Car Allowance Exemption u/s 10

Many of the corporate provide car allowance to their staff which was incurred for official use. The question raised “is car allowance income tax liability”.

There are some of the facts or points you must understand regarding Tax Exemption on Car Allowances or fuel reimbursement policy.

We will drive deep to clear and understand all the stuff about car allowance and its taxation.

Car allowance paid to the employee is taxable or not?

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there are two possibilities: car allowance policy for employees

  • The vehicle is used only for the official purpose.
  • The vehicle is used for both personal as well as official.

If the vehicle is used for the official purpose the amount is treated as non-taxable with the condition of maintaining proper records in Logbook of the vehicle.

Logbook consists of information like kilometer travel, vehicle meter reading, amount of expenditure.

The Taxpayer required to get the certificate from the employer that the vehicle used is solely for the official purpose.

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On the other hand:

If the vehicle is used for the personal purpose the amount received from the employee is wholly taxable, that amount is treated as income.

In some of the combination scenario:

If the vehicle is used for both personal as well as the official purpose, what would be the role of taxation scenario?

It is very simple to understand:

Initially take the amount received from the employer and deduct the amount used for the official purpose and the rest of the amount or we can saw the vehicle run for personal use is taxable:

Also Read: Income Tax Exemption for Salaried Employee 2018-19 

Calculation of taxable amount for vehicle reimbursement

Let take an example:

If the employee uses the vehicle for say 2500 Km and against his run, he received the amount of ₹ 30000 per month, after reconciliation of his logbook, it is calculated that the vehicle is run 1000 km for personal use and rest 1500 km for official use.

In the above scenario, you are liable to pay taxes on the run of personal uses.

Now the question is:

What would be the calculation formula to calculate tax on car allowance?

There is two scenario again: monthly car allowance rates

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  1. If the assessee is using the vehicle with the capacity below 1600 CC, the amount considered for the official use is ₹ 1800 PM plus ₹ 900 if chauffeur (the driver) is provided by the employer.
  2. And, if the assessee is using the vehicle with the capacity above 1600 CC, the amount considered for the official use is ₹ 2400 PM plus ₹ 900 if chauffeur (the driver) is provided by the employer.

the above guideline is specified in Income Tax Act “Rule-3, Income-tax Rules” “Value of perquisite per calendar month” 1(c)(i) & 1(c)(ii).

Some more to known:

There is one more thing we must know that If the car is used for both official and personal purpose, it is not mandatory for the employer to maintain Logbook.

The perquisite value is irrespective of the actual amount reimbursed.

Also Read: Treatment of Taxation for “Agriculture Income” – Complete Guide

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