Perquisites and Its Types | Taxability of Perquisites

[Meaning of Perquisites as per Income Tax Act, Types of Perquisites, Taxability of Perquisites, Partly Taxable perquisites, Fully Exempted Perquisites]

Define ‘perquisite’ as per income tax act. What are its various types? Explain how perquisites are taxable in the hand of employee.

Meaning of Perquisites (Sec. 17[2]): 

The word ‘perquisite’ has not been defined under the Income-tax Act, 1961. According to the oxford dictionary perquisites means any casual emolument, fee, or profit, attached to an office or position in addition to the salary or wages. In simple words, Perquisites are the benefits or amenities in cash or kind, in addition to the normal salary to which the employee has a right by virtue of his employment.

Section 17(2) gives an inclusive definition of perquisites. As per the Terms of Section 17(2), Perquisites Includes:

(i) The value of rent-free accommodation provided (used or not) to the assessee by his employer;

(ii) The value of any concession in the matter of rent respecting any accommodation provided (used or not) to the assessee by his employer;

(iii) The value of any benefit or amenity granted or provided (used or not) free of cost or at concessional rate in any of the following cases (specified employee):

(a) By a company to an employee, who is a director thereof;

(b) By a company to an employee is a person who has a substantial interest in the company;

‘Substantial Interest’: In relation to a company, means a person who is the beneficial owner of shares, not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits, carrying not less than 20% of the voting power.

(c) by any employer (including a company) to an employee to whom the provision of clause (a) and (b) do not apply and whose income under the head of Salaries (whether due from or paid or allowed by, one or more employer), exclusive of the value of all benefits or amenities not provided for by way of monetary payment, exceeds Rs. 50,000.

(iv) Any sum paid by the employer in respect of any obligation on behalf of the employee;

(v) any sum payable (not necessarily paid) by the employer to effect an assurance on the life of the employee or to effect a contract for an annuity;

(vi) the value of any other fringe benefit or amenity as may be prescribed.

The perquisites can be divided into three categories:

1.       Perquisites which are taxable for all employees

2.       Perquisites which are fully exempted

3.       Perquisites which are taxable for specified employees only

1. Perquisites which are taxable for all employees:

a)      Rent fee accommodation or House at a concessional rate.

b)      The obligation of employee met by employer e.g. professional Tax and Income Tax paid by the employer.

c)       The amount payable by an employer to effort an assurance on the life of the assessee or to effect a contract for an annuity.

d)      Domestic servants engaged by employee and salary paid by the employer.

e)      Gas water and electricity bills in the name of an employee paid by the employer.

f)       Interest-free loan or loan at a concessional rate.

g)      Transfer of employer’s movable assets to the employees.

h)      Use of employer’s movable assets other than laptop and computer.

i)        Car or other conveyance owned by employee used for private purpose and expenses are met by employer.

j)        Lunch or dinner provided by the employers in office hours is taxable.

k)      Gift or gift voucher exceeding Rs. 5000 is taxable.

l)        Contribution to the approved superannuation fund of the employee above Rs. 1,50,000.

2. Perquisites which are fully exempted:

a)      The medical facility in employer’s hospital, clinic, dispensary (or) nursing home to the members of an employee’s family (spouse, children, dependent parents, dependent brother and sister).

b)      A medical facility in a government hospital paid or reimbursed by the employer.

c)       Any medical expenses paid (or) reimbursed by the employer to the employee for treatment in a hospital for notified diseases.

d)      Mediclaim insurance premium paid (or) reimbursed by the employer to the employees in respect of med claim insurance policy on his own life or life of members of his family.

e)      Refreshment provided by an employee to all employees during office hours.

f)       Recreation facilities provided by an employer to employees.

g)      Amount spent on training of employees. Cost of refresher course attended by employee, met by the employer including the expenditure of higher education or training India or abroad.

h)      Goods manufactured and sold by an employer to his employees at concessional rates.

i)        Free telephones including mobile phone provided by the employer for personal or official purpose or official purpose etc.

j)        Free education facility provided to the children of an employee in an institution owned/maintained by the employer provided a fair value of education does not exceed Rs 1000.

k)      Interest-fee/concessional loan of an amount not exceeding or loan taken for medical treatment of a member of the family of an employee.

l)        Computer/laptop given to an employee for official/personal use.

m)    Transfer of movable assents (other than computer, car or electronic items) to an employee after using them for 10 years or more.

3. Perquisites which are taxable for specified employees only:

The following Perquisites are taxable in the hands of specified employees.

a)      Domestic servants provided by an employer.

b)      Gas, electricity or water for the household purpose provided by an employer.

c)       Education facility provided employer.

d)      Leave travel concession.

e)      Car or any other automotive conveyance.

f)       Transport facility by transport undertaking.

Taxability of Perquisites

A. Rent free furnished/unfurnished accommodation or House at concessional rent

a. For govt. employee: License fees fixed by government + 10% of the cost of furniture or hire charges – amount recovered from the employee.

b. For non- Government employee:

Population

Owned by employer

Hired by employer

If population is < 10 lakhs

If population is >10 lakhs but < 25 lakhs

If population is> 25 lakhs

7.5% of salary

10% of salary

15% of salary

Actual hire charges or 15% of salary whichever is less.

If furnished

Add 10% of the cost or hire charges

Add 10% of the cost or hire charges

If concessional house

Deduct amount recovered from the employee

Deduct amount recovered from the employee

Hotel accommodation (more than 15 days)

24% of salary or actual expenses whichever is lower

24% of salary or actual expenses whichever is lower

Meaning of salary

Basic + DP + DA which enters + fee + commission of all types + statutory bonus + all fully taxable allowance + salary in lieu of leave for current year but does not include arrears advance perquisites, provident fund excess, gratuitous bonus.

B. Discharging of any monetary obligation of employees: gas and electricity bill, education of children, income tax professional tax, the salary of a domestic servant, Life insurance premium = actual expenses met by the employer

C. Annual contribution to approved superannuation fund above Rs. 100000

D. Interest-free loan or loan at concessional rate = Interest charged by SBI on similar loan – amount recovered from the employee. But it is exempted if the loan amount is up to Rs. 20000 and if taken for medical treatment.

E. Gift vouchers up to Rs. 5000 is exempted

F. Credit card facility = total expenses – recovered from the employee – used for official purpose

G.  Use of assets movable assets except for computer or laptops= 10% of the cost of assets (time basis)

H. Transfer of movable assets (Depreciation charged on year to year basis i.e. 12 months) =

Electronics = 50% p.a. on WDV basis

Motor car or other conveyance = 20% p.a. on WDV basis

Any other item = 10% p.a. on SLM basis

I. Car facility

Particulars

Engine CC is up to  1.6 liters

Engine CC is above 1.6 liters

Car owned or hired by employer and expenses are met or reimbursed by employer:

a. Used for Official Purpose

b. Used for Pvt. Purpose

 

C. Used for both

 

Car owned or hired by employer and expenses are met or reimbursed by employer:

Nil

Actual expenses + salary of driver+10% of the cost of the car – amount recovered from the employee

1800 p.m + 900 p. m. (salary to driver/Chauffeur if any)

Car owned or hired by employer and expenses are met or reimbursed by employer:

Nil

Actual expenses + salary of driver+10% of the cost of the car – amount recovered from the employee

2400 p.m + 900 p. m. (salary to driver/Chauffeur if any)

Car is owned by the employee but its running and maintenance expenses are met or reimbursed by an employer

a. Used for Official Purpose

b. Used for both Pvt. And official purpose

No value to be taxed

1800 p.m + 900 p. m. (salary to the driver)

No Value to be taxed

2400 p.m + 900 p. m. (salary to the driver)

Where any other vehicle owned by the employee but expenses met or reimbursed by the employer

a. Used for Official Purpose

b. Used for both Pvt. And official purpose

No value to be taxed

Actual expenditure – 1800 p.m + 900 p. m. (salary to the driver).

No value to be taxed

Actual expenditure – 2400 p.m + 900 p. m. (salary to the driver)

Free use of car between office and residence

 

No perquisite

No perquisite

Conveyance facility to the high court and supreme court judges

 

Exempted

Exempted

More than one car provided by the employer

 

One car @ Rs. 1800 p.m. + 900 p.m. and other cars as deemed to be used for personal purpose and valued as mentioned above

One car @ Rs. 1800 p.m. + 900 p.m. and other cars as deemed to be used for personal purpose and valued as mentioned above

J. Free education in employers own school or college for employee’s children: if the fair cost of education is less than Rs. 1000 then the value of perk is to be taken as nil and if the fair cost of education is more than Rs. 1000 p.m.  then the value of perk is = cost of employer – 1000 p.m.

K. Medical facility or reimbursement of medical expenditure for self, family members and dependents in India:

(i) It is fully exempted if:

(a) Facility provided in the employer’s hospital

(b) Treatment in a government hospital

(c) Medical insurance premium paid under any approved scheme Health insurance premium paid under notified scheme (sec. 88D)

(ii) If treatment is taken outside India, Expenses of stay and treatment with one attendant exempted up to amount allowed by RBI. Expenses of travelling with one attendant fully exempted if gross total income excluding such travelling expenses does not exceed Rs. 2,00,000

L. Refreshments: Free meals provided during office hours in business premises is exempt up to Rs.50 per meal

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