Corporate car leasing: What is it and how can it help professionals save tax?

Corporate car leasing is fast emerging as a strategic tax-saving tool for employees. It enables an employee to use a vehicle provided through the employer’s leasing scheme, eliminating the need for the employee to purchase the vehicle directly.

Corporate car leasing is available for models of mass-market carmakers like Maruti Suzuki to SUVs (sport utility vehicles) of Mercedes-Benz. For BMW, corporate sales contribute 30% to the German luxury carmaker’s total sales.

“Some corporates have a leasing programme for employees where a leasing fee is deducted from their salary. The deducted salary is not considered part of CTC (cost-to-company) for employees, helping them save 30% tax on the EMI,” BMW Group India President and Chief Executive Officer Hardeep Singh Brar told Business Today in April.

“This segment has grown. A lot of corporates have not done it so far, but more and more corporates are bringing in leasing programmes for their employees which is helping us grow,” he added.

How corporate car leasing works

Under car leasing, the employer retains ownership of the vehicle throughout the lease term, while the employee pays a predetermined monthly lease amount deducted from their salary.

“Unlike a typical EMI paid for purchase of a vehicle, the lease rental becomes a single monthly cost which usually also includes additional expenses such as registration, insurance, servicing & maintenance, and roadside assistance,” said Aman Naagar, Managing Director of Avis India.

“When the lease term expires, employees also get an option to renew, upgrade, return or purchase the vehicle at a pre-agreed value,” Naagar added.

At the end of the lease period, employees are generally given the choice to purchase the vehicle at a mutually agreed residual price. However, prevailing trends suggest that most professionals no longer choose to retain the car, preferring instead to move on to a newer model through an upgrade, said Naagar.

How does it help reduce taxes?

Car leasing primarily serves as a salary structuring mechanism rather than a conventional tax deduction tool. Under the employer supported lease programmes, the monthly lease rental is paid from the pre-tax salary structure, said Naagar, adding that this allows the taxable value to remain relatively small and in accordance with the income tax rules.

“For salaried professionals in the higher tax brackets, this makes leasing significantly more attractive and tax-efficient when compared to an outright purchase which is done from the post tax income,” Naagar added.

In comparison to the early adoption trends where leasing was primarily adopted at a CXO level, Naagar said Avis is seeing an increase in the number of users from middle management, startup employees, consultants and younger urban professionals.

What are some other benefits of car leasing?

One of the key drivers behind this shift is the growing preference among professionals for fixed monthly expenses, along with greater convenience, flexibility and an asset-light lifestyle. The ability to regularly upgrade to newer vehicles without having to worry about resale, depreciation, insurance renewals or maintenance further influences this choice.