Personal driver vs company driver, two different tax worlds

Driver salaries in India fall into two categories for tax and compliance purposes:

• Personal driver, hired directly by an individual for their personal vehicle. Employer-employee relationship exists for the Contract Labour Act but typically not for EPF/ESI. Salary is a personal expense (not claimable against any income head for the employer).
• Company driver, on a company's payroll as an employee or contractor. Treated under Section 192 (TDS on salary) if employee; Section 194J or 194C if contractor. Salary is a deductible business expense.

TDS under Section 192, FY 2025-26 thresholds

When a driver is on an employer's payroll as an employee and the annual gross salary exceeds the basic exemption limit, the employer must deduct TDS at source under Section 192 and deposit it monthly. Budget 2025 raised the new-regime exemption substantially:

• Old regime: basic exemption ₹2,50,000 (₹3,00,000 for seniors aged 60+, ₹5,00,000 for super-seniors aged 80+).
• New regime (default from FY 2025-26): basic exemption ₹4,00,000. Section 87A rebate gives effectively zero tax up to ₹12,00,000 taxable income. Salaried get an additional ₹75,000 standard deduction, raising the effective tax-free salary to ₹12,75,000.

The deduction is calculated on a full-year projection, averaged across 12 months. Most personal drivers earning ₹15,000-30,000/month (₹1.8-3.6L/year) stay below all thresholds, so TDS typically does not apply. Company drivers on formal payroll at higher salaries may still cross the threshold under the old regime.

EPF and ESI

Under the Employees Provident Fund (EPF) Act, an establishment with 20 or more employees must register for EPF. Employer contribution is 12% of basic + DA, employee contribution is another 12%, totalling 24%. A small household or single-employer personal driver is usually below the EPF threshold and not required to contribute, though voluntary VPF (Voluntary Provident Fund) is possible.

ESI (Employees' State Insurance) applies in notified areas to establishments with 10+ employees where any employee's monthly gross wage is below ₹21,000. Contribution: employer 3.25%, employee 0.75%. Personal drivers working for a single employer typically fall outside ESI.

Salary slip fields

A proper monthly driver salary slip should include:

• Employer's name, address, and PAN (or the individual's PAN if a personal employer)
• Driver's full name, address, PAN (for TDS purposes)
• Period of employment covered by the slip
• Basic salary
• Conveyance or fuel allowance (if separate from salary)
• OT (hours × 1.5× basic rate)
• Bonus / ex-gratia (annual / festival)
• Advance adjustment (if any)
• EPF employer and employee contributions (if applicable)
• ESI contributions (if applicable)
• TDS deducted (if applicable)
• Net amount paid and mode (cash / bank transfer / UPI)
• Driver's signature acknowledging receipt

Employer's tax treatment

A company paying a driver's salary deducts it as a business expense under Section 37 of the Income Tax Act if the vehicle is used for business purposes. If the company provides a car with driver to an employee for personal use, the driver's salary becomes a perquisite in the employee's hands under Section 17(2), valued at ₹900/month for cars below 1600cc with driver, ₹1,200/month for above 1600cc, net of any amount recovered from the employee.

Cash payment thresholds

Under Section 40A(3), cash payments to any single payee above ₹10,000 in a day (or ₹35,000 for transporters) are disallowed as a business expense. For driver salaries, bank transfer or UPI is strongly preferred, not just for tax deductibility but also as proof during a tax scrutiny.

Common mistakes

• Not having a written appointment letter or salary slip. During an income-tax scrutiny, the assessing officer can disallow the expense.
• Paying in cash above ₹10,000/month when the driver is a formal employee. Section 40A(3) bites.
• Not deducting TDS for a high-paid company driver when it's required.
• Claiming the driver's salary as a deductible expense when the vehicle is purely personal.