Petrol Allowance for Employees: How Does It Work Under the Shops and Establishment Act?

We are an organization of 150 employees and are covered under the Shops and Establishment Act under the Maharashtra Government. I want to incorporate a petrol allowance in the salary structure. Please guide me on what the upper limit is for tax exemption and if it's applicable for organizations included under the Shops and Establishment Act. Also, what is the likely percentage of tax that would be paid by the organization for this fringe benefit. Please help.

Hi Priyanka,

Petrol allowance will be treated as conveyance allowance and as per the IT Act, the same is tax-free to the extent of Rs 800. Anything above that will attract tax. This is applicable to all companies regardless of whether they are covered under the Shop/Establishment Act or not.

Trust this answers your query. If you still have any doubts, please write to me.

Regards,
Niks
nikkyblue@gmail.com

Thanks, Nikky. However, I have heard there is no upper limit to the exemption, and it is a sort of fringe benefit. Fuel Allowance gives an exemption depending on the limit decided by the Management. Being a fringe benefit, a small percentage of tax would be levied as a tax to the company.

I am sure that the travel allowance gets an exemption of at most Rs 800, and it's very different from the fuel/petrol allowance.

Please guide.

If you reimburse your employees for petrol expenses against the bills, it is non-taxable for the employees but it incurs Fringe Benefit Tax (FBT) for the company. 20% of the expenses are deemed to be a Fringe Benefit, and the flat rate of FBT on Conveyance/Petrol Reimbursement is 30%.

If you provide reimbursement to your employees without bills, then only Rs. 800/- per month is non-taxable.

Hope this clarifies your doubts....

Replies above technically answer the query. However, a few more points:

Rs 800/- per month doesn't attract ANY tax whether from the employee or employer; no proof of expenses is required.

Reimbursement of fuel, maintenance expenses, and driver's salary attracts FBT (30% on 20% plus service tax i.e. 6.7%) from the employer. The employer can choose to pass this onto the employee - who will benefit as otherwise, he'll get it taxed at 30% or whichever tax bracket he falls in. For employees with a taxable salary of less than 1.5 lakh, this reimbursement should be avoided as he can avoid paying the least tax as well.

Besides, can someone comment on whether expenses incurred on conveyance like auto, taxis for own commute to the office or personal commute are also subject to FBT? And at the same rate? In such a case, these bills can be allowed by the organization under this head.

PS: Can CiteHR also have a "Justify" button in the text box.

Organizations can allow for auto, taxis, etc. However, I am interested to know whether this is allowed under the Income Tax Act. If someone does not have their own vehicle and produces a conveyance voucher with taxi, auto charges, etc., for which no bills are available, whether this is also acceptable under the Income Tax Act. The company can pay Fringe Benefit Tax and recover it from employees.

Dear Priyanka,

We are an organization of 150 employees and are covered under the Shops & Establishment Act under the Maharashtra Government. I want to incorporate a petrol allowance in the salary structure. Please guide me on what the upper limit is for tax exemption and if it's applicable for organizations included under the Shops & Establishment Act. Also, what is the likely percentage of tax that would be paid by the organization for this fringe benefit. Please help.

Please refer to the attached file for your reference. I hope you will find all the details regarding the tax exemption.

Thanks & Regards,
GARAJ

It will be better if you pay the same as petrol reimbursement. There is no limit as such; employees will get a 100% tax benefit (subject to employees submitting bills for claiming the same; the employer has to pay around 6.8% as FBT on the same), which will be beneficial for those whose annual income is more than 1.8L/annum. If you want to include it as a part of the salary, then it's better to name it conveyance allowance, which is exempted up to 800/month. Furthermore, if you want your employees to pay FBT, then you have to take written consent to this effect from the employee.

Apart from the above reply, in FBT allowance can be a restructuring of salary components of FBT such as petrol allowance, maintenance allowance, meals and entertainment allowance, telephone, vacation, and attire. Employees need to pay FBT tax at 6.7%, and employers are required to issue a letter with the new salary structure component which should state the FBT amount in the total CTC.

Additionally, conveyance allowance can be paid at 800/- per month tax-free.

Regards,
Hasnain

I am working with an MNC as a Payroll Executive. Can you help me out with a query?

Tax Exemption for Special Allowance

We are providing a special allowance of Rs. 10,000 to our Operations Manager. He is utilizing this allowance for commuting from home to the office. What is the tax exemption for this special allowance?

Regards