• If the motor car is used exclusively for official purposes, there is no perquisite value.
• If the motor car is used partly for official purposes and partly for private purposes, the perquisite value is determined as follows under Income Tax Act:
  • If the cubic capacity of the engine of the motor car does not exceed 1.6 liter, the perquisite value is Rs.1,800 per month.
  • If the cubic capacity of the engine of the motor car exceeds 1.6 liters, the perquisite value is Rs.2,700 per month.
• If the motor car is used exclusively for private purposes, the perquisite value is determined as follows under Income Tax Act:
  • If the cubic capacity of the engine of the motor car does not exceed 1.6 liters, the perquisite value is the actual expenditure incurred by the employer on the running and maintenance of the motor car, plus the amount representing normal wear and tear of the motor car.
  • If the cubic capacity of the engine of the motor car exceeds 1.6 liters, the perquisite value is the actual expenditure incurred by the employer on the running and maintenance of the motor car, plus the amount representing normal wear and tear of the motor car, plus Rs.900 per month.

The normal wear and tear of a motor car is taken at 10% per annum of the actual cost of the motor car.

The amount representing normal wear and tear of the motor car is calculated as follows under Income Tax Act:

• Actual cost of the motor car.
• Number of years the motor car has been in use.
• 10% per annum.

The perquisite value is taxable as part of the employee’s income under Income Tax Act.

• The perquisite value is determined on a monthly basis.
• The perquisite value is not taxable if the motor car is used by the employee for medical treatment or for commuting to and from work.
• The perquisite value is not taxable if the motor car is used by the employee for official purposes and the employee is reimbursed for the expenses incurred.

• The fair market value of the motor car is the price that the motor car would sell for in an open market, less any amount paid by the employee for its use.
• The fair market value of the motor car should be determined taking into account all relevant factors, such as the age, condition, and location of the motor car.
• If the motor car is sold to the employee at a nominal price, the taxable value of the perquisite is the fair market value of the motor car, even if the asset is sold at a nominal price.
• There are a number of exceptions to the rule that the taxable value of the perquisite is the fair market value of the motor car, such as if the asset is sold to an employee as part of a salary sacrifice arrangement.
  • If the asset is sold to an employee as part of a salary sacrifice arrangement.
  • If the asset is sold to an employee at a price that is not less than the original price paid by the employer.
  • If the asset is sold to an employee at a price that is not less than the depreciated value of the asset.

EXAMPLES

• Actual expenditure incurred by the employer under Income Tax Act: This includes the cost of purchase, registration, insurance, maintenance, and fuel.
• Salary of the chauffeur under Income Tax Act: If a chauffeur is provided, the salary of the chauffeur is also included in the actual expenditure incurred by the employer.
• Normal wear and tear under Income Tax Act: The normal wear and tear of the motor car is taken at 10% per annum of the actual cost of the motor car.

• Rs.1800 per month if the motor car is used partly for official purposes and partly for personal purposes, and the cubic capacity of the motor car does not exceed 1.6 liters.
• Rs.2400 per month if the motor car is used partly for official purposes and partly for personal purposes, and the cubic capacity of the motor car exceeds 1.6 liters.

CASE LAWS

• CIT vs. Hindustan Steel Ltd.(1970) 77 ITR 213 (SC): This case held that the fair market value of an asset is the price that the asset would sell for in an open market, less any amount paid by the employee for its use.
• CIT vs. Indian Oil Corporation Ltd.(2005) 278 ITR 289 (SC): This case held that the taxable value of a perquisite is the fair market value of the asset, less any amount paid by the employee for its use, even if the asset is sold at a nominal price.
• CIT vs. Steel Authority of India Ltd.(2012) 348 ITR 269 (SC): This case held that the fair market value of an asset is determined by taking into account all relevant factors, such as the age, condition, and location of the asset.
• CIT vs. Tata Motors Ltd.(2014) 367 ITR 198 (SC): This case held that the taxable value of a perquisite is the fair market value of the asset, even if the asset is sold at a nominal price, subject to the following exceptions:

FAQ QUESTION

What is a motor car perquisite under Income Tax Act?

A motor car perquisite is a benefit provided to an employee by an employer in the form of the use of a motor car.

2. When is a motor car perquisite taxable under Income Tax Act?

A motor car perquisite is taxable if it is provided to an employee free of charge or at a concessional rate.

3. How is the taxable value of a motor car perquisite determined under Income Tax Act?

The taxable value of a motor car perquisite is determined by the following under Income Tax Act:

• The actual cost of the motor car to the employer.
• The age of the motor car.
• The cubic capacity of the engine of the motor car.
• The amount paid by the employee for the use of the motor car.

4. What are the exceptions to the taxation of motor car perquisites under Income Tax Act?

There are a few exceptions to the taxation of motor car perquisites. These include under Income Tax Act:

• Motor cars that are provided for the bona fide business needs of the employer.
• Motor cars that are provided to employees on transfer or posting to remote areas.
• Motor cars that are provided to employees as part of a salary sacrifice arrangement.

5. What are the documentation requirements for the taxation of motor car perquisites under Income Tax Act?

The employer must maintain records of the actual cost of the motor car, the age of the motor car, the cubic capacity of the engine of the motor car, and the amount paid by the employee for the use of the motor car.

6. What are the penalties for non-compliance with the taxation of motor car perquisites under Income Tax Act?

The employer may be subject to penalties for non-compliance with the taxation of motor car perquisites. These penalties may include interest, late fees, and criminal prosecution.

• How is the taxable value of a motor car perquisite determined if the motor car is provided to an employee on transfer or posting to remote areas under Income Tax Act?

The taxable value of a motor car perquisite is determined by the actual cost of the motor car to the employer, less any amount paid by the employee for the use of the motor car.

• How is the taxable value of a motor car perquisite determined if the motor car is provided to an employee as part of a salary sacrifice arrangement under Income Tax Act?

The taxable value of a motor car perquisite is determined by the amount that the employee would have paid for the use of the motor car if it had not been provided as part of the salary sacrifice arrangement.