How car allowances and reimbursement can save you taxes?

Use Your Car, Avail Benefits Apaar! 😉

Company offers car expenses reimbursement to its employees if these expenses are incurred for official duties.

Car owned by employee, expenses borne by employer

Income tax liability in this case is based on the purpose of use: private, official or both.

– If the vehicle is used solely for ‘official purpose’ then such reimbursements will not be taxable. Following conditions must satisfy to claim these expenses:

  • Employer should maintain proper records of journey, mileage, destination and the amount of expenditure
  • Employer gives a certificate that the expenses reimbursed are for wholly and exclusively for official use

– If car is used wholly for ‘private purpose’ then entire reimbursements paid are taxable.

– If car is used for both private and official purpose, then taxable amount is calculated on the basis of the following formula:

  • Total amount spent or reimbursed by the employer
  • Less: Amount used for official purpose that is specified by Income Tax Act on the basis of cubic capacity*
  • Less: Any amount recovered from employee
  • Balance amount, if positive, is taxable to the employee

* Value used for official purpose is calculated on the basis of cubic capacity of a car.

  • If cubic capacity of the car is below 1.6 liters i.e. 1600CC, expenses for use of the car are considered at the rate of Rs. 1,800/- p.m.
  • If cubic capacity of the car is above 1.6 liters i.e. 1600CC, expenses for use of the car are considered at the rate of Rs. 2,400/- p.m.

If driver is provided by employer then the expenses claimed are restricted to Rs. 900/- p.m. Higher sum is permissible if transaction details like bank statements, payment vouchers etc. are available with the employer.

Such a simple thing! Have any queries? Ask Moneyम्जी anytime at info@moneymji.com. 🙂

Leave a Reply

Your email address will not be published. Required fields are marked *