INCOME FROM SALARIESPerquisites

A Introduction

• In addition to regular payments like basic pay, dearness allowances, other

allowances etc, an employer may also provide some extra benefits or facilities

to his employees. These extra benefits or facilities which may be paid in cash

or in kind are called perquisites.

• Only the perquisites which arise because of an employer – employee

relationship are chargeable under Income from salaries. Perquisites which

arise in the course of a profession e.g perquisites given to a lawyer by his

client are charged under the head Income from business or profession.

• When expenses incurred in the course of discharge of official duties are

reimbursed by the employer to the employee, there is no perquisite involved

e.g actual traveling expenses to meet a client incurred by an employee and

reimbursed by the employer. Perquisites can be taxed under the head income

from salaries only if it has a legal origin. If an employee derives any benefit

which is not authorized by his employer, the benefit so derived cannot be

charged as perquisites.

• Any income tax paid by the employer on behalf of the employee, (i.e. tax free

salary) is a perquisite in the hands of the employee. It is not relevant whether

the employer pays the income tax under a contract or voluntarily.

B) Let us now discuss perquisites under the following headings:

Unit 1. Definition of perquisites u/s 17 (2)

Unit 2. i) Perquisites chargeable in the hands of all employees.

ii) Perquisites exempt in the hands of all employees and

iii) Perquisites chargeable in the hands of only specified employees

Unit 3. Valuation of perquisites – Rule 3 of the Income – Tax Rules 1962.

Unit 4. Perquisites provided by employers who are not liable to Fringe Benefit Tax.

These perquisites are chargeable in the hands of the employees who

receive such perquisites.

Unit 5. Certain Medical facilities not considered as perquisites and hence not

chargeable in the hands of the employees

1

Definition of perquisite u/s 17 (2)

Unit 6. Premium paid by employees on personal accident insurance policies on the

lives of his employees not considered as perquisite and hence not

chargeable in the hands of the employees.

Unit 1.

Sl.No.

PerquisiteSection

NumbersRemarks

a) The value of any rent free accommodation (both unfurnished and furnished)

17 2 (i) Refer Unit 3 for valuation of perquisites

b) The value of any concession (reduction) in the matter of rent arising to an employee in respect of any accommodation provided to him by his employer i.e. Accommodation provided at a concessional rate

17 2 (ii) Refer Rule 3(1) and Supreme Court’s decision in the case of Arun Kumar. V UOI. According to Supreme Court’s decision, there must be concession in the matter of rent before this can be charged as perquisite. We have to first find out if there is deemed concession. Refer Unit 3 for valuation.

c) The value of any benefit or amenity granted either free of cost or at a concessional rate in the case of specified employees

17 2 (iii) Refer Unit 3 for valuation of perquisite

d) Any sum paid by the employer on behalf of the employee in respect of any obligation which would have been paid or met by the employee if the employer had not paid the same.

17 2 (iv) Refer unit 3 for valuation of perquisite

e) Any sum paid by the employer directly to the employee or through a fund to insure the life of the employee or to for effecting an annuity contract for the employee

17 (2) (v) Any sum paid by the employee through a Recognized provided fund / superannuation fund / deposit linked insurance fund is not perquisite

f) The value of any fringe benefit or amenity

17 (2) (vi) Under chapter XII-H, some fringe benefits provided to employees are chargeable in the hands of certain employers. These fringe benefits are not included under section 17 (2) (vi)

2

Unit 2.

Table – A

Perquisites chargeable in the case of all employees (taxed)

Table – B

Perquisites exempt in the case of all employees (not taxed)

Table – C

Perquisites chargeable only in the case of specified employees – 17(2) (iii)

• Value of rent – free accommodation provided to the employee – 17 (2) (ii)

Note : Rent free accommodation provided to a High Court Judge / Supreme Court Judge / Officer of Parliament is not chargeable

• Value of concession (reduction) in respect of rent free accommodation provided by an employer to his employee – 17(2) (ii)

• Value of any amount paid by an employer which would have otherwise been paid by the employee – 17(2) (iv)

E.g : The employee engages the service of a domestic servant to work in his house. It is his obligation / responsibility to pay the servant. If the employer pays the domestic servant’s salary, it is chargeable in the hands of the employee as perquisite.

• Any insurance premium paid by the employer on the life of his employee – 17 (2) (v)

• Telephone provided at employees residence.

• Any goods sold to an employee by an employer at concessional (reduced) rate

• Free or concessional rate transport facility provided to an employee by his employer engaged in transportation business including railways.

• Perquisite provided outside India by Government of India to its citizen rendering service outside India e.g. staff of Indian Embassy in a foreign country.

• Any sum payable by an employer to a Recognized Provident Fund, approved superannuation fund, deposit linked insurance fund under coal mines P.F. Act or Employees Provident Fund Act.

• Contribution of an employer to a group insurance scheme for his employees.

• Leave travel concession / assistance provided by an employer to his employees subject to certain limits.

• Perquisites which are taxable as given in Table A are chargeable in the hands of specified employees also.

• Perquisites which are exempt as given in Table B are exempt in the hands of specified employees also.

• The value of any other perquisites (i.e. which are not included in Tables A and B) provided free of cost or at a concessional rate is taxable only in the hands of specified employees.

Who is a specified employee?

i) An employee of a company who is also a director of the company including full time director, part – time director & nominee director. Even if he has been a director for only a part of the previous year, such person will be treated as a specified employee.

ii) Any person who has a substantial interest in the company i.e. a person who is the beneficial owner of equity shares with 20% or more voting power in the company

Perquisites chargeable in the case of i) all employees ii) exempt in the case of all employees and iii) chargeable in the case of only specified employees.

3

Table – A

Perquisites chargeable in the case of all employees (taxed)

Table – B

Perquisites exempt in the case of all employees (not taxed)

Table – C

Perquisites chargeable only in the case of specified employees – 17(2) (iii)

Exceptions : The following life insurance premium payments are not perquisites i.e. premium paid to RPF, approved superannuation fund, deposit linked insurance fund, group annuity scheme, employees state insurance scheme & fidelity insurance scheme.

• The value of any fringe benefit received by the employee on which the employer is not obliged to pay fringe benefit tax (-17 (2) (vi)

• Annual premium paid by employer on personal accident policy on employee’s life.

• Any refreshment i.e snacks, tea, coffee, beverages etc. provided to employees during working hours in office premises including subsidized (reduced rate) lunch or dinner.

• Any recreational facilities like sports, club facilities etc. Such facilities must be provided by an employer to his employees in general and not a select few employees.

• Any amount spent by an employee in training his employees including boarding and lodging expenses incurred during such training.

• Value of medical facilities provided to the employees subject to certain limits.

• Rent fee residence provided to a High Court judge, Supreme Court judge, officer of the parliament, central government minister and leader of the opposition in the parliament.

• Conveyance facility given to High Court judges and Supreme Court judges.

• Motor car facility provided to employer.

Note : The employer is liable to pay fringe Benefit Tax on some of the above perquisites. The employees are not taxed for any of the above

iii) An employee (other than employees covered under i) and ii) above) whose income under the head salary during the previous year is more than Rs. 50,000/-.

Note : Salary income this purpose is to be calculated as follows :

All Monetary payments or income received from one or more employers.

Less

Monetary benefits exempt under section 10 e.g HRA, education allowance etc to the extend they are exempt under section 10

Less

Deductions for entertainment allowance and profession tax paid U/S 16.

Note : Value of non – monetary benefits or amenities such as rent – free accommodation, concesional rent of accommodation, free supply gas, electricity & water, free education facilities, free conveyance etc are not to be included while calculating salary income.

4

perquisites.

Unit 3.

3.1 Valuation of unfurnished Accommodation (taxable in the hands of all employees)

U nfurnished Accommodation provided to

Value of PerquisiteValue of perquisite = Licence fee determined by the Central / State Government Less Rent, if any actually paid by the employee.

Central & State Govt employees including military personnel i.e Central & State Govt. employees, Govt. employees on deputation to public sector undertakings or a Government body. The accommodation should have been provided by such undertaking

Private Sector Employees including employees of a local authority like Municipal Corporation & foreign government

Accommodation owned by the employer

Accommodation hired / leased by the employer

Value of Perquisite

V

Population of the city as per 2001 censusValue of perks

c

a) 10 Lakh or less7.5% of salary

s

b) More than 10 lakh upto 25 lakh10% of salary

bb

c) More than 25 lakh15% salary

c

In all above cases rent actually paid by the employee should be deducted from

value of perks

v

Value of PerquisiteThe value of perquisite is the lower of the two actual amount of lease or rental

paid or payable by the employer

OR15% of salary Less : The rent, if

any, actually paid by the employee

Valuation on of Perquisites (Rule 3 of Income – Tax Rules 1962

5

Important points :

1. In case the actual rent paid by the employee is more than the specified percentages of salary i.e 7.5%, 10% and 15% respectively, there is no perquisite value for the unfurnished accommodation and it is not chargeable in the hands of the employee i.e. there is no deemed concession as per Supreme Court’s judgment mentioned earlier.

2. “Salary” for the purpose of valuation of unfurnished accommodation includes the following :

i) Basic pay ii) Dearness allowance forming part of salary for retirement benefits iii) taxable allowances iv) bonus, commission v) any other monetary payment by whichever name it is called.

However, “Salary” does not include the following :

i) Dearness allowance which is not considered for calculation of superannuation or retirement benefit of the employee.

ii) Employers contribution to the employees Provident Fund account.

iii) The value of all perquisites under section 17 (2) i.e. for valuation of unfurnished accommodation do not include value of any taxable perquisites in salary.

iv) ESOP and related payments

v) Medical allowance to the extent it is not taxable.

6

7

3.2 Valuation of Furnished Accommodation

Both Government & Private Sector employees

Value of unfurnished accommodation calculated as per 3.1 above

PLUS

Point to remember : Furniture includes all appliances and equipments like

T.V, radio, music system, refrigerator, fan, air conditioner and all other

household appliances.

3.3 Valuation of accommodation provided in a hotel / motel / service

apartment / guest house etc.

Both Government and Private Sector employees

The lower of the two less any rent actually paid by the employee is the value to be taxed as perquisite

Point to remember : If, during the transfer of an employee from one place to

another place, hotel accommodation is provided for upto 15 days in total

If the furniture is owned by the

employer

If the furniture is hired by the employer

Actual hire charges for the furniture paid or payable by the

employer

Value of furniture @ 10% per annum on the original cost of the

furniture

24% of the salary paid or payable by the employer during the previous year

The actual charges paid or payable by the employer for the period of accommodation

8

during the previous year, it is not treated as perquisite. It is not charged in the

hands of the employee.

3.4 Accommodation provided at the time of transfer

Government and Private sector employees may be transferred from one

place to another from time to time say from Chennai to Bangalore.

Sometimes, the employee retains the old accommodation say at Chennai.

The employer also provides him accommodation at the new place of work say

Bangalore.

In such cases, for a period of 90 days accommodation provided in only one of

the two places say Chennai or Bangalore whichever is lower is treated as

perquisite and valued and charged in the hands of the employee.

If both the accommodations are retained by the employee for more than 90

days, then the value of both accommodation will be valued and charged in the

hands of the employee as perquisite.

Point to remember : In the following cases, the above rule does not apply :

If the accommodation is provided to an employee who is working at a mining

site / on shore oil exploration site / project execution site / dam construction

site / power generation site / off shore site subject to the following conditions :

i) The accommodation should be of a temporary nature with a plinth area of

not more than 800 sq. feet and the accommodation should be located at

least 8 kms from the municipality / cantonment board limits

OR

ii) The accommodation should be in a remote area i.e which is located

atleast 40 kms away from a town with a population of not more than

20,000 as per latest census. The accommodation can be a temporary or

permanent structure in this case.

In the above cases, the accommodation provided will not be treated as

perquisite with hands of the employee and will be tax – free.

3.5 Domestic Servants

9

There are four possibilities here depending on who employs the domestic

servant and who pays his / her salary.

Sl.

No.Servant

appointed by

Salary of Servant paid by

What is the value of

perquisite?Chargeability to tax

1. Employee Employee NIL NIL

2. Employer Employee NIL NIL

3. Employee Employer Actual cost spent by the employer

Chargeable in the hands of all employees including specified employees

4. Employer (in the pay roll of the employer)

Employer Actual cost spent by the employer

i) Taxable in the hands of only specified employees

ii) Not taxable in the hands of other employees

Point to remember : In cases 3 & 4 any amount paid by the employee is to

be reduced from the value of perquisite.

3.6 Supply of gas, electricity and water by the employer

Here, there are two possibilities depending on whose name the gas /

electricity / water facility is registered.

Sl.

No.

Facility in the

name of

Perquisite value

Chargeability to taxFacility provided from employers

own source

Facility provided by employer from outside

source

1. Employee Manufacturing cost included by the employer

Actual amount paid by the employer to such outside source

Taxable in the hands of all employees including specified employees

2. Employer Manufacturing cost incurred by the employer

Actual amount paid by the employer to such outside source

i) Taxable in the hands of only specified employees

ii) Not taxable in the hands of other employees

Point to remember : In both the cases, any amount paid by the employee is

to be deducted from the value of perquisite.

3.7 Educational facilities provided by the employer either free of cost or at

concessional (reduced) rate

10

• Where the employee first pays the education expenses of his children /

house hold members and the employer reimburses the same fully or

partly to the employee, the entire amount reimbursed by the employer is

taxable in the hands of all the employees including specified employees.

• Where the employer provides such educational facility to the employee,

it is taxed only in the hands of specified employees.

Value of Perquisite taxable in the hands of specified employees

Points to

remember :

i) Any educational facility provided by the

employer to his employee’s children / other

household members either in a school owned

by the employer or in other schools is not taxed as perquisite in the hands of

other employees i.e. employee’s who are not specified employees.

ii) Child includes employee’s step-child and adopted child.

iii) Other household members includes spouse (husband or wife of the

employee), employee’s children and children’s spouses (husband or wife),

employee’s parents, employee’s servants and employee’s dependants.

3.8 Other Fringe Benefits and Amenities

Educational facility is owned by the employer

Educational facility provided in any other school (owned by others)

For employee’s children

For employee’s other household members

For employee’s children

For employer’s other household

Cost of education in a similar school subject to an exemption limit of Rs. 1,000/- per month per child i.e any value the excess of Rs. 1,000/-p.m per child is taxable as perquisite in the hands specified employees

Amount actually paid by employer for such education subject to an exemption limit of Rs. 1,000/- p.m per child i.e any amount in excess of Rs. 1,000/- p.m per child is taxable as perquisite in the hands if specified employee.

Cost of such education in a similar school is fully taxed in the hands of specified employee (No exemptions)

Amount actually paid by employer for such education is fully taxed in the hands of the specified employee (No exemption)

11

• Some fringe benefits (small benefits) provided by the employer to his

employees like telephone at employee’s residence, goods sold at

reduced price etc., are not taxed in the hands of the employees. Instead,

the employer pays what is known as fringe benefit tax to the government

on these benefits provided by him to his employees. These fringe

benefits are chargeable in the hands of certain employers under chapter

XII – H.

• However, other fringe benefits not covered under chapter XII – H, are

taxed in the hands of the employees who receive such fringe benefits

from their employers. These chargeable fringe benefits U/S 17(2) (vi)

are valued and taxed in the hands of the employees as perquisites.

Such taxable fringe benefits are :

3.8.1) Interest free or concessional loan provided to any employee by his

employer

• If the employer provides his employee or any member of the employee’s

household any loan on interest – free or concessional (reduced)

interest rate basis, the employee receives a perquisite (benefit) from

his employer. Such benefit is taxable in the hands of the employee.

• Value of perquisite in case of interest – free or concessional rate of

interest loan provided by an employer to this employee

=

Interest computed (calculated) as per interest rate charged by State

Bank of India for similar purpose loan on the 1st day of the relevant

previous year.

Less

Interest recovered by the employer from the employee.

For example, an employer provides a vehicle loan of Rs. 2 Lakhs to his

employee on 01.10.2008 @ 3% interest. SBI vehicle loan interest as on

01.04.2008 (1st day of the previous year) is 12%. The employee has paid

12

interest @ 3% for 6 months but has not repaid any principal amount to

his employer. The value of perquisite will be calculated as follows :

Interest on Rs. 2,00,000 for 6 months @ 12% (SBI rate) Rs. 12,000

Less : Interest recovered from the employee @ 3% on Rs. 2,00,000 for 6 months

3,000

Value of concession i.e. perquisite chargeable in the hands of the employee

9,000

Points to remember :

i) If the loan amount is upto Rs. 20,000/- in total, there is no perquisite and

nothing is charged in the hands of the employee.

ii) Rule 3A of Income Tax Rules specifies certain diseases. If the loan is

provided by the employer to his employee for medical treatment of such

specified diseases, there is no perquisite and nothing is charged in the hands

of the employee. However, if the employee receives any medical insurance

claim, tax will be charged in the hands of the employee for any concession in

interest relating to the claim amount received.

For example, an employee has received a loan of Rs. 3,00,000/- @ 3%

interest from his employer for treatment of a disease specified under rule 3A.

However, he receives Rs. 2,00,000/- as medical insurance. On

Rs. 2,00,000/- the difference in interest amount calculated based on SBI rate

of interest and 3% rate of interest will be taxed as perquisite in the hands of

the employee.

iv) The interest shall be calculated on the maximum outstanding monthly balance

on each loan on the last day of each month.

3.8.2) Use of Movable Assets

Sometimes, an employer may allow his employees to use for their personal

purpose movable assets belonging to the employer. Value of perquisite in

such case is as follows :-

Sl.

No.Movable Asset Value of Perquisite

i) Use of laptops and computers NIL

ii) Movable assets other than 10% of cost of such

13

laptops and computers asset

Point to remember : If any amount is recovered from the employee for

use of such asset, the amount recovered should be deducted from the

value of perquisite calculated as above.

3.8.3) Transfer of Movable Assets

An employer may sell some movable assets like computers, cars or

other assets belonging to him to his employees. This is called transfer of

movable assets. In such cases, the perquisite value of movable assets

transferred is to be calculated as follows :

Sl.No.

Assets Transferred Value of Perquisite

i)Computers and electronic items

Depreciated value of asset. Calculate depreciation @50% on WDV method for each completed year of usage by the employer

ii) Motor cars

Depreciated value of asset. Calculate depreciation @ 20% on WDV method for each completed year of usage by the employer

iii)Any other asset including motor cycle, scooter

Depreciated value of asset. Calculate depreciation @ 10% on SLN i.e. Straight Line Method for each completed year of usage by the employer

Points to remember :

i) Any amount paid by the employee towards transfer of such assets should be

deducted from the value of perquisite and the balance is charged in the hands

of the employee.

ii) Depreciation is to be calculated only for the number of completed years of

usage. Ignore fraction of year.

E.g :

1) An employer transfers a motor car to his employee on 1.12.2008. The

motor car was originally purchased by the employer on 01.04.2006.

Calculate depreciation for only two years i.e. 01.04.2006 to 31.03.2007

14

and 01.04.2007 to 31.03.2008. Ignore the fraction of year 1.04.2008 to

01.12.2008.

2) Completed year does not necessarily mean a financial year. For

example if the date of purchase of motor car was 01.05.2005 and date

of transfer was 01.08.2008, completed years of usage will be 3 years

calculated as follows :

01.05.2005 to 30.04.2006

01.05.2006 to 30.04.2007

01.05.2007 to 30.04.2008

Ignore fraction of year 01.05.2008 to 01.08.2008 for depreciation

calculation.

3.8.4) Other benefits or amenity [sub – rule 7 (ix) of Rule 3]

If the employer provides any other benefit, facility, service or amenity to the

employee, the value of such perquisite will be the cost incurred by the

employer. The valuation of such benefit should be done on an “arms length

transaction basis” i.e. without taking into account any undue favour to the

employee in order to reduce his income tax liability.

Point to remember : Cost incurred by the employer in providing telephone or

mobile phone facility (for employee’s personal use) will not be a perquisite. It

is not chargeable to tax in the hands of the employee.

Unit 4 Where an employer is not liable to pay fringe benefit tax

4.1 Employers liable to pay fringe benefit tax (Chapter XII – H)

U/S 2 (23B) the following employers are liable to pay fringe benefit tax on

several perquisites provided by them to their employees :

i) a company ii) firm iii) Association of persons or body of individuals whether

incorporated or not iv) local authority v) every other artificial judicial person.

Several perquisite provided by the above employers to their employees are

not chargeable to tax in the hands of their employees. The employers pay

fringe benefit tax on these perquisites.

3 years from the date of purchase i.e. 3 years from 01.05.2005

15

4.2 Employers not liable to pay fringe benefit tax under chapter XII – H

However, not all employers are covered under fringe benefit tax. There are

exemptions. The following persons are not liable to pay fringe benefit tax

under chapter XII – H.

i) Any person eligible for exemption U/S 10 (23C) or registered under

section 12AA e.g : Charitable institutions, public religious trust, a non –

profit university or educational institution, hospital etc.,

ii) A political party registered U/S 29A of the Representation of the People

Act, 1951.

16

If any of the above employer s exempted from paying fringe benefit tax, provides the following perquisites to his

employees, such perquisites should be valued and charged to income- tax in the hands of the employees who receive

such perquisites.

Perquisites taxable in the hands of the employees (where employer is not liable to pay Fringe Benefit Tax)

a) MOTOR CAR

Case #

Motor Car owned / hired by

Car used by the employee for

Running & Maintenance cost incurred

by

Value of Perquisite Taxable

Cubic capacity of car upto 1.6 litres

Cubic capacity of car above 1.6 litres

1. Employer i) Exclusively for official duties

ii) Exclusively for the personal purpose of the employee or any member of his house hold

Employer

Employer

No perquisite value

Actual amount spend by the employer PLUS salary if any paid to the chauffeur (driver) PLUS value of normal wear & tear of the car if the car is owned by the employer (10% per annum of the cost of the car) LESS any amount recovered from the employee for such use.

No perquisite value

Actual amount spent by the employer PLUS salary, if any, paid to the Chauffeur (driver) PLUS value of normal wear & tear of the car if the car is owned by the employer (10% per annum of the cost of the car) LESS any amount recovered from the employee for such use.

ii) Partly for official duties and partly for personal purpose of the employee or any member of his household

i) Employer

ii) Employee

Rs. 1200/- Plus Rs. 600 if any chauffeur’s is salary is also paid

Rs. 400/- PLUS Rs. 600/- if any chauffeur’s salary is paid by the employer.

Rs. 1600/p PLUS Rs. 600 if any chauffeur’s salary is also paid

Rs. 600/- PLUS Rs. 600 if any chauffeur’s salary is paid by the employer

17

a) MOTOR CAR

Case #

Motor Car owned / hired by

Car used by the employee for

Running & Maintenance cost incurred

by

Value of Perquisite Taxable

Cubic capacity of car upto 1.6 litres

Cubic capacity of car above 1.6 litres

2. Employee i) Exclusively for official duties

ii) Partly for official duties and partly for personal purpose of the employee or any member of his house hold

Employer

Employer

No perquisite value

Actual amount spent by the employer LESS Rs. 1200 PLUS Rs. 600 if chauffeur is provided

No perquisite value

Actual amount spent by the employer LESS Rs. 1,600 PLUS Rs. 600 if chauffeur is provided

3. Employee (owns any other automotive conveyance i.e other than motor car e.g motor cycle, scooter)

i) Exclusive for official duties

ii) Partly for official purpose and partly for personal purpose of the employee

Employer

Employer

No perquisite value

Actual amount spent by the employer LESS Rs. 600

Not applicable

Not applicable

18

b) Free or concessional tickets [sub-rule (6) of Rule 3]

Employees who are in the business of carriage of passengers or goods may

provide free of cost or at concessional fair tickets for private journey of his

employee or his house hold members. Such private journeys may be

provided in a transport vehicle either owned or leased by the employer.

In the above case, the value of perquisite taxed in the hands of the employee

will be the normal journey fare offered by the employer to the general public

less any amount recovered by the employer from the employee for such

private journey.

c) Traveling Touring and Accommodation [Sub-rule 7 (ii) of Rule 3]

• The value of perquisite in respect of travel, tour, stay and other

expenses borne by the employee for the holiday of an employee or

any member of his household will be actual expenditure incurred by

the employer.

• However, tours availed by an employee under Leave Travel

concession (LTC) which is exempt u/s 10(5) is not covered under sub-

rule 7(ii) of Rule 3. LTC is exempt under section 10(5) subject to

certain limits.

• If the facility is maintained by the employer and is offered only to a few

select employees, the value of perquisite will be the value at which

other agencies maintaining similar facility charge the general public.

Note :

• If such facility is offered to all employees uniformly, then there is no

perquisite value and it is exempt in the hands of employees availing

such facility.

• It may so happen that an employee may be on official tour. His

household member say wife / children may accompany him on such

tour. In this case, the amount expenditure incurred by the employer on

employee’s household member will be the perquisite value taxable in

the hands of the employee.

19

• An employee who is on official tour after the completion of official tour

may extend his tour as personal vacation. In such case, the

expenditure incurred by the employer for such extended vacation

period will be the perquisite value taxable in the hands of the

employee.

• In all the above cases, any amount recovered by the employer from

the employee shall be deducted from perquisite value calculated and

the balance will be chargeable in the hands of the employee.

d) Free or concessional food and non-alcoholic beverages [sub – rule 7 (iii)

of Rule 3]

• If an employer provides the above items to the employee the value of

such items less any amount recovered from the employee will be

treated as perquisite and charged in the hands of the employee.

• However, the following are exempt and will be not be charged in the

hands of the employees :

i) Such items provided during working hours at office or business premises

upto Rs. 50/- per meal.

ii) Such items provided through paid vouchers which are not transferable and

can be used only at eating places upto Rs. 50/- per meal.

iii) Tea / snacks provided during working hours (No limit)

iv) Such items provided during working hours to employees working in

remote area or offshore installation (No limit)

e) Value of gifts, vouchers or token in lieu (instead) of such gifts [sub –

rule 7 (iv) of Rule 3]

• On ceremonial occasions or any other occasion, an employer may give

gifts, vouchers, token etc to his employee or any of his house hold

members. The value of such gifts received by the employee will be

treated as perquisite in the hands of the employee.

• However, if the total value of such gifts received by an employee

during the previous year is below Rs. 5000/-then there is no perquisite

value chargeable in the hands of the employee.

20

f) Credit card expenses [sub-rule 7(v) of Rule 3]

• If an employer pays the personal credit card expenses including membership

fees and annual fees incurred by the employee or any member of his

household, the amount so paid by the employer will be treated as value of

perquisite in the hands of the employee. Any amount recovered / paid by the

employee is to be deducted from the value of perquisite.

• However, if such credit card expenses are exclusively incurred by the

employee for official purposes there will be no perquisite value.

g) Club expenditure [Sub – rule 7(vi) of Rule 3]

• The employee may incur for his personal purposes, expenditure in a club

including annual membership, periodic payment for himself or any member of

his household. If his employer reimburses or makes payment for such club

expenditure of his employee, the amount paid / reimbursed by the employer

less the amount if any recovered from the employee will be taxable value of

perquisite in the hands of the employee.

• If initial fee is paid by the employer to acquire corporate membership and the

club facility is used by the employee, such initial fee shall not be charged as

perquisite in the hands of the employee.

• If the employer provides all employees the use of health club, sports or

similar facilities, there is no perquisite value chargeable.

• If the club expenditure is exclusively incurred by the employee for official

purpose, there is no taxable perquisite value.

Important points to remember regarding taxable perquisite value of provision of

motor car, free or concessional ticket, free or concessional food or non – alcoholic

beverages, value of gifts, credit card expenses and club expenses.

• If an employee works for an employer e.g a company, who is liable to pay Fringe

Benefit tax, the above will not be charged in the hands of the employee as

perquisite. In this case, the employer pays Fringe Benefit Tax on above perquisites.

• If an employee works for an employer who is not liable to pay Fringe Benefit Tax e.g

a non – profit organization, the above will be charged in the hands of the employee

as perquisites.

21

5. Medical Facilities (applicable to all employees)

The following medical facilities are not treated as perquisites and hence are not taxed in the hands of the employees.

Sl.

No.Medical Facilities exempted

Sl.

No.Medical Insurance premium payments exempted

i) The value of any medical treatment provided to an employee or his family members in any hospital maintained by the employer

i) Any premium paid by the employer to effect an insurance on the health of his employee. Such insurance scheme should be approved by the Central Government or the Insurance Regulatory Development Authority (IRDA)

ii) Any payment made by the employer for medical treatment of the employee or his family members in any Government hospital

ii) Any sum paid by the employer towards any premium paid by the employee to effect an insurance on his family members. Such insurance scheme should be approved by the Central Government for the purpose of section 80 D.

iii) Any payment made by the employer for medical treatment of prescribed diseases or ailments for the employee or any member of his family in any hospital approved by the chief commissioner. (This exemption has been provided because facilities for treatment of serious diseases may not be available in Govt. Hospitals)

22

Sl.

No.Medical Facilities exempted

Sl.

No.Medical Insurance premium payments exempted

iv) Any sum paid by the employer for medical treatment of the employee or his family members upto a limit of Rs. 15,000/- in the previous year. To avail this exemption limit of upto Rs. 15,000/- it is not necessary that the medical treatment must be taken in a Government hospital or any hospital approved by the Chief Commissioner. The employee or his family members can take treatment even in Private Hospitals and Clinics.

v) Medical treatment outside India as follows :

a) Any expenditure incurred by the employer for any medical treatment of the employee or any member of the employee’s family outside India

b) Travel and staying expenses of the employee or any member of his family for medical treatment outside India.

c) Travel and staying expenses of one attendant accompanying the patient for treatment outside India.

23

Sl.

No.Medical Facilities exempted

Sl.

No.Medical Insurance premium payments exempted

Conditions :

• Reserve Bank of India has prescribed certain limits for expenditure on medical treatment and stay abroad. The perquisite value of medical treatment and stay abroad will be exempt only upto the limit prescribed by RBI (In the examination, you will be given the RBI limit)

• Expenditure for traveling expenses of the patient and one attendant will be exempt only if the employee’s Gross Total Income (including income from all heads of income) before including travel expenditure does not exceed Rs. 2 Lakhs.

NOTE : For both medical facility and insurance purposes, the employees family means : i) spouse of the employee i.e husband or children ii) Children of the employee – children may be dependent on the employee or independent, married or unmarried iii) Parents, brothers and sisters of the employee if they are wholly or mainly dependent on the employee (Grand parents and grand children of the employee are not included in family)

24

Unit 6: Premium paid by the employer on personal Accident insurance policy

on the lives of his employees

When an employer takes out personal accident policy on the lives of his

employees and pays the premium on such policies, the premium so paid by

the employer will not be treated as a perquisite and hence will not be taxed in

the hands of the employees. It is fully exempt. The reasons are as follows :

a) The employee does not get any immediate benefit from such policy.

The employee may benefit in the future that too only if certain events

like accident happens.

b) The employer takes out personal accident insurance policies because

the insurance company would pay the employees in case of accidents

resulting in injury or loss of life of his employees. The employers

primary interest is to safeguard his business against any such

compensation to be paid in future incase of accidents.

25