Valuation of Motor Car/Other Vehicles Perquisites Under Rule 3(2)

Salaries, Tax Ready Reckoner

Here’s a detailed breakdown of the valuation of motor car perquisites under Rule 3(2) of the Income Tax Act, along with examples in a table format:

Table of Contents

Valuation of Motor Car Perquisites [Rule 3(2)]

Perquisites related to motor vehicles are taxable under Section 17(2) of the Income Tax Act. The valuation depends on:

Ownership(employer or employee-owned).
Usage(official, personal, or mixed).
Engine capacity(≤1.6L or >1.6L).
Expense reimbursement(employer or employee-paid) .

Table: Valuation of Motor Car Perquisites

SCENARIO	ENGINE ≤1.6L	ENGINE >1.6L	TAXABILITY
1. Employer-owned/hired car
– Used wholly for official duties (with logbook)	Nil	Nil	Exempt if documents are maintained .
– Used exclusively for personal purposes	Actual expenses + 10% wear & tear	Actual expenses + 10% wear & tear	Fully taxable for all employees .
– Used partly for official/personal purposes:
a. Running costs reimbursed by employer	₹1,800/month (+₹900 for driver)	₹2,400/month (+₹900 for driver)	Taxable for specified employees* .
b. Employee bears private-use costs	₹600/month (+₹900 for driver)	₹900/month (+₹900 for driver)	Taxable for specified employees* .
2. Employee-owned car (expenses reimbursed by employer)
– Used wholly for official duties (with logbook)	Nil	Nil	Exempt .
– Used partly for official/personal purposes	Actual expenses – ₹1,800/month†	Actual expenses – ₹2,400/month †	Taxable for all employees .
3. Other automotive conveyances (e.g., scooters)	Actual expenses – ₹900/month	N/A	Taxable for all employees if mixed use.

* Specified employees: Directors, employees with >20% voting power, or those with salary >₹50,000/month .

† If actual official expenses exceed ₹1,800/₹2,400, higher deduction is allowed with documentation.

Examples in Table Format

CASE	CALCULATION	TAXABLE VALUE
Employer-owned car (1.5L engine): Mixed use with driver; expenses paid by employer.	₹1,800 (car) + ₹900 (driver) = ₹2,700/month × 12 = ₹32,400/year	₹32,400
Employee-owned car (2.0L engine): 70% official use; employer reimburses ₹40,000.	₹40,000 – (₹2,400 × 12) = ₹40,000 – ₹28,800 = ₹11,200	₹11,200
Exclusively personal use: Employer pays ₹52,000 + car cost ₹5L (10% wear & tear).	₹52,000 + (10% of ₹5L = ₹50,000) = ₹1,02,000	₹1,02,000

Key Notes

Logbook Requirement: For exemption on official use, maintain records of dates, destinations, and mileage .
Commuting Exemption: Travel between home and office is notconsidered personal use .
Multiple Cars: If two cars are provided, one is valued under mixed-use rules, and the other as fully personal.