Car Allowance Tax Benefits?

skiddyrow · 14th June 2006, 15:45

Hi,

My company is proposing to provide a car or car allowance to senior management staff but I have not been able to get any details of this as yet from our finance dept and they are welcoming inputs from us on this.

Is there anyone here who does get a similar benefit from the company and can explain how it is provided for you and what benefits it provides tax wise? I was anyways planning on picking up a new car this month and would like to take up this option.

Thanks,

Sid

Surprise · 14th June 2006, 16:18

One case:

Lets assume a situation where the car cost Rs.500000/- & the company offer you a interest free loan to a term of 5 yrs. So your monthly installement is Rs.8333/-. This amount will be taken out from your gross salary. Hence you save Rs.2500/- per month (assuming you fall under the 30% slab).

On top of it you can claim the petrol reimbursement to an extent of Rs.4k per month. Here you have a tax saving of Rs.1200/-.

Hence the total saving is Rs.3700/-.

skiddyrow · 14th June 2006, 16:51

Surprise,

thanks for the quick reply. in this case though, will the company have to pay for the car in full and deduct the amount from my gross salary on a monthly basis? In that case will the car be in the company's name? If so what happens if I decide to leave after say a year - will I have to pay the balance amount to the company or let go of the car? Sorry if these questions seem basic but I dont have much of a clue on these matters!

Rtech · 14th June 2006, 17:00

I thought petrol reimbursements etc were all discontinued?

rchimni · 14th June 2006, 17:17

Petrol Reimbursements have not been discontinued , you can continue to claim but need to pay fringe benefit tax of 6.7 odd %

The way it work in my Co ( Co Car policy differs from Co to Co )

If the car is less than 4 yrs old the Co buys it off me after having it evaluated. (In my case Automart India)

The loan is @ 8% on reducing balance which is deducted from my salary every month.

So the way it works is if I opted for a 3 year scheme is mentioned below

Car Evaluated at - 39200 ( including registration)
Annual EMI - 151574 Plus FBT of Inr 3958
Petrol and maintanance INR 150000 per annum

Total EMI & petrol - 301574 ( deducted from taxable income)
33% of 301574 = INR 99519 saved in terms of tax every year

Hope this makes sense ?

PM me incase anybody needs more detail...

supremeBaleno · 14th June 2006, 17:21

Quote:

Originally Posted by Surprise

Lets assume a situation where the car cost Rs.500000/- & the company offer you a interest free loan to a term of 5 yrs. So your monthly installement is Rs.8333/-. This amount will be taken out from your gross salary. Hence you save Rs.2500/- per month (assuming you fall under the 30% slab).

As far as I know, there will be a tax (treated as perk) on the interest you save (ie. if you had taken finance from outside), which will be added to your taxable salary.

Quote:

Originally Posted by skiddyrow

thanks for the quick reply. in this case though, will the company have to pay for the car in full and deduct the amount from my gross salary on a monthly basis? In that case will the car be in the company's name? If so what happens if I decide to leave after say a year - will I have to pay the balance amount to the company or let go of the car? Sorry if these questions seem basic but I dont have much of a clue on these matters!

The car will be in your name, but hypothecated to the company, till you settle the loan. Regarding leaving the company, different companies opt for different policy. In our case, the person has to repay the remaining principal with interest (12% or something) for the remaining period.

shuvc · 14th June 2006, 18:28

The way it works, I think, in the company I work for is :
#The company pays the whole amount for the car
#The car is registered in the name of the company
#The employee pays EMI to the company
#This EMI is deducted from the gross salary AND is not reflected as income in your form16. Hence 30% of the EMI is tax savings
#If the employee leaves, then the loan needs to be foreclosed with the current foreclosure value (a complex calc considering outstanding principal, interest, service tax etc)
#Else after 3/4 yrs, the employee can transfer the car to his/her name with a final payment (this is around 20% of the value of the car which the company does not recover as EMI's)

Surprise · 14th June 2006, 19:00

Quote:

Originally Posted by Surprise

One case:

Lets assume a situation where the car cost Rs.500000/- & the company offer you a interest free loan to a term of 5 yrs. So your monthly installement is Rs.8333/-. This amount will be taken out from your gross salary. Hence you save Rs.2500/- per month (assuming you fall under the 30% slab).

On top of it you can claim the petrol reimbursement to an extent of Rs.4k per month. Here you have a tax saving of Rs.1200/-.

Hence the total saving is Rs.3700/-.

Forget to add the driver reimbursement which is another Rs.4000/- per month and Rs.1200/- saving on tax

sbasak · 14th June 2006, 19:57

1. If one gets Conveyance allowances along with his/her salary, the actual amount or Rest.800 whichever is minimum is exempted for tax calculation.
2. If one gets Car Allowances from the company for maintaining his personal car for official business then the amount will betreated as reimbursement and not to be taxed and for this he/she will have to maintain a log book showing the details for his/her official duties.

3. Where the Car allowances is given for just maintaining the car partly for official and parly for personal the proportionate amount to be taxed for personal use.

4. Where the car is company's own and the employee maintains the car and for this reason company pay the allowances, the amount will not attract tax.
5. where the Company provides the car (Company owned) and maintain the car exp, the prorated amount of actual expences is treated as Taxable Perquisite for personal use.

Now a days the Income tax authority is very fussy and they always try to add it with income.

skiddyrow · 15th June 2006, 09:01

Thanks guys for your inputs - very useful! Does anyone have an option rather than the company paying the full amount (which my company might not agree to) I pay the initial amount of down payment to the company, and whatever EMI is paid by the company is deducted from the gross and not reflected in the salary? Again, when (and if) I leave, I pay out the outstanding amount and transfer the car to my name.

Shankyz · 31st August 2009, 14:42

Quote:

Originally Posted by skiddyrow

Thanks guys for your inputs - very useful! Does anyone have an option rather than the company paying the full amount (which my company might not agree to) I pay the initial amount of down payment to the company, and whatever EMI is paid by the company is deducted from the gross and not reflected in the salary? Again, when (and if) I leave, I pay out the outstanding amount and transfer the car to my name.

Bumping up this old thread, in view of the change in IT Policy for FBT... I guess the steam is out for the Car allowance scheme and now the employees will have to pay FBT@ 30% on this amount too.. so practically some of us would be struck with the cars , shelling out the EMIs and also Income Tax...

any thought?

neotraveller · 31st August 2009, 16:06

Yeah. This new rules suck.

But our company folks have said that they have not yet received full guidelines from IT department regarding this car-policy.
They are waiting to see if govt assigns a perquisite value to the car and not treat it as outright income (hopefully less than 30%).
Else, worst-case we have to pay 30% tax.

k149in · 23rd December 2009, 11:02

Hope you guys saw this:

Pay for perks in last three months - India Business - Biz - The Times of India

srishiva · 23rd December 2009, 11:07

The FBT was about 6% before which was abolished. Will it be back to 30% and hence of no use?

mithun · 23rd December 2009, 20:56

See : Shocker! Pay tax on perks, now : Rediff.com Business

14th June 2006, 15:45	#1
skiddyrow BHPian Join Date: May 2006 Location: Chennai Posts: 33 Thanked: 6 Times	Car Allowance Tax Benefits? Hi, My company is proposing to provide a car or car allowance to senior management staff but I have not been able to get any details of this as yet from our finance dept and they are welcoming inputs from us on this. Is there anyone here who does get a similar benefit from the company and can explain how it is provided for you and what benefits it provides tax wise? I was anyways planning on picking up a new car this month and would like to take up this option. Thanks, Sid
	() Thanks

14th June 2006, 16:18	#2
Surprise Senior - BHPian Join Date: Feb 2005 Location: Chennai Posts: 2,529 Thanked: 462 Times	One case: Lets assume a situation where the car cost Rs.500000/- & the company offer you a interest free loan to a term of 5 yrs. So your monthly installement is Rs.8333/-. This amount will be taken out from your gross salary. Hence you save Rs.2500/- per month (assuming you fall under the 30% slab). On top of it you can claim the petrol reimbursement to an extent of Rs.4k per month. Here you have a tax saving of Rs.1200/-. Hence the total saving is Rs.3700/-.
	() Thanks

14th June 2006, 16:51	#3
skiddyrow BHPian Join Date: May 2006 Location: Chennai Posts: 33 Thanked: 6 Times	Surprise, thanks for the quick reply. in this case though, will the company have to pay for the car in full and deduct the amount from my gross salary on a monthly basis? In that case will the car be in the company's name? If so what happens if I decide to leave after say a year - will I have to pay the balance amount to the company or let go of the car? Sorry if these questions seem basic but I dont have much of a clue on these matters!
	() Thanks

14th June 2006, 17:00	#4
Rtech Team-BHP Support Join Date: Apr 2004 Location: Bombay Posts: 5,765 Thanked: 371 Times View My Garage	I thought petrol reimbursements etc were all discontinued?
	() Thanks

14th June 2006, 17:17	#5
rchimni BHPian Join Date: Dec 2004 Location: Manila Posts: 136 Thanked: Once View My Garage	Petrol Reimbursements have not been discontinued , you can continue to claim but need to pay fringe benefit tax of 6.7 odd % The way it work in my Co ( Co Car policy differs from Co to Co ) If the car is less than 4 yrs old the Co buys it off me after having it evaluated. (In my case Automart India) The loan is @ 8% on reducing balance which is deducted from my salary every month. So the way it works is if I opted for a 3 year scheme is mentioned below Car Evaluated at - 39200 ( including registration) Annual EMI - 151574 Plus FBT of Inr 3958 Petrol and maintanance INR 150000 per annum Total EMI & petrol - 301574 ( deducted from taxable income) 33% of 301574 = INR 99519 saved in terms of tax every year Hope this makes sense ? PM me incase anybody needs more detail...
	() Thanks

14th June 2006, 18:28	#7
shuvc Senior - BHPian Join Date: May 2005 Location: Kolkata Posts: 2,911 Thanked: 359 Times View My Garage	The way it works, I think, in the company I work for is : #The company pays the whole amount for the car #The car is registered in the name of the company #The employee pays EMI to the company #This EMI is deducted from the gross salary AND is not reflected as income in your form16. Hence 30% of the EMI is tax savings #If the employee leaves, then the loan needs to be foreclosed with the current foreclosure value (a complex calc considering outstanding principal, interest, service tax etc) #Else after 3/4 yrs, the employee can transfer the car to his/her name with a final payment (this is around 20% of the value of the car which the company does not recover as EMI's)
	() Thanks

14th June 2006, 19:57	#9
sbasak BHPian Join Date: Nov 2005 Location: CCU-LTN Posts: 607 Thanked: 16 Times	The full story 1. If one gets Conveyance allowances along with his/her salary, the actual amount or Rest.800 whichever is minimum is exempted for tax calculation. 2. If one gets Car Allowances from the company for maintaining his personal car for official business then the amount will betreated as reimbursement and not to be taxed and for this he/she will have to maintain a log book showing the details for his/her official duties. 3. Where the Car allowances is given for just maintaining the car partly for official and parly for personal the proportionate amount to be taxed for personal use. 4. Where the car is company's own and the employee maintains the car and for this reason company pay the allowances, the amount will not attract tax. 5. where the Company provides the car (Company owned) and maintain the car exp, the prorated amount of actual expences is treated as Taxable Perquisite for personal use. Now a days the Income tax authority is very fussy and they always try to add it with income.
	() Thanks

15th June 2006, 09:01	#10
skiddyrow BHPian Join Date: May 2006 Location: Chennai Posts: 33 Thanked: 6 Times	Thanks guys for your inputs - very useful! Does anyone have an option rather than the company paying the full amount (which my company might not agree to) I pay the initial amount of down payment to the company, and whatever EMI is paid by the company is deducted from the gross and not reflected in the salary? Again, when (and if) I leave, I pay out the outstanding amount and transfer the car to my name.
	() Thanks

31st August 2009, 16:06	#12
neotraveller BHPian Join Date: Jan 2009 Location: Hyderabad Posts: 739 Thanked: 0 Times	Yeah. This new rules suck. But our company folks have said that they have not yet received full guidelines from IT department regarding this car-policy. They are waiting to see if govt assigns a perquisite value to the car and not treat it as outright income (hopefully less than 30%). Else, worst-case we have to pay 30% tax.
	() Thanks

23rd December 2009, 11:02	#13
k149in BHPian Join Date: Nov 2008 Location: Chennai Posts: 127 Thanked: 89 Times	Hope you guys saw this: Pay for perks in last three months - India Business - Biz - The Times of India
	() Thanks

23rd December 2009, 11:07	#14
srishiva Senior - BHPian Join Date: Nov 2006 Location: Bengaluru Posts: 4,372 Thanked: 2,260 Times	The FBT was about 6% before which was abolished. Will it be back to 30% and hence of no use?
	() Thanks

23rd December 2009, 20:56	#15
mithun BANNED Join Date: Jan 2006 Location: Cochin Posts: 2,195 Thanked: 268 Times	See : Shocker! Pay tax on perks, now : Rediff.com Business
	() Thanks