Perquisites – Tax treatment for Computing Salary Income

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1. Definition and Types of ‘Perquisites’ as per [Section 17(2)]

(A). Definitions and Meaning of Perquisites

Perquisite may be defined as any casual emolument or benefit attached to an office or position in addition to salary or wages. It also denotes something that benefits a man by going into his own pocket. Perquisites may be provided in cash or in kind. However, perquisites are taxable under the head “Salaries” only if they are

  1. allowed by an employer to his employee;
  2. allowed during the continuance of employment;
  3. directly dependent upon service;
  4. resulting in the nature of personal advantage to the employee; and
  5. derived by virtue of employer’s authority.
Perquisites - Tax treatment for computing Salary Income
Perquisites – Tax treatment for computing Salary Income

It is not necessary that a recurring and regular receipt alone is a perquisite. Even a casual and non-recurring receipt can be perquisite if the aforesaid conditions are satisfied. The following propositions should also be kept in view:

  • Perquisites are included in salary income only if they are received by an employee from his employer (maybe former, present or prospective). Perquisites, received from a person other than employer, are taxable under the head “Profits and gains of business or profession” or “Income from other sources”.
  • A benefit or advantage would be taxable as perquisites only if it has a legal origin. As unauthorised advantage taken by an employee without his employer’s authority would create a legal obligation to restore such advantage, it would not amount to “perquisite” taxable under the Act. On the other hand, if the benefit has been conferred unilaterally without the aid of agreement between the parties, the employee can be taxed on the perquisites. It is not necessary that the benefit should have been received under an enforceable right.

(B). Types of ‘Perquisites’ is defined in Section 17(2) as include the following items:

  1. the value of rent-free accommodation provided to the assessee by his employer [sec. 17(2)(i)];
  2. the value of any concession in the matter of rent respecting any accommodation provided to the assessee by his employer [sec. 17(2)(ii)];
  3. the value of any benefit or amenity granted or provided free of cost or at concessional rate in any of the following cases:
    1. by a company to an employee who is a director thereof;
    2. by a company to an employee, being a person who has substantial interest in the company;
    3. by any employer (including a company) to an employee to whom provisions of (i) and (ii) above do not apply and whose income under the head “Salaries” exclusive of the value of all benefits or amenities not provided for by way of monetary benefits, exceeds Rs. 50,000 [sec. 17(2)(iii)];
  4. any sum paid by the employer in respect of any obligation which but for such payment would have been payable by the assessee [sec. 17(2)(iv)];
  5. any sum payable by the employer, whether directly or through a fund other than a recognised provident fund or approved superannuation fund or a deposit-linked insurance fund, to effect an assurance on the life of the assessee or to effect a contract for an annuity [sec. 17(2)(v)];
  6. the value of any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the employer, or former employer, free of cost or at concessional rate to the assessee [sec. 17(2)(vi)];
  7. the amount of any contribution to an approved superannuation fund by the employer in respect of the assessee, to the extent it exceeds Rs. 1,50,000 [sec. 17(2)(vii)]; and
  8. the value of any other fringe benefit or amenity as may be prescribed [sec. 17(2)(viii)].

2. Taxability of Perquisites’

For Income-tax purposes, perquisites may be divided into five categories:

  1. Perquisites which are taxable in the hands of all categories of employees.
  2. Perquisites which are taxable only when the employee belongs to a specified group i.e. he is a specified employee.
  3. Specified security or sweat equity shares allotted or transferred by the employer to the assessee.
  4. Contribution by the employer to the approved superannuation fund in respect of assessee to the extent it exceeds ₹. 1,50,000.
  5. Tax-free perquisites.

3. Perquisites which are Taxable in the hands of all Categories of Employees

The following perquisites are taxable in the hands of all employees:

  1. Rent free accommodation provided by the employer to the employee. Such accommodation may be furnished or unfurnished.
  2. Any concession in the matter of rent in respect of the accommodation provided or granted by the employer to the employee.
  3. Any sum paid by the employer in discharging the monetary obligation of the employee which otherwise would have been payable by the employee e.g. the school fees of the children of the employee paid by the employer or the Income-tax of the employee paid by the employer.
  4. Any sum payable by the employer whether directly or through a fund (other than recognized provident fund (RPF), Approved Superannuation Fund or Deposit Linked Insurance Fund) to effect an assurance on the life of the assessee or to effect a contract for an annuity.
  5. The value of any other fringe benefit or amenity as may be prescribed.

4. Perquisites which are Taxable only in the case of Specified Employees

All monetary obligations of the employee discharged by the employer are perquisites which are taxable in the hands of all employees. But sometimes the employer, instead of making the payment in respect of such monetary obligations or reimbursing such amount to the employee, provides the perquisite in the form of a facility to the employee. Such facility will be a perquisite only for specified employees mentioned in section 17(2)(iii).

For example :

  • if a watchman/sweeper is engaged by the employee and his wages are reimbursed/paid by the employer, it is a perquisite for all employees because it is the duty of the employee to pay the salary of his watchman/sweeper.
  • On the other hand, if the watchman/sweeper is engaged by the employer and facility of his services is provided to the employee, it will be a perquisite only for specified employees.
  • Similarly, if a motor car is provided by the employer to the employee for his personal use it shall be taxable perquisite in case of a specified employee only. Whereas if the car belongs to employee but expenses relating to personal use of such car are paid or reimbursed by the employer, it shall be a taxable perquisites in the hands of all employees, whether specified or not.
  • Any benefit/amenity in the form of a facility (other than rent free accommodation, concession in the matter of rent or fringe benefits or amenities as may be prescribed) provided by the employer, which is not tax-free, shall be taxable only in the hands of specified employees. Some of these are:
    1. services of a sweeper, gardener, watchman or personal attendant,
    2. free or concessional use of gas, electric energy and water for household consumption,
    3. free or concessional educational facilities,
    4. use of motor car,
    5. personal or private journey provided free of cost or at concessional rate to an employee or member of his household,
    6. the value of any other benefit or amenity, service, right or privilege provided by the employer.
  • If the above perquisites are provided in ‘Money’ (monetary terms) whether by way of reimbursement of expenses incurred by the employee for such facilities or by way of payment on behalf of employee, these perquisite shall be taxable in case of all employees e.g. if the school fees of the children of the employee is reimbursed to him or paid on his behalf to the school, such amount shall be perquisite in case of all employees. On the other hand if the children of the employee are studying in a school maintained by the employer, the education facility provided is not in money but in kind and it shall be perquisite only for specified employees.
  • Similarly, if the personal gas bills of the employee are in the name of employee and the employer reimburses the amount of such gas bills to him or pays on his behalf to the gas agency, it is in monetary terms and taxable in case of all employees; on the other hand, if such bills are in the name of employer, it will be perquisite in case of specified employee only.
Specified Employee [Section 17(2)(iii)]:

An employee shall be a specified employee, if he falls under any of the following three categories:

1. He is a Director of a company; or

2. He, i.e. the employee, has a substantial interest in the company.

3. His income under the head ‘Salaries’ (whether due from, or paid or allowed by, one or more employers), exclusive of the value of all benefits or amenities not provided for by way of monetary payment, exceeds ₹. 50,000.

5. Perquisites Exempted (Tax-free) from Tax for all Employees and Not Added in Salary Income

1.            Medical facility:

The value of any medical treatment provided to an employee or any member of his family in a hospital, dispensary or a nursing home maintained by the employer shall be a tax free perquisite.

2.            Medical reimbursement:

Any sum paid by the employer in respect of any expenditure incurred by the employee on his medical treatment or treatment of any member of his family subject to maximum of ₹15,000 in the previous year .

3.            Recreational facilities:

Any recreational facility provided to a group of employees (not being restricted to a select few employees) by the employer is not taxable.

4.            Training of employees:

Any expenditure incurred by the employer, for providing training to the employees or by way of payment of fees of refresher courses attended by the employees.

5.            Use of health club, sports and similar facilities provided uniformly to all employees by the employer.

6.            Expenses on telephone, including a mobile phone, actually incurred on behalf of the employee by the employer.

7.            Employer’s contribution: Employer’s contribution to superannuation fund of the employee or provided such contribution does not exceed ₹1,50,000 per employee per year.

8.            The premium paid by the employer on an accident policy taken out by it in respect of the employee would not be a perquisite.

9.            Amount given by employer of assessee to assessee’s child as scholarship is exempt under section 10(16).

10.         Food and beverages provided to employees:

The following shall be a tax free perquisite in the hands of the employees—

i. free food and non-alcoholic beverages provided by the employer to his employees during working hours:

a. at office or business premises or

b. through paid vouchers which are not transferable and usable only at eating joints. Provided the value of such meal is upto ₹50 per meal.

ii. Any tea or snacks provided during working hours.

iii. Free food and non-alcoholic beverages during working hours provided in a remote area or on offshore installation.

11.         Loans to employees:

In the following cases the value of benefit to the assessee resulting from the provision of interest free or concessional loan shall be nil:

a. where the amount of loans are petty, not exceeding in the aggregate ₹20,000;

b. loans made available for medical treatment in respect of diseases specified in rule 3A of the Income-tax Rules. However, the exemption so provided shall not apply to so much of the loan as has been reimbursed to the employee under any medical insurance scheme.

12.         Perquisites provided outside India:

Perquisites provided by the Government to its employees, who are citizens of India for rendering services outside India, are not taxable. [Section 10(7)]

13.         Rent free House/Conveyance facility:

Rent free official residence and conveyance facilities provided to a Judge of the Supreme Court/High Court is not a taxable perquisite.

14.         Residence to officials of Parliament, etc.:

15.         Rent free furnished residence (including maintenance thereof) provided to an officer of the Parliament, a Union Minister or Leader of Opposition in Parliament, is not a taxable perquisite.

16.         Accommodation in a remote area:

The accommodation provided by the employer shall be a tax free perquisite if the accommodation is provided to an employee working at mining site or an onshore oil exploration site or a project execution site, or a dam site or a power generation site or an offshore site which—

a. being of a temporary nature and having plinth area not exceeding 800 square feet, is located not less than eight kilometres away from the local limits of any municipality or a cantonment board; or

b. is located in a remote area.

17.         Educational facility for children of the employee:

Where the educational institution itself is maintained and owned by the employer and free educational facilities are provided to the children of the employee or where such free educational facilities are provided in any institution by reason of his being in employment of that employer, there shall be no perquisite value if the cost of such education or the value of such benefit per child does not exceed ₹1,000 p.m.

18.         Use by the employee or any member of his household of laptops and computers belonging to the employer or hired by him.

19.         Leave Travel Concession

20.         Tax paid by the employer on non-monetary perquisites:

Tax paid by the employer on nonmonetary perquisites of the employee shall be exempt in the hands of the employee. [Section 10(10CC)]

6. List of ‘Perquisites’ for Computation of Income under the head ‘Salary’

Rent-free unfurnished house>> In the case of Government employee (i.e., Central Government employee, State Government employee or a Government employee on deputation to a public sector undertaking if house is allotted by the Government):

Taxable value is the license fees of the house as per house allotment scheme of the Government.

>> In the case of non-Government employees:

– If the house is owned by employer :

Taxable value is 15 % of salary of employee of the relevant period (7.5 % if population is 10 lakh or less or 10 % if population is above 10 Lakh but not more than 25 Lakh).

– If house is taken on lease by employer:

Taxable value is either 15 % of the salary or lease rent, whichever is lower.
Rent-free furnished houseValue of “furniture” will be added to the value of rent-free unfinished house as computed above. Value of furniture is 10 % per annum of cost of furniture to the employer or rent paid / payable of the furnishing by the employer, as the case may be.
Concession in rentValue of the perquisite in respect of rent-free furnished / unfurnished house will be calculated as given above. From the amount so calculated, rent charged by employer shall be deducted. The balance (if it is positive) is taxable value of the perquisite in respect of concession in rent.
Rent-free / concessional
furnished / unfurnished house in special cases
>> Not chargeable to tax if provided in a “remote area”.

>> Hotel accommodation/guest house accommodation provided to an employee is taxable at the rate of 24 % of salary of the relevant period or hotel tariff, whichever is lower.

>> Hotel accommodation for 15 days (in aggregate in a previous year) can be provided immediately after transfer at the new location as a tax-free perquisite.

>> Further, if an employee is transferred and housing facility is provided to him at the new location (he has yet to vacate a house given at the old location), for a period of 90 days immediately after transferred only one house (at the option of the employee at the old location or new location) is chargeable to tax.

>> Perquisite in respect of rent-free furnished/unfurnished house is not taxable if provided to a High Court Judge, Supreme Court Judge, Union Minister, leader of opposition in Parliament, an official in Parliament and serving Chairman/members of UPSC.
Free domestic servantsActual expenditure of the employer (as reduced by any amount paid by the employee) is a taxable perquisite in the hands of an employee.
Gas, electricity or water supplied after purchasing from outside agencyActual amount spent by the employer (as reduced by any amount recovered from the employee) is a taxable perquisite in the hands of an employee.
Free education facility>> Expenditure relating to providing training to employees is not taxable.

>> If education facility is provided to the family members of employee, expenditure incurred by the employer is the taxable value of perquisite.

>> If education facility is provided to the family members in an educational institute owned or maintained by the employer, then reasonable cost of education in a similar institute in or near the locality is taxable.

>> Up to Rs. 1,000 per month per child is not taxable if the employer provides education facility to the children of an employee in an educational institution owned/maintained by the employer.
Leave travel concession (LTC)Only 2 journeys in a block of 4 years is exempt (however, carry over concession is available).

>> Exemption is based upon actual expenditure relating to travel fare only in respect of the shortest route from the place of origin to farthest point.
Employee’s obligation met by employerTaxable in all cases
interest-free / concessional loan>> Find out the maximum outstanding balance on the last day of each month. It shall be multiplied by SBI landing rate on the first day of the previous year. Amount recovered from the employee on account of interest is deductible.

>> Perquisite is not taxable if the aggregate amount of original loan does not exceed Rs. 20,000.

>> Moreover, if loan is given by employer for medical treatment (given in rule 3A) of the employee or his family members, it is not chargeable to tax.
Use of employer’s movable assets10 % per annum of actual cost of asset to the employer or hire charges as reduced by any amount recovered from the employee, is a taxable perquisite in the hands of an employee.
Sale of movable assetsActual cost to the employer minus normal wear and tear minus sale consideration paid by the employee, is taxable

Normal wear and tear for each year of use is calculated as follows —

i. Computer / Electronic Items : 50 % by reducing instalment method;

ii. Car : 20 % by reducing instalment method;

iii. Any other Asset : 10 % of cost.
Medical facilities>> The perquisite in respect of medical facility provided by an employer in the following hospitals/clinic is not chargeable to tax —

i. Hospital owned/maintained by the employer,

ii. Hospital of Central Government/State Government/local authority,

iii. Private hospital if it is also recommended by the Government for the treatment of Government employees,

iv. Specified medical facility (given in rule 3A) in a hospital approved by the Chief Commissioner.

>> Medical insurance premium paid or reimbursed by the employer is not chargeable to tax.

>> Any other expenditure incurred or reimbursed by the employer for providing medical facility in India is chargeable to tax (exemption of Rs. 15,000 was available for such reimbursement up to the assessment year 2018-19).

>> Expenditure on medical treatment (including boarding and lodging) incurred by an employer outside India is not chargeable to tax in the hands of employee if it does not exceed the amount permitted by RBI under foreign exchange regulations.

# Travelling expenditure for going outside India for medical treatment purposes is generally chargeable to tax.
Motor car
Car owned or hired by employer, expenses incurred by employer and used for partly official and parily personal purposes

Rs. 1,200 per month (1,600cc or less)/

– Rs. 2,400 per month (above 1,600cc) for car and Rs. 900 per month for driver.

— Expenditure recovered from employee is not deductible.

Car owned or hired by employer, expenses incurred by employer and used wholly for personal purposes

Entire expenditure incurred by employer including depreciation at the rate of 10 % per annum of actual cost of the car, is taxable in the hands of employer.

— Expenses recovered from employee are deductible.

Car owned or hired by employer, used for partly official and partly personal purposes, expenses for private purposes incurred by employee

Rs. 600 per month (1,600cc or less)/

– Rs. 900 per month (above 1,600cc) for car and Rs. 900 per month for driver.

# Expenditure recovered from employee is not deductible.

Car owned by employee, expenses incurred by employer and used for partly official and partly personal purposes

Actual expenditure incurred by employer minus expenditure pertaining to official use minus anything recovered from employee, is taxable in the hands of employee.

– Expenditure pertaining to official use can be calculated as per logbook of the car.

Alternatively, expenditure pertaining to official use can be calculated at the rate of

– Rs. 1,800 per month (1,600cc or less)

– Rs. 2,400 per month (above 1,600cc) for car and Rs. 900 per month for driver.

Conveywice facility when not taxable –

# Conveyance facility between office and residence is not chargeable to tax in the case of any employee of any organization.

# Moreover, conveyance facility to a High Court Judge, Supreme Court Judge and serving Chairman/members of UPSC, is not chargeable to tax.
Free transportTaxable as a perquisite in the hands of an employee on the basis of value at which the employer offers such benefit to the public as reduced by any amount recovered from the employee

(tax free perquisite in the hands of employees of railways/airlines).
Lund:, refreshment, etc.>> Food and non-alcoholic beverages are provided in working hours in remote area or in an off-shore installation:

– Fully exempt from tax.

>> Lunch/refreshment is provided in working hours at any other place:

– Cost to the employer in excess of Rs. 50 per meal (as reduced by the amount recovered from the employee) is the taxable value of perquisite in the hands of the employee

– (tea and snacks in working hours is tax-free perquisite).
Travelling, touring, accommodation>> When such facility is available uniformly to all employees :

– Taxable as a perquisite in the hands of an employee on the basis of actual expenditure of the employer as reduced by any amount recovered from the employee.

>> When suth facility is not available uniformly to all employees :

Taxable as a perquisite in the hands of an employee on the basis of value at which such facilities are offered by other agencies to the public as reduced by any amount recovered from the employee.
Gift, voucher or token>> Taxable as a perquisite in the hands of an employee on the basis of actual expenditure of the employer

(gift may be made either to employee or any member of his household.)

>> Gift-in-kind up to Rs. 5,000 per annum is exempt).
Credit cardExpenditure incurred by the employer minus expenditure pertaining to official use minus anything recovered from the employee, is taxable
Club>> Expenditure incurred (including annual or periodical fees) by the employer minus expenditure pertaining to official use minus anything recovered from the employee, is taxable.

>> Health club/sports club facility given uniformly to all employees in employer’s premises, is not taxable.

>> The initial one time deposits or fees for corporate or institutional membership, where benefit does not remain with particular employee after cessation of employment, are exempt.
Specified security or sweat equity shares allotted on or after April 1, 2009Fair market value of shares/securities on the date on which option is exercised by the employee, is taxable in the hands of employee.

>> Amount, if any, recovered from the employee is deductible.
Employer’s contribution towards approved super- annuation fondAmount in excess of Rs. 1.5 Lakh per assessment year is taxable in the hands of employee.
Perquisite received by a
teacher/researd:erfronz a SAARC member State
Not taxable up to 2 years.
Telephone/mobile phoneNot taxable.
Residential telephone to retired Ciwinnan / members of IJPSCValue of a residential telephone free of cost and the number of free calls to the extent of Rs. 1,500 per month (over and above the number of free calls per month allowed by the telephone authorities), is not taxable.
Any other facilityTaxable as a perquisite in the hands of an employee on the basis of actual expenditure of the employer as reduced by any amount paid by the employee.

valuation of perquisites

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