Car owned/hired by employer but the expenses on running and maintenance for such private or personal use are fully met by the employee. Rs. 600 pm Rs. 900 pm Rs. 900
per month

Motor car is owned by the employee but its running and maintenance expenses are met or reimbursed by the employer

Motor Car is being used wholly and exclusively for official purposes:

When car is official used for official purpose no value of taxable perquisites arises in the hands of the employee.provided that the specified documents are maintained by the employer.

Motor Car is being used partly for official purposes and partly for personal or private purposes:

The taxable value shall be calculated as under:

  • The actual amount of expenditure incurred by employer
  • LESS: 1800 p.m. (up to 1.6 ltrs) and 2,400 p.m. (above 1.6 ltrs) plus 900 p.m. for driver or otherwise higher sum for official purposes subject to certain conditions.
  • Value of perk

Where the employee is provided any other automotive conveyance but the actual running and maintenance expensive are met or reimbursed by the employer

Employee‘s conveyance is being used only for official purposes:

No value of perquisites will be taxed provided that the specified documents are maintained by the employer.

Employee‘s conveyance used partly for official purposes and partly for personal or private purposes of the employee:

The value of taxable perquisites shall be the actual amount of expenditure incurred by the employer as reduced by the amount of 900 p.m. or a higher sum for official purposes subject to certain conditions.

Conditions in order to claim higher amount for deduction in respect of the official purpose

  • The employer has to maintain complete details of journey undertaken by the employee for an official purpose including date of journey, destination, mileage, and amount of expenditure incurred thereon; and
  • The employee has to furnish a certificate by the employer to the effect that the expenditure was incurred wholly and exclusively for the performance of official duties.

What if more than one car is provided to the employee?

Valuation of one car (at the choice of the employee) shall be @ Rs 1,800 p.m. or Rs 2,400 p.m. as the case may be and the valuation of any other car or cars shall be made considering those car / cars are for private purposes.
Car at concessional rate:
First of all calculate the value as if car has been provided totally free of cost * * *
Less any amount charged from the employee for the use of the car * * *
Value of perk to be taxed * * *

Frequently Asked Questions

1. What is the valuation of conveyance facility to high court and Supreme Court judges?

Ans: It is fully exempted.

2. Will the tax exemption be valid if the car is registered on spouse’s name?

Ans: No. In order to be eligible for the tax exemption, the car must be registered on your name.

3. Can the exemption be claimed on a rented vehicle through Ola or uber?

Ans: No. But in some cases, it differs from company to company according to the CTC.

4. Do I need to submit all the bills?

Ans: It is not mandatory to submit all the bills but it is advised to keep all the bills safely.

5. As per Income tax rules, a standard deduction of Rs 40,000 is applicable and conveyance and medical allowance will be removed. Can I still claim for fuel and driver as per CC limit on top of standard deduction?

Ans: Yes. You can but you must be eligible for the same.

6. Can I claim both conveyance and petrol allowance?

Ans: Yes. You can claim both at the same time as reimbursement of fuel expenses and conveyance allowance both are two different aspects.

7. What if the cab is provided by the company between office and residence purpose?

Ans: If the company provides a cab facility for the purposes of picking up employees from their residence to the place of work or office to residence, such expenditure is not chargeable to tax in the hands of employees.

8. What happens if the employee uses a two-wheeler or a bike?

Ans: If the bike is used exclusively for official purpose – the entire running expenses is exempt from tax in the hands of employee. If the bike is used exclusively for personal purpose – the entire reimbursements is taxable in the hands of the employee.

9. Which one is financially more beneficial, car owned by the employee or employer?

If the car is owned by the employer, then it is beneficial to the employee. For example, Ms.Pinky is working for XYZ Limited. The company has provided her a motor car (over 1600 CC engine) and met the running expenses (approx.) of Rs 5,500 pm. So, in the hands of employee Rs 2,400 per month is considered as taxable salary and balance Rs 3,100 will be exempt from tax. Suppose, the same car is owned by Ms Pinky and the running expenses of Rs 5,500 is reimbursed by the company, then only Rs 2,400 is allowed as tax-free money and the balance of Rs 3,100 is taxable.

Just like car allowance, there are various other components of your salary which can help you save taxes. The tax experts at H&R Block India can help you file your returns and save maximum amount of taxes.

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