Key Points
Many companies give employees the flexibility to change the salary structure to optimise tax savings. Employees who have this option and fall in the highest income tax bracket can explore getting a car on a company lease, instead of an auto loan, to save tax...
On an assumption that an employee receives a reimbursement of Rs 300,000 per annum towards running and maintaining a motor car, and the employees average rate of tax is 30%, the employee would save taxes up to Rs 78,120 [(Rs 3,00,000 Rs 39,600) * 30%] on an annual basis during the car lease period, says Sethuraman...
ParticularsCar on company lease (Rs)Car purchase with loan (Rs)Salary30,00,00030,00,000Gross salary Less: Standard deduction-50,000-50,000Less: Section 80C-1,50,000-1,50,000Less: Motor car reimbursement if part of CTC (car lease payments: lease rental 50,000 per month * 12 months)-6,00,000 Add: Notional value of perquisite+39,600 Less: Deduction w.r.t. car loan -1,50,000(assuming eligible for deduction u/s 80EEB for purchase of electric car)Net total income2,239,60028,00,000Tax liability (@30%)4,84,3806,07,500Saving in tax1,23,120 Car on lease has engine > 1.6 litres; computation under old tax regime; considering no other deduction than standard deduction and Section 80C..
The option of owning the car after the expiry of the leasing tenure depends on various factors whether the lease is an operating or finance lease, whether the intention of the employer and employee is to only lease a car and not own it, etc, says Sethuraman...
Where the car is owned by the employee, the employee can reduce their taxable income up to Rs 39,600 per annum provided the cars running and maintenance expenses are reimbursed by the employer and the car is used for both official and personal purposes of the employee, says Sethuraman...
