Monday 24 April 2023

Save tax via Car Lease.

 


If you are in the market for a new car, you may want to consider a company car lease policy as a way to save up to 50% of the car cost. This may sound too good to be true, but it is a practical scenario that has been proven to work. By structuring your salary in a certain way, you can get a brand-new SUV at approximately half the cost.

Here's how it works: Let's say you have a Cost to Company (CTC) of Rs. 25,00,000. After the standard deduction, your net taxable salary will be Rs. 24,50,000, and you will have to pay Rs. 4,52,400 in taxes. However, if you buy a car worth Rs. 15,00,000 through your company car lease policy, you can save a significant amount of money.

Assuming the car lease rental is Rs. 43,802, the driver's salary is Rs. 15,000, and fuel expenses are Rs. 10,000 per month, you can include all these expenses in your salary structure. The total car expense would be Rs. 68,802 per month, adding up to Rs. 8,25,624 per annum.

As a result, your taxable salary will be reduced to Rs. 16,24,276, and you will only have to pay Rs. 1,94,805 in taxes, resulting in a tax saving of Rs. 2,57,595. Over a period of four years (the car lease period), tax savings would aggregate to Rs. 10,30,378. After paying a residual value of Rs. 80,000 (approximately 5% of the car cost) and a margin of Rs. 2,40,000 to the leasing company, the net savings would be Rs. 7,10,378, or approximately 47% of the cost of the car.

It's important to note that this example assumes that the car is being used for office purposes only. If the car is being used for both office and personal purposes, you will have to pay some tax on the perquisite. However, the tax saving would still be significant.

At the end of the leasing period, which could be three, four, or five years, you can keep the car by paying 5% of the car cost. This means that you will own the car, similar to buying a car on loan. However, with a lease scenario, you get the added tax benefit as the lease rent, petrol, and driver reimbursement are not considered part of your taxable salary.

In case of a job change during the lease period, you have the option to pay the balance lease rental and residual value in advance/upfront and own the car

 

No comments:

P & H HC stays the operation of Circular clarifying taxability of corporate guarantee

  This Tax Alert summarizes a recent interim order [1] passed by the Punjab & Haryana High Court (HC) staying the effect and operation ...