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Perquisites: Types and taxibility, explained in detail.

Perquisites are benefits received by a person as a result of his/her official position and are over and above the salary or wages. In other words, perquisites are benefits in addition to normal salary to which employee has a right by virtue of his employment.  Depending upon the tax levied, perquisites can be classified into the following three heads:

  1. Perquisites taxable for all employees:

Following Perquisites are taxable for all employees, but up to a certain limit, let us see in detail:

  • Residential accommodation provided by the employer to:
    • Central or State Government Employee:

The taxable value of perquisite is the license fee as determined by the Central Government or any State Government reduced by the rent actually paid by the employee.

  • Non- Government Employee: The taxable value of perquisite is an amount equal to:

(i) 15% of salary in cities having population exceeding 25 lakhs;

(ii) 10% of salary in cities having population exceeding 10 lakhs but not exceeding 25 lakhs; and

(iii) 7.5% of salary in any other place.

In case the accommodation provided is not owned by the employer, but is taken on lease or rent, then the value of the perquisite would be the actual amount of lease rent paid/payable by the employer or 15% of the salary, whichever is lower.

Here, Salary means taxable monetary salary i.e. Basic Pay+ Bonus+ Commission payable on turnover or otherwise+ DA (under the terms of employment) + Taxable value of all Allowances+ Other monetary payments (if any).

In both of above cases, the value of the perquisite would be reduced by the rent, if any, actually paid by / recovered from the employee.

If employee is transferred and retain property at both the places, the taxable value of perquisites for initial period of 90 days shall be determined with reference to only one accommodation (at the option of the employee). The other one will be tax free. However, after 90 days, taxable value of perquisites shall be charged with reference to both the accommodations.

Rent free accommodation provided to High Court or Supreme Court Judges, Union Ministers, Leader of Opposition in Parliament, an official in Parliament and Serving Chairman and members of UPSC is tax free perquisite.

The above facility is also exempt from tax, if provided at a remote area or project site.

The value would be the value of unfurnished accommodation as computed above, increased by 10% per annum of the cost of furniture (including TV/radio/ refrigerator/AC/other gadgets). In case such furniture is hired from a third party, the value of unfurnished accommodation would be increased by the hire charges paid/payable by the employer. However, any payment recovered from the employee towards the above would be reduced from this amount.

  • Accommodation provided in hotel: When the employer provides accommodation in hotel, the taxable value would be 24% of salary or the actual charges paid or payable to the hotel, whichever is lower. The above would be reduced by any rent actually paid or payable by the employee. It may be noted that no perquisite would arise if the employee is provided such accommodation on transfer from one place to another for a period of 15 days or less.
  • Employee Stock Option Scheme (ESOP)/ Sweat Equity Shares:

Fair Market value of shares or securities on the date of exercise of the option by the employee less amount recovered from the employee in respect of such shares shall be the taxable value of perquisites.

Fair Market Value shall be determined as follows:

  • In case of listed Shares: Average of opening and closing price as on date of exercise of option (Subject to certain conditions and circumstances)
  • In case of unlisted shares/ security other than equity shares: Value determined by a Merchant Banker as on date of exercise of the option or an earlier date, which is more than 180 days earlier than the date of exercise of the option.
  • Employees’ obligation paid by employer:

The taxable value of such facility is the amount paid by the employer. However, payment made towards ESI, medical insurance, accidental insurance is fully tax-free.

  • Interest-free or concessional loan facility:

Interest-free loan or loan at concessional rate of interest given by an employer to the employee (or any member of his household) is a perquisite chargeable to tax in the hands of all employees on the following basis:

  • Find out the aggregate outstanding balance for each loan as on the last day of each month.
  • Find out rate of interest charged by the SBI as on the first day of relevant previous year in respect of loan for the same purpose, advanced by it
  • Calculate interest for each month of the previous year on the outstanding amount, using the above rate of interest.
  • From the total interest calculated for the entire previous year, deduct interest actually recovered, if any, from the employee.
  • The balance amount is taxable value of perquisite.

Nothing is taxable if:

  • Loan in aggregate does not exceed ₹20,000; or
  • Loan is provided for treatment of specified diseases (Rule 3A) like neurological diseases, Cancer, AIDS, Chronic renal failure etc. However, the exemption is not applicable to so much of the loan amount as has been reimbursed to the employee under any medical insurance scheme.
  • Touring, Travelling with Accommodation facility:
  • Taxable value of perquisite shall be expenditure incurred by the employer less amount recovered from employee.
  • Where such facility is maintained by the employer and is not available uniformly to all employees, the value of benefit shall be taken to be the value at which such facilities are offered by other agencies to the public.
  • Free meals and non-alcoholic beverages:

Free meals in excess of ₹50 per meal less amount paid by the employee shall be a taxable perquisite. However, following free meals shall be exempt from tax:

  • Food and non-alcoholic beverages provided during working hours in remote area or in an offshore installation.
  • Tea, Coffee or Non-Alcoholic beverages and Snacks during working hours are tax free perquisites.
  • Any Gift, voucher or token facility:
  • Gifts in cash or convertible into money (like gift cheque) are fully taxable
  • Gift in kind up to ₹5,000 in aggregate per annum would be exempt, beyond which it would be taxable.

However, if such facility is provided by the employer out of any personal relation, then it is fully tax-free.

  • Membership fees, Annual fees for credit card:
  • Expenditure incurred by the employer in respect of credit card used by the employee or any member of his household less amount recovered from the employee is a taxable perquisite.
  • Expenses incurred for official purposes shall not be a taxable perquisite provided complete details in respect of such expenditure are maintained by the employer.
  • Membership of Clubs:
  • Expenditure incurred by the employer towards annual or periodical fee etc. (excluding initial fee to acquire corporate membership) less amount recovered from the employee is a taxable perquisite
  • Expenses incurred on club facilities for the official purposes are exempt from tax.
  • Use of health club, sports and similar facilities provided uniformly to all employees shall also be exempt from tax.
  • Use of Moveable Assets:

Taxable value of perquisites shall be:

  • For use of Laptops and Computers: Nil
  • For movable asset other than Laptops, computers and Motor Car: 10% of original cost of the asset (if asset is owned by the employer) or actual hire charges incurred by the employer (if asset is taken on rent) less amount recovered from employee.
  • Transfer of Moveable Assets:

Taxable value of perquisites shall be:

  • Computers, Laptop and Electronics items: Actual cost of asset less depreciation at 50% (using reducing balance method) for each completed year of usage by employer less amount recovered from the employee
  • Motor Car: Actual cost of asset less depreciation at 20% (using reducing balance method) for each completed year of usage by employer less amount recovered from the employee
  • Other movable assets: Actual cost of asset less depreciation at 10% (on SLM basis) for each completed year of usage by employer less amount recovered from the employee.

 

  1. Perquisites taxable for specific employees:

As per the Income Tax Act, an employee is said to be a specified employee if:

  • he is director of the company; or
  • he has substantial interest in the affairs of the company i.e., he holds at least 20% of the equity shares (voting power) in the company; or
  • his annual ‘monetary salary’ income (taxable) is more than ₹50,000 p.a.

Note: monetary salary means- Basic Pay+ Bonus+ Commission payable on turnover or otherwise+ DA (under the terms of employment) + Taxable value of all Allowances+ Other monetary payments (if any).

Following perquisites are taxable for such employees only:

  • Motorcar facility:

Perquisite arising out of motor car facility is taxed as shown below.

         Circumstances Engine Capacity up to 1600 cc Engine Capacity above 1600 cc
1 Where the motor car is owned or hired by the employer
(a) is used wholly and exclusively in the performance of his official duties; Fully Exempt.

Provided that specified documents are maintained by the employer.

(b) is used exclusively for the private or personal purposes of the employee or any member of his household and the running and maintenance expenses are met or reimbursed by the employer; Actual amount of expenditure incurred by the employer on the running and maintenance of motor car during the relevant previous year including remuneration, if any, paid by the employer to the chauffeur, increased by the amount representing normal wear and tear of the motor car i.e. 10% of the cost of car and reduced by any amount charged from the employee for such use.
(c) is used partly in the performance of duties and partly for private or personal purposes of his own or any member of his household and –
(i) the expenses on maintenance and running are met or reimbursed by the employer; ₹1,800 (plus ₹900, if chauffeur is also provided to run the motor car)  ₹2,400 (plus ₹900, if chauffeur is also provided to run the motor car)
(ii) the expenses on running and maintenance for private or personal use are fully met by the employee ₹600 (plus ₹900, if chauffeur is also provided by the employer to run the motor car) ₹900 (plus ₹900, if chauffeur is also provided to run the motor car)
2 Where the employee owns a motor car but the actual running and maintenance charges (including remuneration of the chauffeur, if any) are met or reimbursed to him by the employer
(i) such reimbursement is for the use of the vehicle wholly and exclusively for official purposes; Fully Exempted

Provided that specified documents are maintained by the employer.

(ii) such reimbursement is for the use of the vehicle partly for official purposes and partly for personal or private purposes of the employee or any member of his household. Subject to maintaining specified documents by employer, the actual amount of expenditure incurred by the employer as reduced ₹1800 (plus ₹900, if chauffeur is also provided by the employer to run the motor car) Subject to maintaining specified documents by employer, the actual amount of expenditure incurred by the employer as reduced by ₹2400 (plus ₹900, if chauffeur is also provided to run the motor car)
3 Where the employee owns any other automotive conveyance but the actual running and maintenance charges are met or reimbursed to him by the employer
(i) such reimbursement is for the use of the vehicle wholly and exclusively for official purposes; Fully Exempt

Provided that specified documents are maintained by the employer.

Not applicable
(ii) such reimbursement is for the use of vehicle partly for official purposes and partly for personal or private purposes of the employee. Subject to maintaining specified documents by the employer, the actual amount of expenditure incurred by the employer as reduced by the amount of ₹900.

 

  • Free/Concessional Educational Facility:

 

Facility provided to Taxable value of perquisite if provided in the school owned by the employer Taxable value of perquisite if provided in any other school
Children Cost of such education in similar school less ₹1,000 per month per child (irrespective of numbers of children) less amount recovered from employee Amount incurred less amount recovered from employee (an exemption of ₹1,000 per month per child is allowed)
Other family member Cost of such education in similar school less amount recovered from employee Cost of such education incurred

 

Note: Reimbursement of school fees of children or family member of employees is fully taxable. Free educational facilities/ training of employees is fully exempt.

  • Services of a sweeper, a gardener, a watchman or a personal attendant:

Taxable value of perquisite shall be the amount paid or payable by the employer for such services less any amount recovered from the employee. However, if the employer provides accommodation facility along with a gardener, then gardener facility will be tax-free.

Note: If sweeper, a gardener, a watchman or a personal attendant is appointed by the employee and the employer has reimbursed the salary of the same, then it is taxable for all employees.

  • Perquisite arising out of supply of gas, electricity or water:

This shall be determined as the amount paid by the employer to the agency supplying the same. If the supply is from the employer’s own resources, the value of the perquisite would be the manufacturing cost per unit incurred by the employer. In other cases, the value of such facility is equal to the amount paid by the employer.

Note: If the electricity, gas or water connection is in the name of the employee and the employer has reimbursed the bills of the same, then such facility is taxable for all employees.

 

  1. Perquisites tax-free for all employees:

Following Perquisites are tax-free for all employees:

  • Telephone or Mobile facility:

Expenses on telephones including a mobile phone incurred by the employer on behalf of the employee shall not be treated as a taxable perquisite.

  • Medical Facility in India:

Expenses incurred or reimbursed by the employer for the medical treatment of the employee or his family (spouse and children, dependent – parents, brothers, and sisters) in any of the following hospitals are not chargeable to tax in the hands of the employee:

  • Hospital maintained by the employer.
  • Hospital maintained by the Government or Local Authority or any other hospital approved by Central Government
  • Hospital approved by the Chief Commissioner having regard to the prescribed guidelines for treatment of the prescribed diseases.

Any other expenditure incurred or reimbursed by the employer for providing medical facility in India is not chargeable to tax up to ₹15,000 in aggregate per assessment year.

  • Medical Facility outside India:

Any expenditure incurred or reimbursed by the employer for medical treatment of the employee or his family member outside India is exempt to the extent of following (subject to certain conditions):

  • Expenses on medical treatment – exempt to the extent permitted by RBI.
  • Expenses on stay abroad for patient and one attendant – exempt to the extent permitted by RBI.
  • Expenditure incurred on travellling of patient and one attendant- exempt, if Gross Total Income (before including the travel expenditure) of the employee, does not exceed ₹2,00,000.
Varun Baid

Varun Baid

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About Me

I’m a Commerce Graduate & CFP Professional, engaged in blogging since 3 years. I’m not affiliated with any financial product. The purpose of writing blog is to spread financial awareness and help people in achieving excellence for money. Please note that the views expressed on this Blog/Comments are clarifications meant for reference and guidance of the readers to explore further on the topics. These should not be construed as investment advice or legal opinion.

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