Perquisite valuation of vehicles - Corrections

QUESTION: Your understanding of the perquisites valuation in The Hindu dated October 11 and 18, needs correction in respect of two wheelers and motor car in the context of employee's car used for private purposes, where expenses of running is met by employer.

ANSWER: Mr. K. Parasuraman and many other readers have pointed out the mistakes in the summary of the new Rule 3. The correct position as regards valuation in the contingencies pointed out is as under:

Valuation of perquisite for two wheelers: In respect of two- wheelers owned by the employee, where employer meets all the running and maintenance expenses, but the vehicle is used solely for official purposes, there should be no perquisite valuation, if supported by the documents as are required for the claim of such official use recording the details of the journey, the date, destination, mileage and the amount of expenditure (apparently for each trip) along with certification as to the exclusive use for official duty both by the employee and the supervising authority. Such requirements are prescribed under Rule 3(2)B.

In case such two-wheeler partly used for official and partly for personal or private purposes, subject to similar records and certification being available, cost to the employer as reduced by an amount of Rs. 600 will be the perquisite value. In other words, only where the expenses reimbursed or met by the employer exceeds Rs. 600, such excess becomes taxable as perquisite.

However, a larger exemption than Rs. 600 is possible, if the aggregate of expenditure for official use as per the records (usually a log book) required under Rule 3(2)B is larger than Rs. 600. Expenditure will have to reckon the cost of wear and tear (depreciation) at 10 per cent of the cost of the vehicle.

Rule 3(2)B refers only to motor vehicle, but in view of the fact that there is cross reference to this Rule in Rule 3(2)A(3)(i) and (ii), it should be treated as applicable for two wheelers as well.

Valuation of motor cars: In respect of Item No. (vi) relating to perquisite value of employee's car in The Hindu dated October 11, where employer meets the expense of a car owned by the employee, the earlier answer had overlooked the effect of clause B of sub- rule (2) of Rule 3. The answer should have been that the excess over 1200/1600 should be read as taxable and not exempt. The answer is, therefore be repeated.

Any employee, who uses his own car and has the expenses met by the employer, would be taxable on the excess of the amount spent by the employer as reduced by either Rs. 1,200/1600 depending on the size of the car. The amount spent or reimbursed by the employer should also include wear and tear (depreciation) at 10 per cent of the cost of the car.

However, if the employee wishes to claim a larger deduction, he has to keep a log book indicating details of journeys undertaken for official purpose, which may include date of journey, destination, mileage and the amount of expenditure (incurred for each journey), so that such expenditure for official purposes, where it exceeds 1200/1600 could be identified and claimed as exempt. In other words, if there are back-up records to justify a larger expenditure for official use, the employee would be entitled to a larger deduction.

The requirement of a long book in both the above circumstances contemplates expenditure for each journey so as to enable identification of actual expenditure incurred on official and private purposes. Measure of consumption of petrol, oil and wear and tear for each trip is not an easy task. Even if it were possible, it will not be worth the time and effort of employee and supervising officer. Allocation of expenses with reference to mileage alone is sufficient for allocation of total expenses including wear and tear on a proportionate basis. The Board should consider the matter and relax the requirement in a Circular.

Perquisites for use of multiple cars

Q: Is there any provision, where there is more than one motor car for the employee?

A: Where more than one motor car is provided by employer with partial use for personal purpose, the value of the perquisite will be as though one car was used for personal purposes to be valued at cost incurred on the same including wear and tear and the other car as partially used for personal purposes Rule 3(2) proviso.

Where there are more than two cars, it follows that one car will be treated as partially for private purposes and others solely for personal purposes.

Accommodation in a remote area

Q: Is there any concession for accommodation in a remote area as in draft rules?

A: There is an exception for those who are given accommodation located in a remote area. Remote area is defined under Explanation below Rule (3)(9) which defines it as, ``for purposes of proviso to this sub-rule'', to be a place at least 40 km away ``from a town having a population not exceeding 20,000'' as per last census.

Sub-rules referring to remote area are found both for living accommodation in Rule 3(1) and for free meals under Rule 3(7)(iii). Probably it will apply for both. Reference to a town not exceeding 20,000 in population does not make sense. Obviously, the negative `not' in the Rule is wrongly placed. The definition of remote area was more elaborate in the draft rule without the mistake and ambiguity in the present Rule. Now, the exemption available for accommodation in remote area is restricted to employees working ``at a mining site or an onshore oil exploration site, or a project execution site or an accommodation provided in an offshore site of similar nature''.

Education of employee's children

Q: What is the treatment of education of children provided by employer?

A: Rule 3(5) provides for charging of educational facilities, where it is met by the employer in an institution is run by him at cost.

Where free educational facility is given in any other assisted educational institution, similar cost of education in any other institution, will be treated as perquisite value. However, if the cost does not exceed Rs. 1,000 a month per child, there will be no valuation for this perquisite. The present children's education allowance at Rs. 100 a month up to maximum of two children and Rs. 300 per month, if the child is in a hostel will, however, continue.

S. Rajaratnam

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