Salary means remuneration paid to the employee by the employer for the services rendered by him during a period of time.”Salary” includes wages, fees, commissions, perquisites, profits in lieu of, or, in addition to salary, advance of salary, annuity or pension, gratuity, payments in respect of encashment of leave etc.
In this article we will discuss about taxability aspect of Perquisites.
Perquisites are defined as any casual emolument or benefit attached to an office or position in addition to salary or wages. It denotes something that benefits a man by going into his pocket; it does not cover mere reimbursement of necessary disbursements. Such benefits are normally given in kind but should be capable of being measurable in money terms. Perquisites are generally non monetary benefits or facilities provided by an employer. A perquisite value will be included under the head Salary, if the same is paid to an employee; otherwise it will be included under the head ‘income from other sources’.
Valuation of Perquisites
As a general rule, the taxable value of perquisites in the hands of the employees is its cost to the employer. However, specific rules for valuation of certain perquisites as per the above said notification are briefly given below:
- Residential Accommodation
- Hotel Accommodation
- Use of Motor Car
- Services of Sweeper, Gardner, Watchman or Personal Attendant
- Supply of Gas, Electric Power or Water
- Free/Concessional Educational Facility
- Interest Free or Concessional Loan Facility
- Traveling, Touring Accommodation etc.
- Free Food and Non-alcoholic beverages
- Any Gift or Voucher or Token
- Membership Fees, Annual Fees for Credit Card
- Membership of Clubs
- Use of Movable Assets
- Transfer of Movable Assets
- Any Other Benefit or Amenity, Service, Right or Privilege
- Perquisites exempt from Tax
1 Valuation of residential accommodation provided by the employer:-
(a)Union or State Government Employees-
The value of perquisite is the license fee as determined by the Govt. as reduced by the rent actually paid by the employee.
(b) Non-Govt. Employees- The value of perquisite is an amount equal to 15% of the salary in cities having population more than 25 lakh, (10% of salary in cities where population as per 2001 census is exceeding 10 lakh but not exceeding 25 lakh and 7.5% of salary in areas where population as per 2001 census is 10 lakh or below). 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 or15% of salary, whichever is lower. In both of above cases, the value of the perquisite would be reduced by the rent, if any, actually paid by the employee.
2 Value of Furnished Accommodation-
The value would be the value of unfurnished accommodations 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.
3 Value of hotel accommodation provided by the employer-
The value of perquisite arising out of the above 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 of15 days or less.
4 Perquisite of motor car provided by the employer- the value of such perquisite shall be :
a) Nil, if the motor car is used by the employee wholly and exclusively in the performance of his official duties.
b) Actual expenditure incurred by the employer on the running and maintenance of motor car, including remuneration to chauffeur as increased by the amount representing normal wear and tear of the motor car and as reduced by any amount charged from the employee for such use (in case the motor car is exclusively for private or personal purposes of the employee or any member of his household).
c) Rs. 1800- (plus Rs. 900-, if chauffeur is also provided partly in performance of duties and partly for private or personal purposes of the employee or any member of his household if the expenses on maintenance and running of motor car are met or reimbursed by the employer). However, the value of perquisite will be Rs. 2400- (plus Rs. 900-, if chauffeur is also provided) per month if the cubic capacity if engine of the motor car exceeds1.6 liters.
d) Rs. 600- (plus Rs. 900-, if chauffeur is also provided) per month (in case the motor car issued partly in performance of duties and partly for private or personal purposes of the employee or any member of his household if the expenses on maintenance and running of motor car for such private or personal use are fully met by the employee). However, the value of perquisite will be Rs. 900- (plus Rs. 900-, if chauffeur is also provided) per month if the cubic capacity of engine of the motor car exceeds 1.6 liters. If the motor car or any other automotive conveyance is owned by the employee but the actual running and maintenance charges are met or reimbursed by the employer, the method of valuation of perquisite value is different.
5 Perquisite arising out of supply of gas, electric Energy 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. However, any payment received from the employee towards the above would be reduced from the amount [Rule 3(4)]
6 Free/Concessional Educational Facility: Value of the perquisite would be the expenditure incurred by the employer. If the education institution is maintained & owned by the employer, the value would be nil if the value of the benefit per child is below Rs. 1000/- P.M. or else the reasonable cast of such education in a similar institution in or narthex locality.
7 Free/Concessional journeys provided by an Undertaking engaged in carriage of passengers or goods: Value of perquisite would be the value at which such amenity is offered to general public asreduced by any amount, if recovered from the employee. However, these provisions are not applicable to the employees of an airline or the railways.
8 Provision for sweeper, gardener, and watchman or personal attendant: The value of benefit resulting from provision of any of these shall be the actual cost borne by the employer in this respect as reduced by any amount paid by the employee for such services. (Cost to the employer in respect to the above will be salary paid/payable).
9 Interest free/concessional loans- The value of the perquisite shall be the excess of interest payable at the prescribed interest rate over, interest, if any, actually paid by the employee or any member of his household. The prescribed interest rate would be the rate charged by State Bank of India as on the 1st Day of the relevant Previous Year in respect of loans of the same type and for same purpose advanced by it to general public. Perquisite to be calculated on the basis of the maximum outstanding monthly balance method. However, loans up to Rs. 20,000/-, loans for medical treatment specified in Rule 3A are exempt provided the same are not reimbursed under medical insurance.
10 Value of free meals- The perquisite value in respect of free food and non-alcoholic beverages provided by the employer, not liable to pay fringe benefit tax, to an employee shall be the expenditure incurred by the employer as reduced by the amount paid or recovered from the employee for such benefit or amenity. However, no perquisite value will be taken if food and non-alcoholic beverages are provided during working hours and certain conditions specified under Rule 3(7)(iii) are satisfied.
11 Value of gift or voucher or token- The perquisite value in respect of any gift, or voucher, or taken in lieu of which such gift may be received by the employee or member of his household from theemployer, not liable to pay fringe benefit tax, shall be the sum equal to the amount of such gift, voucher or token. However, no perquisite value will be taken if the value of such gift, voucher or taken is below Rs. 5000- in the aggregate during the previous years.
12 Credit card provided by the employer- The perquisite value in respect of expenses incurred by the employee or any of his household members, which are charged to a credit card provided by the employer, not liable to pay fringe benefit tax, which are paid or reimbursed by such employer to an employee shall be taken to be such amount paid or reimbursed by the employer. However, noperquisite value will be taken if the expenses are incurred wholly and exclusively for official purposes and certain conditions mentioned in Rule 3(7)(v)are satisfied.
13 Club membership provided by the employer- The perquisite value in respect of amount paid or reimbursed to an employee by an employer, not liable to pay fringe benefit tax, against the expenses incurred in a club by such employee or any of his household members shall be taken to be suchamount incurred or reimbursed by the employer as reduced by any amount paid or recovered from the employee on such account. However, noperquisite value will be taken if the expenditure is incurred wholly any exclusively for business purposes and certain conditions mentioned in Rule3 (7)(vi) are satisfied.
The value of any other benefit or amenity provided by the employer shall be determined on the basisof cost to the employer under an arms’ length transaction as reduced by the employee’s contribution.
The fair market value of any specified security or sweat equity share, being an equity share in a company, on the date on which the option is exercised by the employee, shall be determined as follows:-
(a) In a case where, on the date of exercising of the option, the share in the company is listed on a recognized stock exchange, the fair market value shall be the average of the opening price and closing price of the share on the date on the said stock exchange.
(b) In a case where, on the date of exercising of the option, the share in the company is not listed on a recognized stock exchange, the fair market value shall be such value of the share in the company as determined by a merchant banker on the specified date.
(c) The fair market value of any specified security, not being an equity share in a company, on the date on which the option is exercised by the employee, shall be such value as determined by a merchant banker on the specified date.
PERQUISITES EXEMPT FROM INCOME TAX
Some instances of perquisites exempt from tax are given below:
- Provision of medical facilities: Value of medical treatment in any hospital maintained by the Government or any local authority or approved by the Chief Commissioner of Income-tax. Besides, any sum paid by the employer towards medical reimbursement other than as discussed above is exempt up to Rs.15,000/-.
- Perquisites allowed outside India by the Government to a citizen of India for rendering services outside India (Sec. 10(7)).
- Rent free official residence provided to a Judge of High Court or Supreme Court or an Official of Parliament, Union Minister or Leader of Opposition in Parliament.
- No perquisite shall arise if interest free/concessional loans are made available for medical treatment of specified diseases inRule 3A or where the loan is petty not exceeding in the aggregateRs.20,000/-
- No perquisite shall arise in relation to expenses on telephones including a mobile phone incurred on behalf of the employee by the employer