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The provision of a motor car by an employer to an employee can be a valuable perk but also a taxable one under the heading "Income from Salaries" as per Section 17(2) of the Income-tax Act. However, the use of a vehicle provided by the employer for commuting between the residence and the place of work is not considered a perquisite.

This article provides a comprehensive guide on determining the perquisite value when an employer provides a motor car to an employee, covering various scenarios of usage with practical examples based on Rule 3(2A) of the Income-tax Rules.

Categories of Motor Car Usage

The computation of the perquisite value depends on the usage of the motor car:

• Exclusively for official purposes
• Exclusively for personal purposes
• Mostly for official purposes, but also for personal reasons

1. Motor Car Used Exclusively for Official Purposes

When the motor car is used wholly and exclusively for official purposes, no perquisite value is added to the employee's salary, provided the following conditions are met:

• The employer maintains complete and detailed records of the journeys undertaken for official purposes, which may include the date of the journey, destination, mileage, and the amount of expenditure incurred.
• The employer provides a certificate confirming that the expenses were incurred wholly and exclusively for official duties.

Example: An employer provides a motor car exclusively for official duties. The employer maintains detailed records and certifies that all expenses were for official purposes. Since all conditions are met, the perquisite value is zero.

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2. Motor Car Used Exclusively for Personal Purposes

When the motor car is used exclusively for personal purposes, the entire expense incurred by the employer is considered a perquisite. This includes the cost of maintenance, fuel, driver's salary and normal wear and tear (10% per annum of actual cost of the motor car)

Example: An employer provides a motor car costing ₹7,20,000/- for the personal use of an employee. The annual expenses incurred by the employer for a calendar month are:

• Maintenance: ₹10,000
• Fuel: ₹20,000
• Driver’s salary: ₹20,000

Total Perquisite Value for the Month:

• ₹10,000 + ₹20,000 + ₹20,000 + ₹6,000 (10% of ₹7,20,000/12) = ₹56,000/-

3. Motor Car Used Partly for Official and Partly for Personal Purposes

When the motor car is used partly for official and partly for personal purposes, the perquisite value is computed based on the cubic capacity (cc) as under:

i. Engine Capacity up to 1.6 liters (1600 cc)

• With Driver: ₹2,700 per month (₹1,800 + ₹900 for chauffeur)
• Without Driver: ₹1,800 per month

ii. Engine Capacity Exceeding 1.6 Liters (1600 cc)

• With Driver: ₹3,300 per month (₹2,400 + ₹900 for chauffeur)
• Without Driver: ₹2,400 per month

Example: An employer provides a motor car with an engine capacity of 1800 cc to an employee for partly official and partly personal use. The employer also provides a driver.

• Perquisite Value: ₹3,300 per month (with driver)
• Annual Perquisite Value: ₹3,300×12=₹39,600

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What if more than one car is provided?

When an employer provides more than one motor cars to an employee, the perquisite value is calculated as follows:

• First Car: The perquisite value is calculated as if the employee had been provided one motor car for mixed use (partly for official and partly for personal purposes)
• Additional Cars: The perquisite value for each additional car is calculated as if the car had been provided exclusively for personal purposes.

Conclusion

The determination of the perquisite valu e of a motor car provided by an employer depends significantly on the usage of the vehicle. For exclusive official use, the perquisite value is nil, provided appropriate records and certifications are maintained. For personal use, the entire expenditure is considered a perquisite. For mixed use, the perquisite value is calculated based on the engine capacity. Employers and employees must be diligent in maintaining records to ensure accurate computation and compliance with tax regulations. 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.]