Perquisite is defined as a privileged gain, or profit incidental to regular salary; it is expected, promised, gratuity or a tip. Perquisites are both taxable and exempt. Amenities that are made available to Employees by the company are included in perquisites and are subject to taxation as per the rules and condition as prescribed.
Fringe benefits received due to the one’s job or position in the company are perquisites. It is received over and above salary. It shall be added to the value of salary. It is casual emolument or benefits attached because of one’s position. Perquisites can be as simple as food coupons, company car, and fuel reimbursement. Perquisites may also include interest-free loan, medical facilities, credit cards, accommodation sponsored by the company, etc. Perquisites are defined u/s 17(2) of the Income Tax Act, 1961. These benefits are taxed separately so that the company maintains transparency in accounts and is able to hold a person accountable.
Prerequisite as defined u/s 17(2) of the Income Tax Act include the following:
The employer providing rent-free/concessional rent accommodation; Value of such benefit provided by the employer shall be treated as perquisite.
Any sum paid by the employer in respect of an obligation which was actually incurred/payable by the assesse.
Any benefit/amenity granted free or at concessional rate to specified employees etc; Value of such benefit provided by the employer shall be treated as perquisite.
The value of any specified security or sweat equity shares allotted, by the employer, free of cost or at concessional rate to the assesse shall be treated as perquisite.
Any contribution to an approved superannuation fund by the employer in respect of the assesse, if it exceeds Rs. one lakh;
Any other fringe benefit or amenity as may be prescribed; Value of such benefit provided by the employer shall be treated as perquisite.
Generally, the cost to the employer is a taxable value in the hands of the company’s employees. However, Rule 3 of the Income Tax Act has been laid for specific valuation.
The above mentioned perquisite is divided into two parts:
Value of perquisite in case of Government Employees shall be:
License fee as determined by the Government – Rent actually paid by the employee
Value of perquisite in case of Non-Government Employees shall be:
| Population of the city | Value of perquisite |
|---|---|
| More than 25 lakhs | 15% of Salary |
| 10 lakhs to 25 lakhs | 10% of Salary |
| Less than 25 lakhs | 7.5% of Salary |
Value of perquisites for furnished accommodation shall be:
Value of unfurnished accommodation as calculated above
Add: 10% p.a. of cost of furniture.
Value of perquisite under this benefit shall be lower of:
Tax on the above mentioned perquisite shall be dependent on whether the car is owned or leased by the employer and if such car is used for official purposes only or partly for official and personal purpose.
In this case, amount of tax payable by the employee shall be dependent on type of car used by the taxpayer.
| Car type depending upon cubic capacity of engine | Tax payable | Additional Cost if driver/chauffeur is provided |
|---|---|---|
| Cars below 1.6 liters | INR 1800 per month | 600 per month |
| Cars above 1.6 liters | INR 2400 per month | 900 per month |
Value of perquisite under this case shall be the amount paid by the employer to such service providing agency. In case of own manufacture, value shall be equal to manufacturing cost per unit as incurred by the employer.
Value of perquisite shall be taken to be nil if following conditions are satisfied:
Perquisites are additional benefits which are derived from a job profile at work. For example – if an employee has a sales profile, then he/she will be required to do a lot of field work. This means the employee will need to travel a lot on a regular basis for work purpose. The expense of travel on a daily basis will cost the employee a lot of money on fuel expense, maintenance of the car, food expense, accommodation, etc. To ensure that the employee does not feel the burden of such expense, the company or the employer, normally offers perquisites in addition to the salary to compensate for such expenses. Perquisites also help the employer to make the job profile look attractive for the additional benefits the employee will receive in the particular role profile.
Tax is paid on the value of perquisites by the employees of the company receiving such perquisites.
However, the employer may choose to pay tax on behalf of employees. Since it is in the nature of an obligation, it is non-monetary. It is to be noted that such tax paid is considered as non-monetary perquisite which is exempt on the hands of employee u/s 10(10CC).
Tax paid by the employer as non-monetary perquisite is not treated as a business expense and is specifically disallowed in the hands on the employer. Hence, Section 40(a) (v) is attracted.
Some examples of perquisites exempt from tax are given below:
Perquisites are taxed by the government if these are provided to employees by employers. The rate at which perquisites are taxed is 30% of the value of such perquisites provided.
Form 12BA provides information about perquisites. It is in addition to Form 16. Value of such perquisites provided is included in Part B of Form 16.
Yes, perquisites are liable for TDS.
Allowances are fixed amounts which are paid in cash by the employer on a monthly basis to the employee to meet certain requirement during the course of performance of work related duties. The amount of cash paid as the allowance is included in the pay package of the employee. On the other hand, perquisites do not form part of the pay package and are given in addition to the usual salary received by the employee. Perquisites may or may not be given in cash and the amount to be taxed on the perquisites depends on the value of the benefits received by the employee.
Yes, these reimbursements fall in the nature of perquisites and will be valued and taxed as per the rules prescribed in the Income Tax Act, 1961.
The perks or perquisites received by an employee are valued in monetary terms as per the computation provided in the Income Tax Act and such an amount or value is included in Income under the head ‘Salaries’. These are also included for the purpose of calculation of TDS.
