Taxability of fuel expense reimbursement to employees -Part II
In the previous post, we had a look at taxability of fuel expense reimbursement to employees for motor car provided by the employer. What about employee-owned car?
Employee owns the car and the employer reimburses fuel expense to employee
The monthly perquisite value is as follows.
i) The car is used wholly and exclusively for official duties.
When the car is used only for official purpose, the monthly perquisite value for the purpose of taxation is Rs 0. This is irrespective of fuel and other car running and maintenance expense amount reimbursed to an employee. For example, if a company reimburses Rs 1 lakh per month for the purpose of fuel expenses to an employee, the entire Rs 1 lakh shall be tax free as long as the car is used solely for official purposes.
Please note that the following conditions should be met for the reimbursement to be tax free.
| – |
the employer should maintain complete details of journey undertaken for official purpose including date of journey, destination, mileage, and the amount of expenditure incurred. |
| – |
the employer should issue a certificate to the effect that the expenditure was incurred wholly and exclusively for the performance of official duties. |
From the above, it should be clear that the fuel expense reimbursement shall be fully non-taxable only if the car is wholly used for official purposes and the organization maintains details of journeys undertaken by the employee.
ii) The car is used partly for official purposes and partly for personal purposes of the employee.
When the car is used for both official and personal purposes, the monthly perquisite value for the purpose of taxation is as follows.
|
Running expenses |
Car engine cubic capacity does not exceed 1.6 litres |
Car engine cubic capacity exceeds 1.6 litres |
|---|---|---|
|
The expenses for maintenance and running are fully met or reimbursed by the employer. |
Actual amount incurred by the employer minus Rs 1,800 (plus Rs 900, if chauffeur is also provided to run the motor car), per month. |
Actual amount incurred by the employer minus Rs 2,400 (plus Rs 900, if chauffeur is also provided to run the motor car), per month. |
Can an employee claim a benefit of more than Rs 1,800/Rs 2,400 per month specified in the above table?
If the car is used for both official and personal purposes, there is no need for the employer to maintain details of journeys made. But please note that the benefit shall only be to the extent of Rs 1,800 (plus Rs 900 with chauffeur) if the engine capacity is less than or equal to 1.6 litres and Rs 2,400 (plus Rs 900 with chauffeur) if the engine capacity is greater than 1.6 litres. If an employer spends more than Rs 1,800/Rs 2,400 per month on official journeys, the benefit can be increased to the actual amount spent as long as the employer maintains complete details of journey undertaken for official purpose and issues a certificate to the effect.
Note:
- Please note that Rule 3 of the Income Tax Rules specifies perquisite amounts for a calendar month and hence it is important that employers record the months for which the perquisite value is applicable, in payroll. Also, employers should receive receipts towards vehicle maintenance expenses in total from employees in case employees seek a reimbursement. For example, if the fuel expense reimbursement of Rs 15,000 is for the month of April, the employer should receive fuel receipts for the entire Rs 15,000 for the month of April.
- The employer should ascertain that an employee owns a car (by way of checking documents such as the RC book) prior to providing the reimbursement.
Illustration 1
An employee owns a car (with 1.5 litres engine capacity) and his employer reimburses Rs 20,000 per month towards fuel and other car maintenance expenses incurred for both official and personal journeys. The company does not reimburse driver salary and does not maintain records for the official journeys undertaken. What is the monthly perquisite value?
Ans: Since the car’s engine capacity is less than 1.6 litres and the car is used for both official and personal purposes, the perquisite value per month is Rs 20,000 (actual amount incurred towards car running expenses) minus Rs 1,800 = Rs 18,200 per month.
What about taxability of fuel expense reimbursement for employee-owned vehicle which is not a car?
Employee owns a vehicle (say, a motorcycle) other than car and the employer reimburses the fuel expense amount to employee
Rule 3 specifies perquisite valuation for “any other automotive conveyance” (automotive vehicles other than car) as follows. One case presume that the term “other automotive conveyance” refers to vehicles such as motorcycle and autorickshaw. The monthly perquisite value is as follows.
i) The vehicle is used wholly and exclusively for official duties.
When the vehicle is used only for official purpose, the monthly perquisite value for the purpose of taxation is Rs 0. This is irrespective of fuel and other vehicle running and maintenance expense amount reimbursed to an employee. For example, if a company reimburses Rs 1 lakh per month for the purpose of fuel expenses to an employee, the entire Rs 1 lakh shall be tax free as long as the vehicle is used solely for official purposes.
Please note that the following conditions should be met for the reimbursement to be tax free.
| – |
the employer should maintain complete details of journey undertaken for official purpose including date of journey, destination, mileage, and the amount of expenditure incurred. |
| – |
the employer should issue a certificate to the effect that the expenditure was incurred wholly and exclusively for the performance of official duties. |
From the above, it should be clear that the fuel expense reimbursement shall be fully non-taxable only if the vehicle is wholly used for official purposes and the organization maintains details of journeys undertaken by the employee.
ii) The vehicle is used partly for official purposes and partly for personal purposes of the employee.
When the vehicle is used for both official and personal purposes, the monthly perquisite value for the purpose of taxation is as follows.
|
Running expenses |
Perquisite value per month (Rs) |
|---|---|
| The expenses for maintenance and running are fully met or reimbursed by the employer. |
Actual amount incurred by the employer minus Rs 900 |
Can an employee claim a benefit of more than Rs 900 per month specified in the above table?
If the vehicle is used for both official and personal purposes, there is no need for the employer to maintain details of journeys made. But please note that the tax benefit shall only be to the extent of Rs 900 per month. If an employer spends more than Rs 900 per month on official journeys, the tax benefit can be increased to the actual amount spent as long as the employer maintains complete details of journey undertaken for official purpose and issues a certificate to the effect.
Note:
- Please note that Rule 3 of the Income Tax Rules specifies perquisite amounts for a calendar month and hence it is important that employers record the months for which the perquisite value is applicable, in payroll. Also, employers should receive receipts towards vehicle maintenance expenses in total from employees in case employees seek a reimbursement. For example, if the fuel expense reimbursement of Rs 15,000 is for the month of April, the employer should receive fuel receipts for the entire Rs 15,000 for the month of April.
- The employer should ascertain that an employee owns the vehicle (by way of checking documents such as the RC book) prior to providing the reimbursement.
Illustration 2
An employee owns a motorcycle and his employer reimburses Rs 5,000 in the month of April towards fuel and other maintenance expenses incurred for both official and personal journeys. The employer does not maintain records for the official journeys undertaken. What is the perquisite value for April?
Ans: Since the motorcycle is used for both official and personal purposes, the perquisite value for April is Rs 5,000 (actual amount incurred towards motorcycle running expenses) minus Rs 900 = Rs 4,100.
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Leave a Comment (14) ↓
Hi Gautam,
Thanks for your blogs, most enlightening.
I have a query – does travel from home to workplace AND back by an employee qualify as official duty thus being entitled to claim fuel reimbursement subject to providing logs and supportings as required.
Will greatly appreciate your prompt response, thanks again
Just travel from home to office may not be admissible as “fully official” purpose. This will have to be classified as “partly official and partly personal” purpose and the corresponding perquisite value should be applied. For “partly official and partly personal” there is no need to maintain logs.
Query is In respect of car partly used for office &partly personal purposes–
a)Besides the fuel bills copy for evidence , in the category of “chauffeur provided” what is the copy of bill/voucher needed to be maintained ?
Is the chauffeur paid by employee with a stamped receipt acceptable enough if such receipt copy is provided by employee monthly to employer? Or should the chauffeur be on company payroll?
b) IF the bills for fuel plus chauffeur (for vehicle beyond 1600 cc/1.6 ltrs) in actual exceeds Rs 3300 per month but employer reimburses only Rs 2500-what is the perquisite value in such case.Will the taxable perquisite value become negative (-800) and can be deducted in taxable salary computation or not?
a)Besides the fuel bills copy for evidence , in the category of “chauffeur provided” what is the copy of bill/voucher needed to be maintained ?
Is the chauffeur paid by employee with a stamped receipt acceptable enough if such receipt copy is provided by employee monthly to employer? Or should the chauffeur be on company payroll?
Ans: A stamped receipt is enough. The chauffeur need not be on company’s payroll.
b) IF the bills for fuel plus chauffeur (for vehicle beyond 1600 cc/1.6 ltrs) in actual exceeds Rs 3300 per month but employer reimburses only Rs 2500-what is the perquisite value in such case.Will the taxable perquisite value become negative (-800) and can be deducted in taxable salary computation or not?
Ans: The taxable perquisite will not be a negative amount. The perquisite value shall be zero in such a case.
Hi,
If company provides two cars, both for official and private purpose.
how the perk will be calculated.
I presume you are saying that one car is used exclusively for official purpose and the other exclusively for personal purpose.
1. Car for official purpose
The perk value shall be zero subject to the organization maintaining the log book etc. for the car.
2. Car for personal purpose
This shall be fully taxable and the perk value shall be the actual expense incurred for operating the car.
Both the cars are used for official and personal purpose. herein the perquisite is charged 1800 pm for CC is less than 1.6 for one car but here for two cars is the perquisite rate doubled?
No, the perquisite value cannot be doubled.
If an employer provides more than one car (for both personal and official purposes), only one car shall be deemed to be used for official and personal purposes and the perquisite value shall be correspondingly calculated for that car alone. All the other cars shall be deemed to be used for personal purposes and the perquisite value shall be the actual expense incurred for operating the cars.
Is deprecation of car will be added to income of the employee. there isn’t any reimbursement given to the employee for the second car.
I assume you are referring to depreciation and not deprecation.
When a car is used exclusively for the private or personal purposes of the employee, the perquisite value shall be as follows:
Actual amount of expenditure incurred by the employer on the running and maintenance of motor car during the relevant previous year including remuneration, if any, paid by the employer to the chauffeur as increased by the amount representing normal wear and tear of the motor car and as reduced by any amount charged from the employee for such use.
The term “wear and tear” refers to depreciation and is calculated as 10 per cent per annum of the actual cost of the motor-car or cars.
Employee owns his car and spends 20000 on fuel and 20000 for drivers salary. He uses his car for coming from home to office and vice-versa.
What amount is taxable ?
What records are to be maintained?
Please explain.
The tax benefit is restricted to Rs 1,800 for car expenses each month, assuming that employee’s car’s engine capacity is less than 1.6 litres. The tax benefit towards driver salary reimbursement is Rs 900. For example, if your organization pays you Rs 20,000 per month towards car maintenance, you need to submit bills for Rs 20,000 and you will get a tax benefit of Rs 1,800. In other words, Rs 18,200 will be fully taxable.
Rs 20,000 towards driver salary will entitle the employee to get a tax benefit of Rs 900 per month. In other words, Rs 19,100 will be taxable.
2. You need to submit the copy of bills (fuel,vehicle maintenance expense, etc.), proof of driver salary payment and a copy of the RC to your employer.
How can one reimburse full 20000 on fuel and 20k on drivers salary?
Not sure what your question is here. If an employee incurs expenditure on fuel and driver salary, the company can reimburse the expense as long as the employee presents the supporting documents such as receipts.