Valuation in Respect of Motor Car

Valuation of motor car facility given by employer or Taxability  of Car Expenses bear by either employee or employer or How to divide car expenses when car is used for personnel or private purpose under income tax  and exemption limits for car driver?

Motor car is the movable asset which is one the most basic perquisite given by the company to middle and top level management employees, so that they fulfill their duties more efficiently and timely.

From income tax perspective if car is utilized by the employee only for the official purpose then it will be tax free and no perquisite will be added to the employee salary while calculating salary income but in case if car is used by the employee for the personnel purpose then whatever net expenses beard by the employer will be added to the employee salary as perquisite for calculating gross salary.

If car is partly used for private and partly for official purpose then certain deduction is given under the income tax act. Important point is even if it used for few minutes for personnel purpose then these conditions will applicable there is no specific tenure for which car is too used for private or personnel purpose.

Car is owned by employee
  1. Expenses are bear by employee

    Not a perquisite

  2. Expenses are bear by employer
    1. Car is utilized wholly for officially purpose

      Not a perquisite

    2. Car is utilized wholly for private purpose

      Cost of expenses bear by employer

      Less: any amount received from employee

      ___________________________________

      If positive= perquisite

      ___________________________________

    3. Car is utilized partly for private &partly for official purpose
      1. Car is less then equal to 1600CC

        Cost of the employer

        Less:Rs.1800 P.M + Rs.900P.M.for car driver

        Less: any amount received from employee

        ____________________________________

        If positive = perquisite

        ____________________________________

      2. Car is more then to 1600CC

        Cost of the employer

        Less:Rs.2400 P.M + Rs.900P.M. car driver

        Less: any amount received from employee

        __________________________________

        If positive = It will be treated as Perquisite

 

Car is owned by employer

1.Expenses are bear by employer

  1. Car is utilized wholly for officially purpose

    Not a perquisite

  2. Car is utilized wholly for private purpose

    Cost of expenses bear by employer

    Less: any amount received from employee

    _______________________________

    If positive= It will treated as Perquisite

    _______________________________

  3. Car is utilized partly for official & partly for private purpose
    1. Car is less then equal to 1600CC

      Rs.1800 P.M

      Rs.900P.M. if car driver provided

      __________________________________________________

      Perquisite =Rs 1800/- without Driver and Rs 2700/- with driver.

      __________________________________________________

    2. Car is more then to 1600CC

      Cost of the employer

      Rs.2400 P.M

      Rs.900P.M. if car driver

      ___________________________________________________

      Perquisite =Rs 2400/- without Driver and Rs 3300/- with Driver.

      ___________________________________________________

2.Expenses are bear by employee

  1. Car is utilized wholly for officially purpose

    Not a perquisite

  2. Car is utilized wholly for private purpose

    Cost of expenses bear by employer

    (higher charges if car is taken or normal wear and tear @10% of the actual cost of the car if car is owned by employer

Plus: salary of chauffeur)

_______________________________

If positive= It will treated as Perquisite

_______________________________

  1. Car is utilized partly for private & partly for Official purpose
    1. Car is less then equal to 1600

      Rs.600 P.M

      Rs.900P.M. if car driver provided

    __________________________________________________

    Perquisite =Rs 600/- without Driver and Rs 1500/- with Driver.

    __________________________________________________

    1. Car is more then to 1600CC

      Rs.900 P.M

      Rs.900P.M. if car driver provided

    _________________________________________________

    Perquisite =Rs 900/- without Driver and Rs 1800/- with Driver.

Reference: Income Tax Rule 3: Valuation of Motor Car

2)(A) The value of perquisite by way of use of motor car to an employee by an employer shall be determined in accordance with the following Table, namely:—

TABLE II

VALUE OF PERQUISITE PER CALENDAR MONTH

Sl. No. CircumstancesWhere cubic capacity of engine does not exceed 1.6 litresWhere cubic capacity of engine exceeds 1.6 litres
(1)(2)(3)(4)
(1) Where the motor car is owned or hired by the employer and—
(a) is used wholly and exclusively in the performance of his official duties;No value:
Provided 
that the documents specified in clause (B) of this sub-rule are maintained by the employer.
No value:
Provided that the documents specified in clause (B) of this sub-rule are maintained by the employer.
(b) is used exclusively for the private or personal purposes of the employee or any member of his household and the running and maintenance expenses are met or reimbursed by the employer;Actual amount of expenditure incurred by the employer on the running and maintenance of motor car during the relevant previous year including remuneration, if any, paid by the employer to the chauffeur as increased by the amount representing normal wear and tear of the motor car and as reduced by any amount charged from the employee for such use.Actual amount of expenditure incurred by the employer on the running and maintenance of motor car during the relevant previous year including remuneration, if any, paid by the employer to the chauffeur as increased by the amount representing normal wear and tear of the motor car and as reduced by any amount charged from the employee for such use.
(c) is used partly in the performance of duties and partly for private or personal purposes of his own or any member of his household and—
(i) the expenses on maintenance and running are met or reimbursed by the employer;Rs. 1,800 (plus Rs. 900, if chauffeur is also provided to run the motor car)Rs. 2,400 (plus Rs. 900, if chauffeur is also provided to run the motor car)
(ii) the expenses on running and maintenance for private or personal use are fully met by the assessee.Rs. 600 (plus Rs. 900, if chauffeur is also provided by the employer to run the motor car)Rs. 900 (plus Rs. 900, if chauffeur is also provided to run the motor car)
(2)Where the employee owns a motor car but the actual running and maintenance charges (including remuneration of the chauffeur, if any) are met or reimbursed to him by the employer and—
(i) such reimbursement is for the use of the vehicle wholly and exclusively for official purposes;No value:Provided that the documents specified in clause (B) of this sub-rule are maintained by the employer.No value:
Provided that the documents specified in clause (B) of this sub-rule are maintained by the employer.
(ii) such reimbursement is for the use of the vehicle partly for official purposes and partly for personal or private purposes of the employee or any member of his household.Subject to the provisions of clause (B) of this sub-rule, the actual amount of expenditure incurred by the employer as reduced by the amount specified in Sl. No. (1)(c)(i) above.Subject to the provisions of clause (B) of this sub-rule, the actual amount of expenditure incurred by the employer as reduced by the amount specified in Sl. No. (1)(c)(i) above.
(3)Where the employee owns any other automotive conveyance but the actual running and maintenance charges are met or reimbursed to him by the employer and
(i) such reimbursement is for the use of the vehicle wholly and exclusively for official purposes;No value :Provided that the documents specified in clause (B) of this sub-rule are maintained by the employer.Not applicable :
(ii) such reimbursement is for the use of vehicle partly for official purposes and partly for personal or private purposes of the employee.Subject to the provisions of clause (B) of this sub-rule, the actual amount of expenditure incurred by the employer as reduced by the amount of Rs. 900.

Provided that where one or more motor-cars are owned or hired by the employer and the employee or any member of his household are allowed the use of such motor-car or all of any of such motor-cars (otherwise than wholly and exclusively in the performance of his duties), the value of perquisite shall be the amount calculated in respect of one car in accordance with Sl. No. (1)(c)(i) of Table II as if the employee had been provided one motor-car for use partly in the performance of his duties and partly for his private or personal purposes and the amount calculated in respect of the other car or cars in accordance with Sl. No. (1)(b) of Table II as if he had been provided with such car exclusively for his private or personal purposes.

(B) Where the employer or the employee claims that the motor-car is used wholly and exclusively in the performance of official duty or that the actual expenses on the running and maintenance of the motor-car owned by the employee for official purposes is more than the amounts deductible in Sl. No. 2(ii) or 3(ii) of Table II, he may claim a higher amount attributable to such official use and the value of perquisite in such a case shall be the actual amount of charges met or reimbursed by the employer as reduced by such higher amount attributable to official use of the vehicle provided that the following conditions are fulfilled :—

(a)  the employer has maintained complete details of journey undertaken for official purpose which may include date of journey, destination, mileage, and the amount of expenditure incurred thereon;

(b)  the employer gives a certificate to the effect that the expenditure was incurred wholly and exclusively for the performance of official duties.

Explanation.—For the purposes of this sub-rule, the normal wear and tear of a motor-car shall be taken at 10 per cent per annum of the actual cost of the motor-car or cars.

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