If you are a salaried employee in an organisation where you have the benefit of utilising employer-funded vehicles, there are certain tax implications and tax benefits that you need to be aware of. Here are the four different scenarios that you are most likely to encounter with respect to employer-funded vehicles.
Scenario 1: Where the car is used solely for official purposes
In a situation where the vehicle provided by the employer is used exclusively for official purposes, no tax liability arises. This means that the perquisite received by the employee is completely non-taxable. To claim these tax benefits, the employee who receives the car is required to maintain the following records.
Complete and thorough details of the journeys undertaken for official purposes, including date of each trip, starting point, distance, destination, and any bills and other expenses incurred such as fuel and parking A certificate from the employer affirming the fact that the car was used only for official purposes
Scenario 2: Where the car is used for both personal and official purposes
In cases where the employer-funded vehicles are used for both personal and official purposes, then the perquisites received by the employees are partly taxable. The remaining amount of the perquisite, after deducting the specified amount as given in the following table, is taxable.
| Particulars | Deduction if the cubic capacity of the car is less than 1.6 liters | Deduction if the cubic capacity of the car is more than 1.6 liters | Additional deduction if a chauffeur is provided along with the car |
|---|---|---|---|
| If the employer reimburses the expenses relating to maintenance and running of the car | ₹1800 per month | ₹2400 per month | ₹ 900 per month |
| If the employee meets the expenses relating to maintenance and running of the car | ₹600 per month | ₹900 per month | ₹ 900 per month |
Scenario 3: Where the car is used exclusively for personal purposes
The employees can avail no tax benefits if the car provided by the employer is used purely for personal purposes. In such a situation, the entire amount of perquisite received by the employee becomes completely taxable.
Scenario 4: Where a car owned by the employee is used for official purposes
If a car owned by the employee is used solely for official purposes, then the tax treatment is identical to that in scenario 1. Alternatively, if a car owned by the employee is used partly for personal and partly for official purposes, then the tax treatment is the same as that in scenario 2.
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