Valuation of Motor Car Perquisites | Salary Income
Valuation of motor car perquisites
Employees are generally paid in
terms of salary, but to motivate and encourage them, they are provided with
certain extra benefits along with salary. These types of benefits are termed as
“Perquisites” in normal parlance. Such perquisites whether monetary or non-
monetary, are taxable along with salary under the head “Income from Salaries”.
Perquisites may be in the way of
providing free accommodation, domestic servants, education to the children of
employee at concessional rate, etc. One of such perquisite is Motor Car
perquisite. The perquisite of Motor Car is taxable under section 10(14)(i) in
the manner prescribed in Rule 3 (2) of the Income Tax Act.
Section 10(14)
10(14)(i)any such special allowance
or benefit, not being in the nature of a perquisite within the meaning of
clause (2) of Section 17, specifically granted to meet expenses wholly,
necessarily and exclusively incurred in the performance of the duties of an
office or employment of profit, [as may be prescribed], to the extent to which
such expenses are actually incurred for that purpose;
(ii) any such allowance granted to
the assessee either to meet his personal expenses at the place where the duties
of his office or employment of profit are ordinarily performed by him or at the
place where he ordinarily resides, or to compensate him for the increased cost
of living, [ as may be prescribed and to the extent as may be prescribed];
Provided that nothing
in sub-clause (ii) shall apply to any allowance in the nature of personal allowance
granted to the assessee to remunerate or compensate him for performing duties
of a special nature relating to his office or
employment unless such allowance is related to the place of his posting
or residence.
The above provisions can be understood with regards the use of
motor car provided in the course of employment to the employee. Use of such
motor car can be in the following circumstances and the taxability of the same
is also prescribed in Rule 3 in the following manner as represented in the
following flowchart to make it simpler to understand:
Note (1)
When the Motor Car is owned by the employee and the running and
maintenance expenses are borne by the employer and also the motor car is used
wholly and exclusively for the official purpose, the limits above in point
2(ii) and point 3(ii) shall not apply.
It means that the amount of perquisite will be calculated in the
following manner:
Actual amount of charges met or reimbursed by
the employer XXX
Less: Amount attributable to official use of the vehicle (xxx)
Value
of Perquisite xxx
The above is allowed subject to conditions as
follows:
a)
Complete details of journey undertaken for
official purpose is being maintained by employer such as date, destination,
mileage and expenditure incurred for such journey; and
b)
Employer certifies that the journey was
exclusively for business purpose.
In the case where one or more are used by the
employee or it is being allowed to use for household purpose by any household
member of the employee, the value of perquisite will be considered as:
For one Car as if it is partly used for the
official purpose and partly used for the personal purpose and the value of
perquisite will be calculated as explained in Point 1 (c ) (i).
For the another car/cars(if more than one) as
if it is used fully for the personal purpose and the value of perquisite will
be calculated as explained in Point 1 (b).
Let us understand the above topic with the
help of an example:
Example:
Mr. A is an Employee of XYZ Ltd. He is
provided with a perquisite of using company’s car along with Chauffer. Also he
has been provided with the benefit that two cars of company can be used by any
member of his family (Without Chauffer). Details of expenditure are:
Actual reimbursement by XYZ Ltd. For car used
by Mr. A Rs.
50,000 p.a.
Actual reimbursement by XYZ Ltd. For 2 cars
used by Mr. A’s Family Rs. 80,000
p.a.
Calculate Value of Taxable Perquisite.
Solution:
For Car used by Mr.A
Actual reimbursement by XYZ Ltd. For car used
by Mr. A 50,000
Less:
Allowable as deduction as per Rule 3
(Note 1) (32,400) 17600
For 2 Cars used by Mr.A’s Family
Actual reimbursement by XYZ Ltd. For car used
by Family 80,000
Less:
Allowable as deduction as per Rule 3
(Note 2) ( NIL ) 80,000
Total
Value of Taxable Perquisite for use of Motor car 97,600
Note 1
Allowable deduction as per explanation in
Point 1(c )(i)
i.e. ` 1,800 (plus ` 900, if chauffeur is
also provided ) = (1800+900)*12=
Rs. 32,400
Note 1
Allowable deduction as per explanation in
Point 1(b ) = NIL
Note 3
It is assumed that cubic capacity of engine
is less than1.6 litres
Sale of Motor Car to the Employee by the employer
When the employer sales the Motor Car to his
employee, the value of perquisite is equal to the loss on sale of such motor
car to the employer because it is deemed that such loss is incurred to give
indirect benefit to the employer. Let us understand the point with an example.
Example:
Car Purchased as on 1.4.2011 Rs. 4,50,000
Rate of Depreciation 15%
Car sold to employee on 31.03.2013 Rs. 2,00,000
Calculate taxable perquisite in the hands of
Employee.
Solution
Purchase of Car as on 1.4.2011 4,50,000
Less: Depreciation @ 15% (67,500)
WDV as on
31.03.2012
3,82,500
Less: Depreciation @ 15% (57,375)
WDV
as on 31.03.2013
3,25,125
Less: Sale to Employee (2,00,000)
Taxable Perquisite
1,25,125
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