How a leased car can act as a saver from excess taxes

Here’s the truth — majority of employees doing desk jobs have got used to working from home. Of these, many living in the cities consider this to be a welcome change in trend as they do not have to expend time and energy in commuting. However, there are still many such job roles especially in Multinational companies, Banks, Petroleum and Retail industry etc. where work from home can never be considered a better alternative. What many employees now dread is traveling to work using public transport even though there is a drastic drop in Covid-19 cases, globally. Also, employees living in metropolitans do not want to experience commuting in a crowded bus or train anymore. Companies can help solve this problem by introducing the concept of car leasing in the salary package for their employees. Though the concept of car leasing is relatively new to many employers in India, now seems the best time to embrace this change!

When we talk about an employee’s salary, there are multiple components that make up a ‘salary package’. The ones we are mostly familiar with are House Rent Allowance, Leave Travel allowance, Sodexo card, mobile phone bills etc. In most organizations, for executive level employees, there are also allowances in fuel and for buying a car. These top-level employees have been given such allowances so that their taxable income would reduce as they continue to enjoy more benefits from their salary packages. Adding car leasing as a component to the salary structure, however, can help employees of all medium to high salary brackets in a significant manner.

Let’s understand with the help of an example on how a leased car component on a salary package would actually benefit the employee. Company hires an employee Ms. X against a salary package of INR 15 lakhs. As per the current income tax slab rates, 25% of this salary is taxable. Now, the company can offer Ms. X an option wherein Rs 3 Lakhs for Car leasing can be deducted off Rs. 15 lakhs as a pre-tax amount. As a result, the total amount before tax deduction will now be Rs. 12 lakhs. As per the tax slabs, the taxable amount gets slashed from 25% to 20% for a salary bracket between Rs. 10 lakhs — 12.5 lakhs. So, the total amount taxable would be 20% of the Rs.12 Lakhs — which is Rs. 2.4 lakhs. Considering that Ms. X had not been offered this car lease component in the salary package, the taxable amount would be much higher. The aforementioned leased car component is inclusive of car rentals, maintenance charges, and driver allowances, if company car is provided in the CTC.

Organizations now understand that commuting by car to work should not be some privilege extended to top-level executives alone. In fact, companies now are aware of how long hours of commute in crowded buses and trains can affect the morale and productivity levels of employees.

In India, this shift in trend of most employees traveling to work in a leased car might look a distant dream but it is not impossible. With majority educated people moving from villages and small towns to cities for work, public transport in metropolitans will be incapable of handling the crowd in times to come. Leased cars will therefore become the preferable option for a timely and comfortable to-and-fro work commute for many.

ALD Automotive is working closely with many employers in India to understand the employee’s needs and requirements which will make commuting in leased cars a trend going forward. Also, a wide variety of vehicle options are now offered to employees, based on their expectations and job profiles. For instance — a Bank officer can lease a Tata Nexon which is a mid-range, sturdy hatchback offering enough space inside and yet comparatively smaller in size for easy city commute. Also, the aerodynamics in this car would keep it steady so that the officer can comfortably use a laptop for work related purpose while traveling.

Companies have the below advantages of providing leased cars for employees:

1) Employers get a certain flexibility in salary structuring upon introducing leased car component in the CTC.

2) A lot of administrative hassles can be reduced at the organizations’ end as it will be taken care of by car leasing companies like ALD Automotive.

3) The entire car leasing process is faster than the company buying a car for the employee. Also, all documentation for leased cars happens online.

4) ALD Automotive India provide mobile apps, for instance My ALD India app, which help track the vehicle movements, maintenance requirements, reports and invoicing etc.

5) Employers get to choose between Operational lease and Financial lease depending on whichever is suitable. (Operational lease is where the car leasing company manages vehicle risk and return whereas in Financial lease these factors are managed by the employer).

6) All insurance related payments and claims are managed by the car leasing company.

Employees commuting in leased car can become the new normal in India provided a few initiatives are taken:

1) Adequate measures taken to improve the conditions of the roads and implementation of traffic signal system at every corner of all metropolitans

2) Electric vehicles (EV) being the future of mobility in India, charging points should be installed at all commuting routes. Tata Power has already taken significant steps in this electrification process.

3) Awareness programs on leased car component in salary structure should be initiated as this would benefit both employers and employees financially.

4) Car leasing companies should ensure that the employee’s house has required infrastructure for charging, in case of a leased EV.

5) Employees should be educated on all calculations pertaining to the leased car rentals as this would avoid any confusions in regards to monthly deductions.

6) All major car brands need to collaborate with car leasing companies in India to introduce more vehicle models so employees can choose accordingly.

We can therefore conclude that over the next decade, commuting in leased cars would be a revolutionary idea in India as –

● Employees need not bear the full cost of the car and would get ample tax benefits

● A peaceful commute would mean more productivity at work leading to a better work-life balance.

Commuting in leased cars is a trend that is slowly changing the ways in which organizations in India function. By encouraging employees to opt for leased cars as a part of the CTC, employers benefit by ensuring employee safety at commute and employee’s productivity at work. The employee on the other hand gets tax benefits and also saves huge money which would have been otherwise spent on a new car.