Assigning ‘perquisite value’ to e-2-wheelers, cycles can boost sustainable transport adoption in India. Here’s how

Perquisite value of a two-wheeler may be a simple and minor matter, but it could have a significant impact on the adoption of sustainable transportation options for corporate employees — specifically electric two-wheelers and bicycles.

Perquisites are 'gains or profits' given to corporate employees beyond their remuneration. As per the Income-tax Act, 1961 (IT Act), any vehicle provided by the employer to employees for office commute is not a perquisite and does not attract any perquisite value. Therefore, it should attract no income tax incidence. 

Further, when a car provided by an employer is also used for incidental personal use, there is a clear and efficient perquisite value ascribed in the Rule 3(2)(A) of the IT Act, which talks about valuation of various perquisites. 

However, since there is no similar clarity for an electric two-wheeler or cycle provided by the company (used for official and personal use), companies are hesitant to provide sustainable modes of commute to employees. Many corporate organisations are instead providing cars and cab services, which are not only a significant cost to the companies but also to our cities (congestion) and environment (pollution). 

The definition of a perquisite makes it clear that the use of any vehicle provided by the company for commuting to and from place of work is not a benefit or amenity. So, companies should adopt this as a tax-efficient benefit to employees but have hesitated to do so. 

“There is a need for a clarification from the Central Board of Direct Taxes to either clarify that the perquisite value of a company providing electric two-wheeler or cycle is ‘nil’ or a clear valuation be ascribed. In case certain valuation is ascribed to such partial and incidental personal use, it would be best if the valuation is a small fraction of that for a motor car since an electric two-wheeler or cycle is generally just 10-20 per cent of the value of a typical car,” argued Vikas Jain, founder and chief executive of an electric two-wheeler leasing company. 

Clearly, there is a need to review the taxation regime and to provide a clarification on the perquisite value of company-provided electric two-wheelers and bicycles. 

European countries, especially the United Kingdom, have long recognised the potential of electric two-wheelers in helping companies improve their sustainability quotient and contribute to emission reduction. 

In fact, Europe is a global leader in cycling adoption, with six of the world's most bike-friendly cities, including Utrecht, where over half of residents cycle daily. European countries, like Netherlands and Denmark believe that cycling not only offers a convenient and enjoyable mode of transportation but also brings numerous health and environmental benefits.

UK has successfully enabled 1.6 million office goers to use cycles and electric two-wheelers for office commute with the help of a support scheme. The cycle-to-work scheme offers guidance for companies to enable employees to make a transport choice that is also sustainable. 

“If India were to traverse a similar path, the transition potential could range around at least an additional two million corporate employees to cycles and electric two-wheelers, the most planet friendly mode of commute in the next five years,” said research from a bike-leasing company, Welectric. 

Of course, for widespread adoption of bicycles, Indian cities will have to develop suitable infrastructure and regulations to ensure public safety and convenience. 

In recent years, there has been a commendable focus on promoting eco-friendly modes of transport by various authorities, with electric vehicles emerging as a key option. “Though the Indian government did introduce a tax break on EVs in the budget session of 2019-20, which included electric two-wheelers, it served as merely a token step because adoption of electric two-wheelers is still quite limited with just around 5 per cent of new two-wheeler sales being in EVs,” informed Vinay Gupta, a chartered accountant and wealth advisor. 

In the 2019-20 budget, the government allowed a deduction of up to Rs 1.5 lakh on the interest paid on loans taken to purchase EVs. Insurance companies reported that not only were owners of electric vehicles exempt from paying income tax on the interest of their EV loan, they could also avail a GST reduction from 12 per cent to 5 per cent. These tax benefits were made available for a limited period and were designed to expire in March 2023. 

It is believed that electric two-wheeler adoption could find momentum if private employers could provide these vehicles to employees for office commutes. 

A major advantage of increased adoption of electric two-wheelers would be to create preparedness for the urban planning concept of ‘15-minute city’. In this, a city is designed such that most of the amenities like schools, hospitals and markets are located within a 15-minute biking or walking distance of every resident.

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