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...

ICICI Prudential Balanced Fund

 ICICI Prudential Balanced Fund scheme seeks to generate long-term capital appreciation and current income by investing in a portfolio that is investing in equities and related securities as well as fixed income and money market securities. The approximate allocation to equity would be in the range of 60-80 per cent with a minimum of 51 per cent, and the approximate debt allocation is 40-49 per cent, with a minimum of 20 per cent. An impressive show in the last couple of years has propelled this fund from a three-star to a four-star rating. The fund has traditionally featured a high equity allocation, hovering at well over 70 per cent, which is higher than the allocations of the peers. But in the last one year, the allocation has been moderated from 78-79 per cent levels to 66-67 per cent of the portfolio. ICICI Prudential Balanced Fund appears to practise some degree of tactical allocation based on market valuations. Within equities, well over two-thirds of the allocation is parked i...

Stock Dividend Yields

During a bull run, it’s very easy to ignore stocks with high dividend yields. After all, what could be more enticing than a growth stock? But in times of crisis, these boring ones tend to be the most sought after. The reason being that not only do dividends provide a cushion when the market is in the doldrums but such stocks also tend to fall less. The lure of dividend yield stocks is not easy to ignore. These stocks offer capital appreciation as well as cash payments. But logically, any company that pays a substantial portion of its earnings in dividends is reinvesting less and, therefore, would grow at a slower pace. So the trade-off is between higher dividend yields for lower earnings growth. On the other hand, companies with high growth potential and volatile earnings tend to pay less by way of dividends, if at all. Such companies would rather reinvest their earnings to sustain their growth. The capital appreciation of growth stocks is obviously higher than in dividend yield ones. ...

Women need to plan for Retirement

Plan for Retirement Online       Higher life expectancy, lower pay and fewer work years necessitate thorough planning.   Women have raced ahead of men in various fields but, when it comes to retirement planning, they tend to lag behind. Despite saving a higher proportion of their salary, compared to men, women generally do not take retirement planning seriously. Below are some of the reasons why they should: According to the United Nations Department of Economic and Social Affairs, in India, the life expectancy of women is 69 years and, of men, it's 66 years. Due to this, a woman will need an additional `55 lakh to manage her living expenses (see table).Besides, usually, women work fewer years compared to men to take care of children and family.Further, a recent study by Korn Ferry Hay Group shows that women in India earn 18.8% less than men. Not to mention, a higher life expectancy can also mean higher medical expenses as the likelihood of health ailments such as diabetes, high...

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