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The value of perquisites provided to employees by their employers, including motor cars, is chargeable to income-tax under the heading "income from salaries" as per Section 17(2) of the Income Tax Act. When an employer reimburses the expenses of running and maintaining a motor car owned by the employee, the perquisite value is determined under Rule 3(2A) of the Income Tax Rules.

This article explores how to calculate the perquisite value in various scenarios, ensuring compliance with the tax regulations.

Motor cars are used wholly and exclusively for official purposes

When the motor car owned by the employee is used wholly and exclusively for official purposes, the reimbursement of running and maintenance expenses by the employer does not attract any perquisite value, provided the following conditions are met:

• Detailed Records: The employer maintains complete details of journeys undertaken for official purposes, including date, destination, mileage, and the amount of expenditure incurred.
• Certification: The employer provides a certificate stating that the expenses were incurred wholly and exclusively for official duties.

Also Read- Components of Income Under the Head "Salaries" 

Examples

An employee owns a motor car with an engine capacity of 1500 cc. The employer reimburses the running and maintenance expenses, totaling ₹30,000 monthly. The employer maintains detailed records and provides a certificate of exclusive official use.

• Calculation: Since the car is used wholly for official purposes, the perquisite value is ₹0

Perquisite Value for Mixed Use

When the motor car is used partly for official purposes and partly for personal or private purposes,The perquisite value is the actual expenses incurred (reimbursed) by the employer, reduced by the standard deduction based on engine capacity and chauffeur employment, as under:

• Engine Capacity up to 1.6 liters (1600 cc)
• Without Chauffeur: ₹1,800 per month
• With Chauffeur: ₹2,700 per month
• Engine Capacity Exceeding 1.6 liters (1600 cc)
• Without Chauffeur: ₹2,400 per month
• With Chauffeur: ₹3,300 per month

Example-1

An employee owns a motor car with an engine capacity of 1800 cc. The employer reimburses the running and maintenance expenses, totaling ₹40,000 monthly. The car is used partly for official and partly for personal purposes, and a chauffeur is employed.

Calculation:

• Monthly Deduction = ₹2,400 (engine) + ₹900 (chauffeur) = ₹3,300/-
• Perquisite Value = ₹40,000 - ₹3,300 = ₹36,700/-

Conditions for Claiming Higher Official Use

If the employer or employee claims that the motor car is used predominantly for official purposes and the actual expenses incurred on the motor car's running and maintenance for official purposes exceed the standard amounts deductible, they can claim a higher amount attributable to official use. The perquisite value in such cases will be the actual amount of charges met or reimbursed by the employer, reduced by the higher amount attributable to official use.

The following conditions must be fulfilled:

• Detailed Records: The employer must maintain complete and detailed records of the journeys undertaken for official purposes, including the date of the journey, destination, mileage, and amount of expenditure incurred.
• Certification: The employer must provide a certificate confirming that the expenses were incurred wholly and exclusively for official duties.

Example- 2

An employee owns a motor car with an engine capacity of 1600 cc. The employer reimburses ₹30,000/- monthly for running and maintenance. The employer claims that 70% of the mileage used is for official purposes. For this purpose, the employer has maintained the requisite details (Log Book) and has given a certificate to the effect that the expenditure to the extent claimed has been incurred wholly and exclusively for the performance of official duties by the employee.

Calculation:

• Amount Attributable to Official Use= 70% × ₹30,000 = ₹21,000/-
• The perquisite value is: ₹30,000 − ₹21,000 = ₹9,000/-

Conclusion

Amount Attributable to Official Use = 70% × ₹30,000 = ₹21,000/- ses reimbursed by the employer involves understanding the usage of the vehicle, maintaining proper documentation, and adhering to the rules set forth in the Income Tax Act. Whether the car is used wholly for official purposes or partially for personal use, following the prescribed methods ensures compliance and proper reporting of income under "salaries." Explore Flexi Benefits with a Free Demo! 

[Disclaimer- The article is only for educational purposes and is not to be construed as tax advice. The relevant provisions of the Income-tax Act may be referred to, for complete understanding.]