An employer usually refers to your initial base salary when discussing your pay. To form your complete ‘salary package,’ they incorporate different elements on top of this figure.
These additions consist of extra perks or incentives such as housing allowances, phone reimbursements, car allowances, and bonuses.
Taking a closer look at these perks reveals that they contribute substantially to your overall income pre-tax. Additionally, certain benefits, like a car allowance, can significantly lower your tax responsibilities.
When your salary package includes the lease rental of a car, this deduction is taken from your salary before taxes. This effectively decreases your taxable income, offering a significant tax advantage compared to those who don’t have this benefit.
Similarly, allowances for car maintenance are tailored to alleviate your tax obligations.
Fill Form for ITR & TDS Compliance Software
What is the Purpose of a Salary-Linked Corporate Car Leasing Policy to Benefit Employees?
It involves a vehicle ownership model where an employee chooses a car and their employer directly deducts the monthly lease rental from their pre-tax salary.
To implement this, the company must first partner with a car leasing firm, undergo a credit check, and subsequently develop and implement a car lease policy for its employees.
How Does Corporate Car Leasing Benefit Employees?
Here is a list of benefits that employees can receive from the income tax department.
No Down Payment Required For Employees
The car you acquire is funded through a leasing company, eliminating the necessity for a down payment as a lessee. This effectively designates the leasing company as the primary owner of the vehicle.
Recommended:- Important Tips When You Want to Restructure Your Salary
How does this benefit you? All expenses related to the car, including accessories, on-road expenses, and insurance, are covered within the lease cost, and taken care of by the leasing company.
All Vehicles Experience Increased Maintenance & Repair Expenses
Over time, all vehicles experience wear and tear, leading to increased maintenance and repair expenses.
When a leasing company leases a vehicle, there are two types of arrangements: wet leasing covers maintenance, while dry leasing doesn’t. With wet leasing, the leasing company handles maintenance costs, sparing the lessee from shouldering these expenses.
Easy Car Replacement
Through a car lease or an auto lease, an individual is enabled to substitute or upgrade their vehicles during the period of lease renewal. When you substitute and upgrade your vehicles you furnish your employees with effective comfort and effective safety.
Easy car substitution is indeed advantageous under the vehicle scrappage policy and the green tax.
Also Read:- All About Salary Slip with Format and Its Important Parts
- Under the vehicle scrappage policy, all commercial as well as private vehicles that have been utilised for 15 years or exceeding should proceed via an obligatory fitness check. When they have failed the fitness check then they shall get scrapped.
- When the vehicle is less than 15 years old however it has been utilised for at least 8 years then the government shall levy a 10% to 25% green tax and renew the fitness certificate.
Two policies can complicate vehicle ownership for companies: either your vehicle faces scrapping or you’ll be hit with the green tax. Fortunately, car leasing offers a hassle-free alternative!
Savings on Taxes
Opting for a car lease can slash up to 30% of your taxed vehicle expenses. To qualify, the employee utilizing the car needs to demonstrate consistent company-related usage. This eligibility unlocks tax advantages on the lease, fuel reimbursements, and the driver’s salary.
Easier Approval Compared to Auto Loans
It takes several days for the car loan approvals. However, you are enabled to obtain your car lease approved within 24 hours all without the requirement for the bulky paperwork.
Insurance Coverage For a Car Lease
The instalment you pay for the lease covers the insurance fees when you opt for a car lease. The same insurance coverage comprises of cost of repair and maintenance charges, theft, and accidents. It is not required to get worried for the lessee about the renewal of insurance.
“If an employer includes a company car in an employee’s total compensation package, not only is the lease rental considered pre-tax, but also other expenses like maintenance, driver costs, and fuel allowances can be included in the pre-tax portion.”
Let’s Check Assume Your Salary Package is Rs. 25,00,000
For instance
| Subject | Nikita | Niti |
|---|---|---|
| Gross Salary Per Annum (A) | INR 25,00,000 | INR 25,00,000 |
| Car Lease Benefit availed by the employee | NO | Yes |
| Value of Car Lease Rentals Paid by the employer (B) | NA | INR 4,80,000 |
| Taxable Cash Salary in the hands of employee (C=A-B) | INR 25,00,000 | INR 20,20,000 |
| Car Perquisite (Car Cubic Capacity: 1.8 litres Including driver) (D) | NA | INR 39,600 |
| Total Taxable Salary (E=C+D) | INR 25,00,000 | INR 20,59,600 |
| Tax Liability on E | INR 5,85,000 | INR 4,47,600 |
In this way, you can save tax of more than Rs.1.6 lakh on over 5.2 lakh of income.
As a company if we have to provide car lease benefit to employee and deduct lease/rental amount from employee salary.
How can I justify to tax department about these being treated as company expense? where as nature of our work is desk job for employees and they are not required to do field job. So, the car benefit provided by company will be questioned by tax department.
Please suggest what is the best defence for me as a company to above query by tax department for my car lease benefit to employees.
Hii CA Vineeta, I am a student of MBA and I have a doubt regarding company taxation. Does employer can claim depreciation on cars provided to its employee under car lease policy? As I understand, the amount deducted from salary and paid to leasing company can no more be deducted as “remuneration to employees” leading to increase in PBT. Moreover, car remains in the name of company and qualifies as asset.
Please refer to income tax act.
What is the tax liability on the employee/person when he sells the leased car?
Please refer to the provision of income tax act.
Hi, I have a doubt in the illustration. Isn’t the amount being deducted from taxable income (if lease not opted) equals 440,400 (i.e. 480,000-39,600) rather than 5,19,600?
Because lease payment per annum is being deducted from the gross salary but the perquisite amount of 39,600 is being added to the salary.
Yes, amount of INR 440,400 will not deduct from taxable income if lease not opted.
Can you explain, if my car is used by a company as leased car for their employee. And i get rental income directly from employer.
So firstly, will I need to show this rental amount as my salary under which section?
And Secondly, can i deduct interest paid, insurance amount, depreciation(any one or all) from this rental income while filing my tax if rental income is taxable?
We are planning to implement the car lease to employee. Can you provide the process, mean how much amount allowed to emi and maintenance, driver salary and full. Please help me
I want to know if monthly EMI paid for the car purchased under car lease scheme is available for tax deduction under new tax regime .
Car is under Employer name. Employer pays the lease amount to the leasing company. This amount is deducted in my salary under car lease EMI
Additionally , are the fuel/vehicle maintenance costs applicable for tax deduction?
“In case an employee opts to lease a car through their employer, wherein the employer directly pays the car lease rentals to the leasing company, such rental payments would form a part of the CTC of the employee. However, as such rental payments are directly paid by the employer to the leasing company, the same would not be taxable in the hands of the employee. Thus, the employees would be able to save the tax on the lease rental component including maintenance cost.”
Hello Ma’am,
I’ve leased a car through my employer and have the option to reimburse upto ₹10,000 per month for fuel and vehicle maintenance. However, due to an error, I am currently under the New Tax Regime in the payroll processing tool (even though I have been filing under the Old Regime when submitting my ITR), which prevents me from claiming this reimbursement. As a result, aside from the lease rental, I am unable to avail any other tax benefits under the car lease. Can I claim a refund for the fuel/maintenance amount I paid when filing my ITR?
Thank you
As per my opinion reimbursement of fuel and vehicle maintenance expenses is considered as perquisite that amount will be taxable .