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.