Car Allowance Percentage - CiteHR
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We are a mid size IT company. We want to introduce Car Allowance for our senior level employees. Is there a fixed percentage of CTC that can go as car allowance? Or does it depend on which car an employee drives. If someone's per month salary is a lakh, can I give him 20,000 as car allowance (within the CTC)?
Awaiting early clarifications

:icon1: Hi,
Fix up car allowance gradewise.Start at AGM level for eg. Rs.10,000/ then go on incresing amount gradewise.DGM-- GM --AVP-- VP.
Since it is a option for employee to go for a company car or a allowance try to keep it over & above CTC for ease in salary comparision.

I would like to give you my views on the query.

· There are no set norms to decide the amount of 'Car Allowance', for that matter any allowance or component of the salary. It is generally decided considering the provisions of Income Tax Act. All the employee friendly employers first give all those allowances and benefits which are exempt from Income Tax and anything over and above is taxable. You need to specifically check whether Car Allowance is exempt from Tax or not. I feel it is not exempt.

· I am assuming that, your company has not provided cars to those employees to whom you are proposing to pay Car Allowance. Hence you can decide the Grade wise Fixed Amount as Car Allowance and all the employees in a particular grade will get same Car Allowance. They will be paid Fixed Car Allowance irrespective of the fact that, whether they own a car or not, whether they use it for commuting or not or whether running of car is less or more or which car they are using. By doing this you are treating all the employees in a particular grade at par and you are not discriminating them, by paying only those who are owning a car. You are not compelling employees to buy a car to get Car Allowance.

· Providing car allowance only to employees owning / using car in a particular grade, in a way, will encourage/compel them to spend on the cost of the car, it’s maintenance and fuel. You will also have to make sure that, employee really owns the car and also adequately uses it for commuting.

· Other alternative is to provide company owned cars to Top Grade Employees. These cars will be maintained and fueled by company. You can only fix the cap on monthly fuel consumption. This will qualify as a perk ( company provided car ) under Income Tax Act and will be taxed accordingly.

Thanks & Regards

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