one of client company director wants to buy a car in the name of the company. but while leaving the company he wants to get the car in his name at free of cost.for that purpose he can can forgo some of his salary. eg as of now his CTC 30 lakh P.A but he can reduce his CTC to 27 lakh if he gets the car at free of cost while leaving the company ( cost of car Rs.10 lakh). the idea behind is to save the tax on salary income and to reduce Tax liability of company . Please let me know any such possibility
10 August 2024
Yes, your understanding is correct. If a car is given as a gift (free of cost) by an employer to an employee, the value of the car is considered a perquisite under the Income Tax Act. Here's how it works:
### **Perquisite Valuation for a Car Given as a Gift**
1. **Book Value of Car:** - **Valuation:** The value of the car, when given as a gift, is generally considered at its **book value** or **fair market value** (whichever is higher) at the time it is gifted to the employee. - **Treatment:** This value is treated as a perquisite in the hands of the employee and is added to the employee's taxable income.
2. **Tax Treatment:** - **Inclusion in Income:** The book value or fair market value of the car at the time of gift is added to the employee’s income and taxed accordingly as perquisite income under Section 17(2)(ii) of the Income Tax Act. - **Depreciation:** If the car is used by the employee for personal purposes, the employer cannot claim depreciation on this car, but the employee must report the perquisite value in their income.
### **Relevant Section**
- **Section 17(2)(ii):** This section deals with perquisites and includes any benefit or amenity provided by the employer that is not specifically covered by other provisions. A car given free of cost falls under this category.
### **Example**
Suppose an employer gifts a car to an employee and the book value of the car is Rs. 5 lakhs at the time of gifting. This Rs. 5 lakhs will be treated as a perquisite in the hands of the employee and must be included in the employee's taxable income.
### **Additional Points**
- **No Depreciation Claim:** The employer does not get to claim depreciation on the car given as a gift, as it is not part of the employer's business assets anymore. - **Documentation:** The transaction should be properly documented, and the fair market value or book value should be accurately assessed.
In summary, if a car is given as a gift (free of cost) by an employer, its book value or fair market value at the time of gifting is considered a perquisite and must be included in the employee's taxable income.