Skip to main content

The new rules on perks make it better to use the company car than to get usage reimbursed

TAX PLANNING

Last week, the Central Board of Direct Taxes (CBDT) issued a notification on how each perquisite provided to a salaried employee should be taxed. It is applicable with retrospective effect, from April 1. The guidelines cover every perk: home accommodation to gifts to educational benefits. The most important change, though, is taxation of car facilities. Most other perks can be easily restructured and an employee has always borne tax on accommodation.

It is common for companies to provide either cars or reimburse expenses related to car use. The tax incidence can be much lower now if the company provides the car, than if the employer reimburses the expenses. The amount of tax also depends on the engine capacity of the vehicle. It is lower if this is less than 1.6 litres.

OWNED BY EMPLOYER

Surprisingly, the companyowned car is likely to be more beneficial for both employer and employee. For the employer, there is the benefit of depreciation when the vehicle is used for the purpose of business. For the employee, too, the incidence of tax will be lower this way.

If used entirely for business and the employer pays the running and maintenance expenses, there is no tax. But, to avail this, the employer must maintain detailed records showing the purpose of usage. If used for personal purposes and the expenses paid by the employer, then the entire amount will be considered aperk, along with the normal depreciation charge (10 per cent), reduced by the amount recovered from the employee.

What if the vehicle is used partly for personal purposes? Then, Rs 1,800 a month would be added as income for the individual, for a car with engine capacity up to 1.6 litres. If of a higher capacity, the figure added would be Rs 2,400 amonth. These figures would be increased by Rs 900 a month if a driver is provided.

If the employee pays the personal expenses for running and maintenance, then the taxable income will be Rs 600 a month and Rs 900 a month for the two engine capacities, respectively.

OWNED BY EMPLOYEE

Many would like to own the car and collect the running and maintenance expenses from the employer. However, the rules now make this more expensive. If the employee owns the car and the running and maintenance cost is paid by the employer and the entire use is for official purposes, then there is no perquisite value involved. If use is partly for business and partly not, the calculation is slightly complicated. The actual amount paid by the employer less Rs 1,800 a month would be the amount considered as a perk for cars with an engine capacity below 1.6 litres.

This means if Rs 5,000 per month is spent (excluding driver) on a small car, then Rs 3,200 would be added to the income of an individual owning the vehicle. However, if the individual wants to claim a higher amount for official purposes, then detailed records showing official use and a certificate are needed. The figure for the higher engine category is the actual expense less Rs 2,400 per month. Further, if a chauffeur is provided, the deduction (Rs 900) and expense (actual amount) figures would also go up accordingly.

OTHER VEHICLE

Even if the vehicle is not a car but another vehicle, say atwo-wheeler owned by the employee, the rule applies. If any other vehicle is used partly for official and personal purposes, then the actual expenses by the employer, less Rs 900 amonth, would be the figure used for valuing the perk. If the expense is high, then in several cases, the amount on addition of a two-wheeler might be more than that of a car owned by the employer and provided for use to the employee.

Popular posts from this blog

Mutual Fund Review: Religare Tax Plan

Tax Plan is one of the better performing schemes from Religare Asset Management. Existing investors can redeem their investment after three years. But given the scheme's performance, they can continue to stay invested   Given the mandated lock-in period of three years, tax saving schemes give the fund manager the leeway to invest in ideas that may take time to nurture. Religare Tax Plan's investment ideas revolve around 'High Growth', which the fund manager has aimed to achieve by digging out promising stories/businesses in the mid-cap segment. Within the space, consumer staples has been the centre of attention for the last couple of years and can be seen as one of the key reasons for the scheme's outperformance as compared to the broader market. It has, however, tweaked its focus and reduced exposure in midcaps as they were commanding a high premium. The strategy seems to have worked as it returned a 22% gain last year. Religare Tax Plan has outperformed BSE 100...

Mutual Funds: Past Performance is not just everything

Many a times your agent / distributor / relationship manager tries to push you some mutual fund schemes by enticing you with a typical sales pitch…"Sir, this scheme has generated 20% returns in the past one year." And this sales pitch often gets louder when the market conditions have been favourable. Some of the agents / distributors / relationship managers have another unique way of luring you. They say, "Sir / madam this scheme has been awarded the best scheme award in the past by a leading business channel"... And hearing all these sales talks you investors very often get attracted and sign a cheque in favour of the respective scheme.   But please ask yourself do you hear these sales talks when the capital markets turn turbulent? Why is it so that your agent / distributor / relationship manager avoids talking to you during turbulent times of the capital markets and doesn't boast about returns generated by the respective funds or awards being conferred on t...

Dynamic Bond Funds

Invest Mutual Funds Online Download Mutual Fund Application Forms Apart from liquidity and returns, tax efficiency is another factor which should be taken into account for such investments. Today, while you're getting decent, predictable returns from bank fixed deposits, they, along with FMPs, can be ruled out as options because of the lack of interim liquidity. Hence, the only other option that you have is a dynamic bond fund. While investments in dynamic bond funds can be a compromise in terms of returns, they are extremely liquid and more tax efficient.   Some of the dynamic bond funds that you can invest in are: UTI Bond Fund, Birla Sun Life Dynamic Bond Fund Templeton India Income Fund ------------------------------------- Invest Mutual Funds Online Transact Mutual Fund Online   Download Mutual Fund Application Forms from all AMCs Download Mutual Fund Application Forms   Best Performing Mutual ...

L&T Tax Advantage

Best SIP Funds to Invest Online   The fund follows a growth approach to investing in quality stocks that have a large-cap tilt This large-cap tilted ELSS has fared consistently and fared better than its benchmark by posting a higher margin of outperformance. The fund follows a growth approach to investing in quality stocks that have a large-cap tilt, which is evident in its portfolio. The portfolio is further well diversified across market capitalisation and sectors with over 60 stocks finding a place in it. The upside with this fund is the fact that it has witnessed both down and up cycles of the market to come across as a winner in the long run. Do not doubt the fund based on its size and a few mediocre years of performance, because when analysing its rolling three year returns, the fund's performance stands out to qualify as a must have ELSS in one's portfolio. Stay invested through the lock-in and there are chances of benefiting from returns as well as tax savings will prov...

Tax Planning: Income tax and Section 80C

In order to encourage savings, the government gives tax breaks on certain financial products under Section 80C of the Income Tax Act. Investments made under such schemes are referred to as 80C investments. Under this section, you can invest a maximum of Rs l lakh and if you are in the highest tax bracket of 30%, you save a tax of Rs 30,000. The various investment options under this section include:   Provident Fund (PF) & Voluntary Provident Fund (VPF) Provident Fund is deducted directly from your salary by your employer. The deducted amount goes into a retirement account along with your employer's contribution. While employer's contribution is exempt from tax, your contribution (i.e., employee's contribution) is counted towards section 80C investments. You can also contribute additional amount through voluntary contributions (VPF). The current rate of interest is 8.5% per annum and interest earned is tax-free. Public Provident Fund (PPF) An account can be opened wi...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now