Employee Car Policy

[Narayan Pujar]

The Company has an HR policy allowing employees of certain grades to use company-owned cars official purposes. This benefit is considered a 'perquisite' under the Income Tax Act when determining income under 'Income from Salary'. In some instances, employees may select a car exceeding their eligibility limit, with the excess amount recovered from the employee. For example, if an employee's eligibility is ₹10 lakh and they choose a car worth ₹15 lakh, the ₹5 lakh difference is recovered from them. The accounting treatment involves capitalizing the vehicle up to the employee’s eligibility limit, while the excess amount is deducted from the purchase price. Additionally, the Company recovers the insurance premium corresponding to the excess amount, as insurance is based on the car's total value.

In this regard, my queries are as follows:

1. Recovery of amounts exceeding the employee’s eligibility limit.
2. Recovery of insurance premiums from employees for excess amount recovered

[Shilpi Jain]

The invoice for the purchase of car is in the name of the employee or the Company?

AI Summary

Company car perquisite: excess vehicle cost and related insurance may be recovered from employee, affecting payroll taxation. Company policy treats employer-provided cars as a perquisite under income from salary. If an employee selects a car above their eligibility limit, the employer recovers the excess; the vehicle is capitalized up to the eligibility limit and the excess is deducted from the purchase price. Insurance premia corresponding to the excess insured value are recovered from the employee. The queries concern the permissibility and treatment of recovering the excess purchase amount and the related insurance premium.