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Income Tax Benefits on the Car Lease By Employer in India

Income Tax Benefits on Car Lease
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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.

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    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.

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    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

    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

    SubjectNikitaNiti
    Gross Salary Per Annum (A)INR 25,00,000INR 25,00,000
    Car Lease Benefit availed by the employee NOYes
    Value of Car Lease Rentals Paid by the employer (B)NAINR 4,80,000
    Taxable Cash Salary in the hands of employee (C=A-B) INR 25,00,000INR 20,20,000
    Car Perquisite (Car Cubic Capacity: 1.8 litres Including driver) (D)NAINR 39,600
    Total Taxable Salary (E=C+D)INR 25,00,000INR 20,59,600
    Tax Liability on EINR 5,85,000INR 4,47,600

    In this way, you can save tax of more than Rs.1.6 lakh on over 5.2 lakh of income.

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