Valuation of Motor car and Driver's salary

This query is : Resolved

Sonal Kulshreshtha (Querist)
Follow

19 February 2010 In my company there are two cases:
1. The motor car is company owned and the employees are given per month entitlement for running and mtce of the car. Besides, they are also paid for hiring the driver. Say, the entitlement is Rs.7000 p.m. and for driver's salary it is Rs.4500 p.m. How the valuation will be made for car. Is the driver's salary entitlement to be included in full in the employee's income?

2. The motor car is employee owned and running & mtce expenses and driver's salary is also paid from company. Say, entitlement Rs.7000 and for driver's salry it is Rs.4500p.m. How the income of employee would be calculated?

CMA. Dinesh S Adhikari, ACMA

CMA. Dinesh S Adhikari, ACMA (Expert)
Follow

19 February 2010 1) If motor-car company owned and only Expenses paid by employer not Driver's salary and car used for official & private use then in this case amount will be taxable Rs. 1800 PM(if upto 1.6 litre) or Rs. 2400 PM(If car is greater than 1.6 litre)

2) If motor-car owned by employee and all expenses paid by employee then amount will be taxable as follow:
a) If car upto 1.6 litre = Exp. paid by employer - Rs. 1800 + Rs. 900
b) If car exceeds 1.6 litre = Exp. paid by employer - Rs. 2400 + Rs. 900

*Please Note: Above given amount can be changed provided if employee provides proper log-book certifiied by the employoer and A certificate from employoer.

Regards!!!
Dinesh S. Adhikari

Sonal Kulshreshtha

Sonal Kulshreshtha (Querist)
Follow

19 February 2010 But in case (2), the emplyee will be at loss coz his taxability will get increased even if he is using his own car. And in absolute terms, what would be the amount taxable if the total running & mtce expenses provided by employer which is equal to Rs.14000. Would it be Rs.11300 p.m.

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
Follow

02 August 2025 Great query! Let's break down the valuation and tax treatment of motor car and driver's salary for both cases you mentioned:

---

### 1) **Company-Owned Car with Employer Paying Driver’s Salary**

* **Car is owned by the company.**
* Employer reimburses running & maintenance (R\&M) expenses (say Rs. 7000/month).
* Employer **also pays driver’s salary** (Rs. 4500/month).
* The car is used partly for official and partly for private purposes.

#### Taxable Benefit to Employee:

* According to Income Tax rules (Section 17(2)), when company owns the car and provides for private use, the **taxable value** of the car per month is:

* Rs. 1800/month if engine capacity ≤ 1.6 liters
* Rs. 2400/month if engine capacity > 1.6 liters
* **Driver's salary is a separate taxable benefit** and is **fully taxable** as perquisite.
* So, **driver’s salary Rs. 4500/month will be added fully to the employee’s taxable income.**

---

### 2) **Employee-Owned Car with Employer Paying R\&M and Driver’s Salary**

* **Car is owned by employee.**
* Employer pays running & maintenance expenses and driver’s salary (total Rs. 14,000).
* Employee uses car for both official and private purposes.

#### Taxable Benefit to Employee:

* Taxable value of car is calculated as:

* Rs. 1800 + Rs. 900 = Rs. 2700/month (engine ≤ 1.6 liters)
* Rs. 2400 + Rs. 900 = Rs. 3300/month (engine > 1.6 liters)
* The Rs. 900/month is the fixed driver allowance (whether driver salary paid or reimbursed).
* If actual expenses paid by employer are Rs. 14,000/month, this does **not directly mean the entire amount is taxable.**
* The **taxable perquisite is limited to these fixed rates** unless the employee maintains a proper logbook certified by the employer proving that business usage is higher.

**If the company pays Rs. 14,000 but the prescribed taxable amount is Rs. 2700 or Rs. 3300, then only these fixed amounts are considered taxable, provided no other evidence is furnished.**
If no logbook/certificate is maintained, the **entire amount reimbursed (14,000) might be taxed.**

---

### Your question:

> In case (2), will employee be at loss because taxability increases even though he owns the car?

* The tax laws specify **fixed taxable values for such benefits** to avoid ambiguity.
* If employee can maintain usage records (logbook) and prove business use, tax can be minimized.
* Otherwise, the fixed value applies regardless of actual expenses.

---

### Summary Table:

| Scenario | Engine ≤1.6 L | Engine >1.6 L | Driver's Salary Taxability |
| ---------------------------------------------- | ------------------------- | ------------------------- | ------------------------------------------------- |
| Company-owned car + driver paid | Rs. 1800/month | Rs. 2400/month | Driver's salary fully taxable |
| Employee-owned car + expenses paid by employer | Rs. 2700/month (1800+900) | Rs. 3300/month (2400+900) | Included in fixed allowance, no separate addition |

---

If you want, I can help draft a quick example calculation for your specific numbers. Would that help?

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now