Car Allowance for Senior Managers: How Do You Set Limits and Handle Claims?

Hi,

We want to provide a Car Allowance to the Senior Managers and above. What should be the limit for the allowance and how is it calculated? Do employees have to produce any bills to claim it? We already give a tax benefit for Fuel and Maintenance based on car capacity.

Regards,
Oindri

You have stated that you are already paying employees for fuel and maintenance and consequently providing a tax benefit on the same. Do you plan to pay something called "Car Allowance" in addition to fuel and maintenance allowance?

Is it possible to provide both a Car Allowance and a Fuel/Maintenance tax benefit? The Car Allowance will be exclusively for senior management and not for others. Please advise.

Regards,
Oindri

Tax Implications of Car Allowance

From the point of view of taxation, Car Allowance shall be fully taxable unless you pay the amount under Car Allowance towards running and maintenance expenses of the car. In such a case, there will be no difference between Car Allowance and Fuel & Maintenance Allowance.

Whether you refer to it as Car Allowance or Fuel/Maintenance Allowance, the amount paid is subject to tax benefits to some extent (with conditions) if you collect bills for the fuel/maintenance expenses incurred. If bills are not collected, the entire amount paid (under whatever name) shall be fully taxable.

Please take a look at the blog post below:
Taxability of fuel expense reimbursement to employees - Part II - Hinote Systems - Outsourced Payroll Services & Online Payroll Software