Valuation of Motor Car Perquisites | Salary Income
Valuation of motor car perquisites
Employees are generally paid in terms of salary, but to motivate and encourage them, they are provided with certain extra benefits along with salary. These types of benefits are termed as “Perquisites” in normal parlance. Such perquisites whether monetary or non- monetary, are taxable along with salary under the head “Income from Salaries”.
Perquisites may be in the way of providing free accommodation, domestic servants, education to the children of employee at concessional rate, etc. One of such perquisite is Motor Car perquisite. The perquisite of Motor Car is taxable under section 10(14)(i) in the manner prescribed in Rule 3 (2) of the Income Tax Act.
10(14)(i)any such special allowance or benefit, not being in the nature of a perquisite within the meaning of clause (2) of Section 17, specifically granted to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of an office or employment of profit, [as may be prescribed], to the extent to which such expenses are actually incurred for that purpose;
(ii) any such allowance granted to the assessee either to meet his personal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at the place where he ordinarily resides, or to compensate him for the increased cost of living, [ as may be prescribed and to the extent as may be prescribed];
Provided that nothing in sub-clause (ii) shall apply to any allowance in the nature of personal allowance granted to the assessee to remunerate or compensate him for performing duties of a special nature relating to his office or employment unless such allowance is related to the place of his posting or residence.
The above provisions can be understood with regards the use of motor car provided in the course of employment to the employee. Use of such motor car can be in the following circumstances and the taxability of the same is also prescribed in Rule 3 in the following manner as represented in the following flowchart to make it simpler to understand:
When the Motor Car is owned by the employee and the running and maintenance expenses are borne by the employer and also the motor car is used wholly and exclusively for the official purpose, the limits above in point 2(ii) and point 3(ii) shall not apply.
It means that the amount of perquisite will be calculated in the following manner:
Actual amount of charges met or reimbursed by the employer XXX
Less: Amount attributable to official use of the vehicle (xxx)
Value of Perquisite xxx
The above is allowed subject to conditions as follows:
a) Complete details of journey undertaken for official purpose is being maintained by employer such as date, destination, mileage and expenditure incurred for such journey; and
b) Employer certifies that the journey was exclusively for business purpose.
When One ore more Motor Car is owned / hired by the employer and used by the employee:
In the case where one or more are used by the employee or it is being allowed to use for household purpose by any household member of the employee, the value of perquisite will be considered as:
For one Car as if it is partly used for the official purpose and partly used for the personal purpose and the value of perquisite will be calculated as explained in Point 1 (c ) (i).
For the another car/cars(if more than one) as if it is used fully for the personal purpose and the value of perquisite will be calculated as explained in Point 1 (b).
Let us understand the above topic with the help of an example:
Mr. A is an Employee of XYZ Ltd. He is provided with a perquisite of using company’s car along with Chauffer. Also he has been provided with the benefit that two cars of company can be used by any member of his fami
ly (Without Chauffer). Details of expenditure are:
Actual reimbursement by XYZ Ltd. For car used by Mr. A Rs. 50,000 p.a.
Actual reimbursement by XYZ Ltd. For 2 cars used by Mr. A’s Family Rs. 80,000 p.a.
Calculate Value of Taxable Perquisite.
For Car used by Mr.A
Actual reimbursement by XYZ Ltd. For car used by Mr. A 50,000
Less: Allowable as deduction as per Rule 3 (Note 1) (32,400) 17600
For 2 Cars used by Mr.A’s Family
Actual reimbursement by XYZ Ltd. For car used by Family 80,000
Less: Allowable as deduction as per Rule 3 (Note 2) ( NIL ) 80,000
Total Value of Taxable Perquisite for use of Motor car 97,600
Allowable deduction as per explanation in Point 1(c )(i)
i.e. ` 1,800 (plus ` 900, if chauffeur is also provided ) = (1800+900)*12= Rs. 32,400
Allowable deduction as per explanation in Point 1(b ) = NIL
It is assumed that cubic capacity of engine is less than1.6 litres
Sale of Motor Car to the Employee by the employer
When the employer sales the Motor Car to his employee, the value of perquisite is equal to the loss on sale of such motor car to the employer because it is deemed that such loss is incurred to give indirect benefit to the employer. Let us understand the point with an example.
Car Purchased as on 1.4.2011 Rs. 4,50,000
Rate of Depreciation 15%
Car sold to employee on 31.03.2013 Rs. 2,00,000
Calculate taxable perquisite in the hands of Employee.
Purchase of Car as on 1.4.2011 &n
Less: Depreciation @ 15% (67,500)
WDV as on 31.03.2012 3,82,500
Less: Depreciation @ 15% (57,375)
WDV as on 31.03.2013 3,25,125
Less: Sale to Employee (2,00,000)
Taxable Perquisite 1,25,125