Income Tax News: Employers frequently offer their valued employees the benefit of company automobiles as they advance up the corporate ladder to make commuting easier. But the subtleties of tax ramifications can be confusing, particularly if you use the car for both personal and business travel. To optimise their tax savings, employees must be aware of the tax obligations related to employer-provided automobiles.
Tax-Free Benefit for Work-Related Activities
A benefit that is tax-free is when an employer-owned vehicle is utilised just for work-related activities. The employer must keep thorough records, including information about official travel dates, destinations, mileage, bills, and associated expenses, to guarantee this. A certificate verifying the vehicle’s exclusive use for official purposes should also be provided by the employer.
Taxation under Rule 3(2)(A) and Table II for Dual Usage
The expense is taken into account under Rule 3(2)(A) and Table II of the Value of Perquisites if the employer-provided vehicle is used for both personal and professional activities. This means that there will be tax due depending on the car’s worth for personal usage. In order to compute their taxable income correctly, employees need be aware of these regulations.
Tax Implications for Exclusive Personal Usage
If an employer-owned vehicle is utilised only for personal purposes and all related costs are borne by the employer, the full sum becomes taxable. In this scenario, employees do not receive any benefits; instead, the refunded amount is shown on the payslip and is subject to taxation based on the relevant income tax slab. When calculating the taxable amount, any sum that the employer is able to recoup from the employee is deducted.
Valuation for Official Usage
When an employer pays for the car’s upkeep and running costs and the employee owns the vehicle: The valuation is comparable to the first scenario (employer-owned vehicles for official usage) if the vehicle is used only for official purposes. If the vehicle is utilised for both official and personal travel, the taxable amount is the actual cost less a set of guidelines.
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