How can corporate car leases benefit employees with tax savings
We live in a country where people have been divided into three strata according to their income-earning capabilities, the rich, the poor, and the middle class. While the rich do not have to think about their income spending as they possess an abundance of it, the poor do not have enough money to dream about savings. Hence, we are left with middle-class earners who save to meet their aspirations and dreams come true. Now, think of a situation where the already scarce money is furthermore ratted away in the form of tax that could be saved.
As a middle-class income earner, a person tends to spend the maximum of his income on health, education, and lifestyle. In recent times, this amount has been allotted for travel and related purposes. They tend to cater to their comfort and ease by traveling in their vehicles. But owning a vehicle can be bothering and can dig a huge hole in one’s pocket. So, what do we feel about having a system lodged by corporate employers where a certain sum is reimbursed to the employees in the name of travel allowances? Or maybe a system where a car fleet management system is responsible to take care of their travel needs?
Corporate lease policy- A modern solution to tax-related problems!
It is a type of innovative technique where an employee is at the advantage to choose his or her dream car as a part of his job to fulfill his daily commute needs without having to worry about the extra costs involved in buying a car. The overhead expenses and paperwork formality can be really hard to bear sometimes. With the help of a company car lease, these overbearing problems can be dealt in a much easier way.
TAX-EFFICIENT SALARY STRUCTURING- owning a vehicle not only comes with a huge set of responsibilities, but it also brings along the burden of taxes that are topped along with the premium of EMI. With the help of a company car lease policy, employees are provided with lower net monthly EMI as they only pay for the value that has been depreciated across time and space. The lease amount is deducted from the pre-tax salary of an employee which results in them saving a decent percentage of their salary to be going as tax.
The below conditions are to be necessarily fulfilled for the employees to be claiming higher expenses as a part of formalities under official purposes:
A) The employer should provide a set of complete details of visits for the official purpose of traveling if the contract is not to be deemed for personal use. Such information might include the following particulars- Date, Place visited, mileage, and amount of expenditure.
B) To confirm that the expenditure was incurred for official purposes and in the personal interest of an employee, an official certificate is necessary to validate the expenses.
HOW DOES A SALARIED EMPLOYEE BENEFITS FROM THE SCHEME?
Salaried employees often get confused about the legalities related to the tax liability of owning a car. They are sometimes not able to understand how can they benefit from the business car lease policy when they have the vehicle and are using it for both personal and official purposes. That is the reason, we present to you a detailed analysis of the tax benefits of having a lease vehicle from your company instead of financing or owning a car.
In case the car is owned by the employee, and the other expenses are reimbursed by the employer, in such case the perquisite value of the lease amount that needs to be deducted for tax savings will be computed. The tax liability on perquisite for reimbursement of fuel and driver expenses will be as below:
1. In case the car is allowed to be used for official purposes only — the value of the special allowances will be not applicable hence no addition to your already existing taxable salary is made at all. Other conditions need to be fulfilled if the employee wants to claim higher expenses with a car that is used just for official purposes.
2. In case the leased car is used for private purposes — The taxable allowance of part of the employee’s salary will be the amount paid by the employer by himself. That deducted amount will then be added to your taxable salary. Any amount related to the other overhead expenses will be subtracted from that lump sum amount. Private purposes leas vehicles will still be better for an individual as compared to owned vehicles due to the removal of unnecessary charges and a sense of safety and belongingness.
3. Partial use for the leased car for private and partial use for professional purposes- the actual amount incurred by the employer will be counted as the perquisite for having a vehicle under the leasing policy.
While several other benefits entrails with having a corporate lease policy as a part of every employee’s remuneration system, the key focus in the above article lies with tax saving. It points toward the core requirement of establishing a safe system for the employees to get a car under the company’s lease service so that they don’t have to get into an unknown and much costlier way of business for looking out for the travel concerns. ALD Automotive is here to guide you through the process of having to decide the type of plan that you need to get to make your lease journey smooth and fruitful.