ost companies these days offer car & bike expense reimbursements to their employees if they are incurred for official duties. The liability of income tax for car allowance when it is owned by the employee is based on its usage, which can be private, official or both.
Understanding Taxability Of Expenses
When the employee owns the car, and the employer reimburses the vehicle expenses, and the vehicle is used primarily for the official purposes, then such reimbursements are not taxable. The employer should maintain proper records of the journey, the mileage, destination and the amount spent to claim the expenses. If the car is used entirely for private purposes, then entire reimbursements paid are taxable.
If the car’s engine capacity is below 1.6 liters i.e. 1600CC, expense eligible for tax exemption for the use of the car is considered at the rate of INR 1800 pm. If the car is above 1.6 liters, the expense eligible for tax exemption for the use of a car is considered at the rate of INR 2400 pm. In case of a chauffeur, expense eligible for tax exemption is restricted to INR 900 p.m.
If the employee uses a two wheeler or a bike and it is exclusively used for official purposes, the entire expenses are exempt from tax in the hands of the employee, but if the bike is used for personal purposes, the reimbursements are taxable.
Problems Faced By Organizations
Every organization offering these reimbursements has to do a lot of paperwork to manage them. They need to have an administrative person or an HR manager to look after it, which adds to the operational costs. Further, the claims that were made by the employees had to be verified, which means more time and energies are spent. Since this record had to be maintained for audits, it added to the complexity. Given the challenges, most organizations look for a solution that can streamline reimbursements so that they can focus more on productive things.
Digital Solutions to Tackle Challenges
With the help of a digital solution, it becomes very easy for the companies to send fuel grants to employees within a few clicks. Zeta offers such a digital fuel card in India. It takes care of various aspects of fuel allowance and reimbursements, car hire, car lease, and the cab reimbursements. The employees are free to use the card at any fuel station, and the best thing is that it doesn’t come with a usage fee.
Some Key Benefits Are:
- Instant: With a digital solution, you can send grants to employees in no time.
- Customization: The employers can define how the grants are spent.
- Vendor Management: It is taken care of by solution provider.
- Multi-faceted: Such a solution covers conveyance allowance, fuel benefits, driver’s pay and more.
- Worry-free Verification: Claim verifications are outsourced, and they are taken care of by the experts.
- Paper-free: You get audit-ready digital statements in every month.
With so many benefits, a digital fuel cardis your best bet if you have a lot of travelling done by your employees. It simplifies the process and gives you maximum control over expenses while also tracking the authenticity of those expenses.