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Tax tips on reimbursement of petrol expenses from employer

Taxability of the perquisite in the hands of employees towards the facility of motor-car, reimbursement of fuel expenses, etc., are discussed in this article. Hope this helps.

 

Car is used exclusively for official purposes – fully exempt

Where the car is used exclusively in the performance of official duties, irrespective of who owns the car i.e., employer or employee, no taxable perquisite arises in the hands of employee. But how to establish that the car is used for official purpose only? For this, the tax department has prescribed the following documents –

  • The employer has to maintain complete details of journey undertaken by the employee for official purpose including date of journey, destination, mileage, and amount of expenditure incurred thereon; and
  • Furnishing of certificate by the employer to the effect that the expenditure was incurred wholly and exclusively for the performance of official duties.

 

Car is used for personal purposes – fully taxable

The value of the perquisite in cases where the car owned by the employer is used exclusively for personal purposes by the employee is fully taxable. Similarly, the maintenance and running expenses met or reimbursed to the employee towards the car owned by the employee used exclusively for personal use is fully taxable.

The value of perquisite is the sum total of –

  • Actual expenditure incurred by the employer on running and maintenance of car during the year;
  • Remuneration paid to the driver
  • Amount representing normal wear and tear, calculated at 10% p.a. of the actual cost of the car, if the car is owned by the employer.

 

From the sum total, any amount charged from the employee is required to be reduced to compute the value of perquisite.

 

Car owned by the employer is used both for official as well as personal purposes

The value of the perquisite in cases where the car is owned or hired by the employer is to be calculated at the flat rates as given below, without reference to the actual expenditure incurred by the employer.

  • If maintenance and running expenses are met by employer or reimbursed to employee – (a) in case of small car (less than 1600 CC engine) Rs.1800 per month (b) in case of big car (over 1600 CC engine) Rs.2400 per month and (c) Chauffeur salary Rs.900 per month.
  • If expenses on running and maintenance are met by employee – (a) in case of small car Rs.600 per month (b) in case of big car Rs.900 per month and (c) Chauffeur salary Rs.900 per month

 

Car owned by the employee is used both for official as well as personal purposes

Where the car is owned by the employee but maintenance and running expenses are met by the employer or reimbursed to the employee, the value of perquisite shall be determined as the difference between (a) actual expenditure incurred by the employer and (b) the amount calculated at the rate given below –

  • Big Car Rs.2400 pm
  • Small Car Rs.1800 pm
  • Chauffeur Rs.900 pm

 

Are you confused? Which one is more beneficial – owned by the employer or owned by the employee?

If the car is owned by the employer, then it is beneficial to the employee! For example, Mr. Radhakrishna is working for MNZ Limited. The company has provided him a motor car (over 1600 CC engine) and met the running expenses (approx.) of Rs.7500 pm. So, in the hands of employee Rs.2400 per month is considered as taxable salary.

Suppose, the same car is owned by Mr. Radhakrishna and the running expenses of Rs.7500 is reimbursed by the company, then only Rs.2400 is allowed as tax free money and the balance of Rs.5100 is taxable!

 

How to claim the entire Rs.7500 reimbursed by the company as tax free income?

If the employee wants to claim more than the aforesaid amount of Rs.2400 as tax-free income, he is permitted to do so, provided the prescribed documents and certificates such as date of journey, destination, mileage, amount of expenditure spent for official purpose etc., are maintained by the employer which justifies the higher deduction.

 

What happens if two cars are provided by the employer?

Where more than one car is provided to the employee, then one car should be considered as used for both official as well as personal purposes and apply flat rates (as discussed in the above paragraph) and the value in respect of the other car must be taken as if used for personal purpose. The entire running and maintenance expenditure including 10% of the cost towards normal wear and tear to be considered as taxable salary.

 

What happens if an employee uses a two wheeler or a bike?

  • If the bike is used exclusively for official purpose – the entire running expenses is exempt from tax in the hands of employee
  • If the bike is used exclusively for personal purpose – the entire reimbursements is taxable in the hands of the employee
  • If the bike is used partly for official purpose and partly for personal purpose, reimbursement upto Rs.900 is tax free and the balance reimbursments, if any is taxable.

 

Can an employee claim both conveyance allowance as well as reimbursement of petrol expenses?

Reimbursement of fuel expenses and conveyance allowance both are two different aspects. So, an employee is eligible to get both conveyance allowance of Rs.1600 per month as well as reimbursement of fuel expenses.

 

Cab facility provided by the company for commuting between office and residence –

If the company provides a cab facility for the purposes of picking up employees from their residence to the place of work or office to residence, such expenditure is not chargeable to tax in the hands of employees.

 

Thought for the day

Holding on to anger is like grasping a hot coal with the intent of throwing it at someone else; you are the one who gets burned – Buddha

 

 

 

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About CA Prasad Chartered Accountant

CA Prasad Chartered Accountant
CA Prasad is a practicing Chartered Accountant and partner in Bangalore -based CA Firm. For further information or query, please email it to [email protected]
  • Mytri Kulkarni

    Hi is commuting from home to office and office to home considered as car used for fully official purpose?

  • Sharath

    Can we claim Conveyance Allowance and also the Car maintenance – Owned cars ( The below option is provided by my Employer, and i submit bills for the same)

    If Engine cc does not exceed 1.6L – Rs.1800/- per month is
    excempt, otherwise Rs.2400/- per month is exempt.