• Car depreciation benefits for LLP vs Pvt Ltd company

Hello Sir,
I am a director of a Pvt Ltd company, and a partner (non designated) of LLP. I wish to purchase a new car (not in the name of the company but on my own name) but will use the car for business purposes. 
1) If I do so, will both the pvt ltd company and LLP be able to take depreciation charge for the benefit of corporate taxation purposes? 
2) If yes, when i purchase the car, should the car title or payment receipt carry my designation as director/partner of my company along with my name?
Really appreciate your kind expertise in this matter.
Regards,
Ashish
Asked 22 days ago in Corporate Tax

Hi you can take benefit of depreciation in car in either private Limited or LLP if you have it in personal name

 

You can also claim all it's insurance, repair and maintenance expenses since it's used for furtherance of business 

 

It will have following consequences in future

- when you sell the car gain if any on sale of car will attract gst and income tax liability

Vishrut Rajesh Shah
CA, Ahmedabad
933 Answers
39 Consultations

5.0 on 5.0

Hello Ashish,

Let's address your concerns about car depreciation benefits for both an LLP and a Pvt Ltd company.

1. Depreciation Benefits:


  • Eligibility for Depreciation: If you purchase the car in your personal name, but it is used for business purposes, either the Pvt Ltd company or the LLP can claim the depreciation benefits, but not both simultaneously. The car must be used exclusively for business purposes to claim full depreciation.

2. Car Title and Payment Receipt:


  • Car Title and Receipt: The car title and payment receipt do not necessarily need to carry your designation as a director or partner. It should be in your name as you are purchasing it personally. However, for clarity and to strengthen the claim of business usage, it may be beneficial to include a notation or declaration in your company's records indicating that the car is used for business purposes.

3. Tax-Deductible Expenses:


  • Fuel Expenses: Fuel expenses incurred for business purposes can be claimed as a tax-deductible expense for either the Pvt Ltd company or the LLP. Again, proper documentation, such as fuel receipts and mileage logs, should be maintained to support the claim.

  • Other Expenses: Insurance, repairs, and maintenance costs related to the car can also be claimed as business expenses if the car is used for business purposes.

Future Considerations:


  • Sale of Car: When the car is sold, any gain on the sale will attract GST and income tax liability. The business entity that claimed depreciation will need to account for this in their tax returns.

 


  • Designation on Receipt and Title: Not necessary, but having proper internal documentation reflecting business usage is important.

  • Tax-Deductible Fuel Expenses: Yes, fuel expenses for business purposes are tax-deductible for the Pvt Ltd company or LLP, provided proper documentation is maintained.

 

Recommendations:


  • Choose One Entity: Decide whether the Pvt Ltd company or the LLP will claim the depreciation and associated expenses. Document this decision clearly in the business records.

  • Maintain Records: Keep detailed records of the car's business usage, including fuel and maintenance receipts, to substantiate the business expense claims.

Best regards,

For detailed, personalized advice, consider a phone consultancy.

Hope you find the information helpful. You are free to contact me for further discussion.If you could spare two minutes of your time to write a review, It would be really grateful and very happy to read it.

Thank you.

Shubham Goyal

Shubham Goyal
CA, Delhi
269 Answers
4 Consultations

5.0 on 5.0

Below expenses are incurred for use of car

1. Depreciation

2. Repair & Maintenance (incl. fuel expenses). 

3. Insurance expenses

 

1. Either Co. or LLP can take the benefit

2. No

 

If the car is used exclusively for the business purpose then you can claim the entire expenses incurred. If it is used partly for business purpose and partly for personal use, expenses incurred for personal use are not allowed

 

The income tax rate of LLP is 30% compared to Co. which is 25%

 

 

 

 

Vivek Kumar Arora
CA, Delhi
4885 Answers
1069 Consultations

5.0 on 5.0

Hello Ashish,

To allow a business entity (either the Pvt Ltd or LLP) to claim tax benefits for a car purchased in your name, you'd need to formalize its business use through a lease or rental agreement. Here’s a simplified breakdown:

Steps and Accounting Entries

  1. Formal Agreement: Establish a lease agreement between you and the business entity for the car's business use.

  2. Lease/Rental Payments:


    • Business Books:


      • Debit: Lease Expense (P&L account)

      • Credit: Bank/Cash (Asset account)


    • Your Personal Books:


      • Debit: Bank/Cash (Asset account)

      • Credit: Rental Income (Revenue account)

Depreciation

The business cannot depreciate the car since it's not a direct asset. However, lease payments made to you may offer some tax deductions under local laws.

Fuel and Maintenance Expenses

The business can record expenses related to business use:


  • Debit: Car Maintenance/Fuel Expense (P&L account)

  • Credit: Bank/Cash (Asset account)

Best regards,

For detailed, personalized advice, consider a phone consultancy.

Hope you find the information helpful. You are free to contact me for further discussion.If you could spare two minutes of your time to write a review, It would be really grateful and very happy to read it.

Thank you.

Shubham Goyal

Shubham Goyal
CA, Delhi
269 Answers
4 Consultations

5.0 on 5.0

Accounting entries can be passed based on amount and transaction flow

Vishrut Rajesh Shah
CA, Ahmedabad
933 Answers
39 Consultations

5.0 on 5.0

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