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

AI Summary

Employee Questions HR Policy on Company Cars and Tax Implications; Clarifies Ownership and Cost Recovery. An employee raised questions about a company's HR policy regarding the use of company-owned cars, which are considered a 'perquisite' under the Income Tax Act. Employees eligible for cars up to a certain value can choose more expensive cars, with the excess cost and corresponding insurance premiums recovered from them. The company capitalizes the vehicle up to the eligibility limit, deducting the excess from the purchase price. A respondent inquired whether the car purchase invoice is in the employee's or the company's name.