New rules for valuation of perquisites for use of motor car

The Finance (No. 2) Act, 2009, has withdrawn the levy of Fringe Benefit Tax (“FBT”) on expenditure incurred by an employer on or after 1 April 2009. Consequently, by an employee benefits which were subject to FBT have been brought back within the ambit of perquisites and taxable in the hands of employees from the financial year (“F.Y.”) 2009-10 onwards.

The relevant rules required to compute the valuation of such perquisites were awaited ever since the change was brought about by the Finance Act. Theserules have now been notified on dated 18-12-2009 wide Notification No. 94120091F No. 14212512009-s 0 (TPL), by the Central Board of Direct Taxes and the existing Rule 3 and insertion of Rule 40F of the Income-TaxRules, 1962 (“The Rules”) has been substituted completely. The new rule 3 is deemed to have come into effect from 1 st day of April 2009.

MOTOR CAR

The perquisites value of a motor car provided by an employer both for official and personal use has been enhanced by Rs. 600 to 800 per month depending on the engine capacity of the car. Also, the perquisites valuation for employer-provided chauffeur in such cases has been increased from Rs. 600 per month to Rs. 900 per month.

The new valuation rules as prescribed by CBDT and the comparative analysis with the earlier perquisite rules (Rule 3) have in respect of motor car owned or hired by employer and provided for personal purposes (Partly or Fully) of employees is tabulated as under:
Nature of benefit provided bythe employer     Value of perquisite as pererstwhile rules     Value of perquisite as pererstwhile rules
Motor car is owned/ hired by employer
(a)     Car used exclusively in performance of official dutiesRule 3(2)(A)(1)(a)     No value provided specified documents1 are maintained by employer     Same as erstwhile provisions
(b)     Car used exclusively for personal purpose by the employee or any member of his household2 and expenses on maintenance and running are met/ reimbursed by employerRule 3(2)(A)(1)(b)     Actual amount of expenditure incurred including the remuneration paid to the chauffeur by the employerplus amount representing normal wear and tear of the car3

_____________

as reduced by any amount charged from the employee
    Same as erstwhile provisions
(c) Car used partly for official duties and partly for personal purpose by employee or any member of his household

       
(i)    Expenses on maintenance and running are met/ reimbursed by employerRule 3(2)(A)(1)(c)(i)     Rs 1,200*4/Rs 1,600**5 per month (plus Rs 600 if chauffeur is provided)     Rs 1,800*Rs 2,400** per month (plus Rs 900 if chauffeur is provided)
(ii)     Expenses on maintenance and running for personal use are fully met by employeeRule 3(2)(A)(1)(c)(ii)     Rs 400*6Rs 600**7 per month (plus Rs 600 if chauffeur is provided)     Rs 600*/Rs 900** per month (plus Rs 900 if chauffeur is provided)

Note to above:-

1. Specified Documents:

(a)   Employer has maintained complete details of journey undertaken for official purpose which may include date of journey, destination, mileage, and the amount of expenditure incurred thereon

The employer gives a certificate to the effect that the expenditure 2.  Member of household includes spouse(s), children and their spouses, parents and servants and dependants

3.  The normal wear and tear of a motor car shall be taken @ 10% per annum of the actual cost of the motor car(s)

4 * Where cubic capacity of engine does not exceed 1.6 litres

5 ** Where cubic capacity of engine exceeds 1.6 litres

6 * Where cubic capacity of engine does not exceed 1.6 litres

7 ** Where cubic capacity of engine exceeds 1.6 litres
Nature of benefit provided by
the employer     Value of perquisite as per
erstwhile rules     Value of perquisite as per
new rules

Motor car is owned by employee and running expenses met or reimbursed by employer
(a)   Car used exclusively in performance of official duties

Rule 3(2)(A)(2)(i)
    No value provided the specified documents1 are maintained by employer     Same as erstwhile provisions
(b)  Car used partly for official duties and partly for personal purpose by him or any member of his household     Actual amount incurred by employer

as reduced by Rs 1 ,200*/Rs 1,600** per month (plus Rs 600 if chauffeur is provided)
    Actual amount incurred by employer

as reduced by Rs 1,800*/Rs 2,400** per month (plus Rs 900 if chauffeur is provided)

(Refer Note 2)
Rule 3(2)(A)(2)(ii)

Any other automotive conveyance is owned by employee and running and maintenance expenses are met/ reimbursed by employer
(a)   Used exclusively in performance of official duties

Rule 3(2)(A)(3)(i)
    No value provided the specified documents are maintained by employer     Same as erstwhile provisions
(b)  Used partly for official duties and partly for personal purpose by him     Actual amount of expenditure incurred by employer as reduced by Rs 1,200*/Rs 1,600** per month (plus Rs 600 if chauffeur is provided)     Actual amount of expenditure incurred by employer as

reduced by Rs 900 per month

* Refer Note 2
Rule 3(2)(A)(3)(ii)

1. Specified Documents:

(a)   Employer has maintained complete details of journey undertaken for official purpose which may include date of journey, destination, mileage, and the amount of expenditure incurred thereon

(b)   The employer gives a certificate to the effect that the expenditure was incurred wholly and exclusively for performance of official duties

2: Wherein the employer or employee claims:

-                        that motor car has been used exclusively in performance of office duties,

or

-           actual expenses on running and maintenance of the car owned by employee

is more than the amounts deductible as specified, then he may claim a higher amount attributable to such use and the value of the perquisite shall be actual amount attributable to official use of the vehicle, provided the specified documents are maintained by employer.