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Let’s Drive Car safely Car from Pot holes on the roads of Income Tax

Arjuna (fictional character): Recently the Finance Minister cut down the excise duty levied on cars and other vehicles. Now one can purchase new car at lower price. Further, recently in the auto expo automobile companies exhibited many new car models. Krishna, Lets drive car through the roads of income tax. 

Krishna (fictional character): Arjuna, men are passionate of cars. They feel very proud if they own a car. Boys are found of games of car. Due to craze of vehicles and Cars, crores of rupees were expended on it. But nowadays the condition of roads has become poor and it is affecting wear and tear of vehicles. Further in many states there is chaos on levy of Road toll charges on the vehicles. The rates of the vehicles have decreased but taxpayer should take decisions after considering provisions of income tax, as there are many Pot holes, routes, curves and diversions in on the roads of income tax. Therefore one should drive his vehicle safely.   

Arjuna: How salaried people drive their car on the Income Tax Road?

Krishna: My dear friend, salaried person while driving the car on the road of income tax should keep in mind that if, the car is owned by him and it is used for office as well as private use, then income tax will have to be paid on various turns. On the first turn if, the car is used only for office purpose and car expenses such as petrol, diesel, repairs and maintenance, interest on car loan, salary of driver, etc. is incurred or reimbursed by employer then income tax will not be levied as a part of salary. But if, the car is used for private purpose and the expenses were incurred/ reimbursed by the employer, then income tax will have to be paid on it as a perquisite and is a part of salary. If the car is used for office and private use, then income tax will have to be paid as per the prescribed rules. Therefore salaried person should drive his car safely on the roads of income tax. If car of the company is used for office purpose then there is no obstacle on income tax. But if this car is used for private purpose then income tax will have to be paid as per the rules. It means Income Tax Department considers for what purpose the car is driven and accordingly levies tax. If the car is used for private purpose then there is no benefit in income tax to employee i.e. No Entry if, car used for private purpose. 

Arjuna: How businessman should drive his car safely on the roads of income tax?

Krishna: In case of Businessman/professionals, if the vehicle is purchased for business and used for business, then he can claim the expenditure of vehicle under Income Tax. If it is used for the private use then the expenditure cannot be claimed. Further businessman should park his car properly on the roads of income tax. In view of Tax planning, many get trapped. Further businessman/professionals gets deduction of depreciation on vehicles @ 15%, if the vehicle is purchased and put to use before 180 days from beginning of year, otherwise depreciation of 7.5% can be claimed in first year of purchase. If vehicles are used for goods transport then all expenses of the vehicle can be claimed. If passenger car is used then proper records and log book of the same should be maintained. In the scrutiny of income tax, the department is keen on vehicle expenditure and its personal use. 

Arjuna: How businessman should keep the records of vehicles on Income Tax roads to save himself from “Challan” i.e., penalty?

Krishna: For businessman/professionals it is very difficult question, many records will have to be maintained for e.g. bills of petrol, diesel, toll expenses receipts, vehicle expenses, driver’s salary, car loan statement of bank, insurance premium receipts, RTO receipts, Log books, etc. Further if, the vehicle is used for private purpose then the related expenses should not be taken in accounts. Further if the vehicle is purchased in the name of director or partner then one should drive car after keeping in mind diversions of income tax provisions. Because as per many decided case laws the expenses can be claimed even if the ownership is of partner or director. But difficulties may arrive in income tax scrutiny as officer may thing otherwise and disallow expenses. Businessman should drive car after considering all ‘Road Signs” i.e., the rules of income tax. Otherwise one may met with accident and income tax along with penalty may have to be paid. Expenses should be claimed as per business expediency and commercial parlance.     

Arjuna: It is said that roads of Maharashtra Value Added Tax are worst for car.

Krishna: Arjuna, if businessman purchased vehicles for goods transport then set off of tax paid i.e, 12.5% VAT paid can be, availed. However the set off on passenger vehicles such as car cannot be availed. Hence taxpayer will have to face problem as setoff on purchase of car is not allowed but will have to pay tax on sale of the car. It means on purchase there is no VAT set off available but on sale full VAT will have to be paid. Hence the roads of MVAT are worse for passenger vehicles.

Arjuna: Krishna, while driving car and following tax laws, what other things should be considered?

Krishna: See Arjuna! If there is boom in automobile industry then economy also gets the speed. Huge amount of investment and manpower is required to run automobile industry. Automobile industry is one of the most important industries from economy. But due to harsh financial policies of government, bad condition of the roads, infrastructure of India, etc. car owners get in trouble in roads of India. Car should be purchased after considering the need of business and home. Pollution is rise at alarming level in many cities. Nowadays many luxury cars came in the market. By looking at others and for show off, many people purchase high value cars and takes large amount of loans and they did not find the way to come out of it. So one should drive car safely and take care of others. Please note that “Parking of vehicles is always on owners risk” on the roads of income tax.   

Dear Karniti and CAR Lovers, your comments please.


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Category Income Tax, Other Articles by - CA Umesh Sharma 



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