Car Allowance Income Tax, Car Expenses Reimbursement, Exemption

Tax Exemption on Car Allowances & Expenses Reimbursement

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Tax Exemption on Car Allowances & Expenses Reimbursement

Company offers car expenses reimbursement to its employees if these expenses are incurred for official duties.  Car allowance income tax liability when owned by the employee is based on the purpose of use: private, official or both. Following points will help us understand taxability of car expenses, when the employee owns the car and the expenses are reimbursed or borne by the employer.

If vehicle expenses are reimbursed or borne by the employer and the vehicle is used solely for official purpose then such reimbursements will not be taxable. Following conditions must satisfy to claim these expenses:

  • Employer should maintain proper records of journey, mileage, destination and the amount of expenditure
  • Employer gives a certificate that the expenses reimbursed are for wholly and exclusively for official use

If car is used wholly for private purpose then entire reimbursements paid are taxable.

However, if car is used for both private and official purpose, then taxable amount is calculated on the basis of the following formula:

  • Total amount spent or reimbursed by the employer
  • Less: Amount used for official purpose that is specified by Income Tax Act on the basis of cubic capacity*
  • Less: Any amount recovered from employee
  • Balance amount, if positive, is taxable to the employee

* Value used for official purpose is calculated on the basis of cubic capacity of a car.

  • If cubic capacity of the car is below 1.6 liters i.e. 1600CC, expenses for use of the car are considered at the rate of Rs. 1,800/- p.m.
  • If cubic capacity of the car is above 1.6 liters i.e. 1600CC, expenses for use of the car are considered at the rate of Rs. 2,400/- p.m.

If chauffeur is provided by employer then the expenses claimed are restricted to Rs. 900/- p.m. Higher sum is permissible if transaction details like bank statements, payment vouchers etc. are available with the employer.

Neha Joshi
Neha Joshi
Neha Joshi is a Chartered Accountant and has been working with H&R Block for the past 1.5 years as a senior marketing executive. She is responsible for content generation and management. She writes and manages content for website, blogs, social media, PR and other marketing content. She comes with a rich experience in publishing where she wrote books for various international professional qualifications. She was also a trainer for the subjects she wrote.

26 Comments

  1. pbshaj says:

    article is good.i want to know the rule or notification of above article

  2. Prateek Sinha says:

    Will the Tax Exemption be valid if car is registered on Spouse’s name

  3. rajesh says:

    How to calculate tax based on vehicle CC. is there any formula to calculate it? if so please let me know

  4. Abhijit says:

    It is required to bills for Driver Salary and Car running every month. Since the expenses every month are always higher I used to submit bills for a larger amount to my company and get the money reimbursed. The company used to show the amount equivalent to 1800 per month as tax exempt. Now this year they have change dthe rules. They say they need me to submit bills every month. So I have got this amount tax exempt only in the months I submitted the bills (higher amount in advance). Is it mandated that the bills should be submitted every month. So now since I submitted petrol bill of Rs 8000 in June I only get Rs 900 tax exemption for that month. For the rest of the months they are showing the remaining amount as taxable perquisite. I wanted to check if the tax rules have changed and if this is mandated by law or is it something that is as per whims of some finance guy of our company,

  5. sathyhadeep says:

    How can i get exemption for paying my chaufer Salary from my pocket. The car is company owned & company is not paying any salary to my driver. Since the amount paid to my driver every month is huge is there any provision to get exemption from the Total Taxable Income.

    • HRBlockIndia says:

      Dear sathyhadeep,
      In case the chauffeur has been provided to you by your employer, you are eligible for tax exemption of Rs. 900 every month u/s 17(2)(iii) rule 3(3).

  6. Rahul A Chitte says:

    Hello,

    Can an employee only take either Conveyance Allowance or Car Fuel. Both can not be availed at same time. Is this true as 2016-17 IT rules ?

    Please help.

    Regards

    Rahul Chitte

  7. Farooq khan says:

    Sir,is it mandatory to use vehicle to claim petrol allowance??? Bcz some officials reach office through bus…especially in Transport Dept as travelling in Govt buses is free of cost..

    • Farooq khan says:

      Sir,is it mandatory to use *vehicle * to claim petrol allowance??? Bcz some officials reach office through bus…especially in Transport Dept as travelling in Govt buses is free of cost..

  8. Pankaj says:

    Hi , In Form 16 , there is a element of Car Allowance of Rs 90000 , and Vehicle Maintenance allowance of Rs 50000.

    Can we claim 1800 per month of tax benefit from Vehicle Maintenance in the return filing and claim the refund.

    what is the process from company side to claim the refund.

    pls let me know

  9. Ranjan says:

    Hi i have no vehicle ,Can i hire a Rented vehicle for a year & claim Car allowance & driver salary? is it possible & will meet IT regulation?
    Pls reply.

  10. Ramesh says:

    can we have Fuel reimbursement tax benefit if the car is on Spouse name.

  11. Mohan says:

    The car is registered in my spouse’s name, but I am using it to commute to office. Will I be eligible to claim tax exemption for fuel expenses and drivers salary?

  12. Rahul says:

    Hi Mohan,

    As per IT act,The car should be registered on your name in order to get Exemption for fuel .

    Regards
    Rahul Jat

  13. Sandeep says:

    Hi, is it possible to avail the tax benefit for class of vehicle like Tata Winger ? Of course it will be in personal ownership and purely used for individual / personal use and nor for any commercial.

    Regards,

  14. Preetish says:

    If there is no petrol allowance in company but car is used to go to company . Can we submit petrol bills for tax exemption

  15. Rahul says:

    Hi Sandeep,

    R u salaried employee or Self Employeed,Kindly confirm??

  16. Rahul says:

    Hi Preetish,

    In order to get tax exemption for Fuel ,that should be part of your CTC,otherwise you are not eiligible to get tax exemtion.

    If i am not wrong conveyance must be part of your CTC.

    Hope it will clear your doubt.

    Regards
    Rahul Jat

  17. Gaurav says:

    Hi,
    I’m using a Company Lease Vehicle (under 1.6 Litre) which is for 4 years. Company reimbursed me Fuel and Maintenance (F&M) on submission of bills. Now i want to know “Does Purchase of new Car Battery and Car Tyres could be reimbursed and F&M. Are these fall in Car Running Expenses and are Reimbursable. I will also add here that both items has been taken as they were fully consumed.

  18. I KONDALA RAO says:

    if Vehicle RC is more than 15years old, can I claim tax exmption @ 1600PM if it is 800cc

  19. Manish Sinha says:

    I have got a job offer with CTC having Vehicle Reimbursement upto Rs. 25000 per month as tax free. Is it correct? If yes, under which provision / act of Income tax?
    Please guide me.
    Thanks and regards

  20. Vivek Sonawane says:

    Hi, I work in private IT company and i have opted for Employee Car Expenses Reimbursement. Can the amount for vehicle insurance be claimed under the same? Also, can the repair and maintenance receipts be considered for reimbursement?

  21. AJIT CHANDGUDE says:

    Is employee is eligible to get both conveyance allowance of Rs.1600 per month as well as Car Allowances & Expenses Reimbursement ?

  22. KIrti Godbole says:

    Hi Dear Neha Joshi and others. Greeting for the day.

    My query : If I take a car on lease on my own and use it for office purpose and ask for car reimbursement / allowance then is it not taxable?

  23. Akhil Dwivedi says:

    Hi Neha, – is this amendment done recently or its been from last few years? as My organisation provides us much more than the limit specified here.
    Thanks

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