Taxability of Perquisites

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.

What are Perquisites?

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.

Example of Perquisites and their Taxation

Prerequisite as defined u/s 17(2) of the Income Tax Act include the following:

Rental Accommodation

The employer providing rent-free/concessional rent accommodation; Value of such benefit provided by the employer shall be treated as perquisite.

Obligation of assesse paid by the employer

Any sum paid by the employer in respect of an obligation which was actually incurred/payable by the assesse.

Benefit to a specified employee

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.

Allotment of Sweat Equity shares

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.

Contribution to an approved superannuation fund

Any contribution to an approved superannuation fund by the employer in respect of the assesse, if it exceeds Rs. one lakh;

Any other benefit

Any other fringe benefit or amenity as may be prescribed; Value of such benefit provided by the employer shall be treated as perquisite.

How to value the perquisites?

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.

Residential Unfurnished Accommodation provided by the employer

The above mentioned perquisite is divided into two parts:

For Government Employees

Value of perquisite in case of Government Employees shall be:

License fee as determined by the Government – Rent actually paid by the employee

For Non - Government Employees

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

If the employee does not have accommodation of its own, then value of perquisite shall be lower of the following:

Actual amount of rent
15% of salary.

Depending upon the population in the city, value of perquisite shall be determined.

In either case, rent paid by the employee shall be deducted from value of perquisites.

Residential Furnished Accommodation provided by the employer

Value of perquisites for furnished accommodation shall be:

Value of unfurnished accommodation as calculated above

Add: 10% p.a. of cost of furniture.

If such furniture is hired by the employer, then rental charges paid by the employer shall be added.

Rent paid by the employee shall be deducted from value of perquisite.

Hotel Accommodation provided by the employer

Value of perquisite under this benefit shall be lower of:

24% of salary
Actual charges paid.

Rent paid by the employee shall be deducted from value of perquisite.

If the employee is provided such accommodation on transfer from one place to another for a period of 15 days or less, then there shall be no perquisite.

Motor Car provided by employer

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

Supply of gas, electric energy or water

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.

Any amount paid by the employee towards such cost shall be deducted from value of perquisite.

Provision of Education facility at concessional rates:

Value of perquisite shall be taken to be nil if following conditions are satisfied:

Education institution is maintained and owned by the employer

Value of benefit per child is 1,000/- per month or less or benefit is at reasonable cost.

Benefits of Perquisites and who pays the Tax

Benefits of Perquisites

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.

Who pays the tax?

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.

Frequently Asked Questions

Which perquisites is exempt from income tax?

Some examples of perquisites exempt from tax are given below:

Providing medical facilities (Proviso to Sec. 17(2)):

Value of medical treatment in any hospital maintained by the Government, any local authority or as approved by the Chief Commissioner of Income-tax.

Also, any sum paid by the employer towards medical reimbursement other than as mentioned above is exempt up to INR 15,000.
Perquisites allowed outside India by the Government to a citizen of India in relation to rendering of services outside India (Sec. 10(7)).
Official residence (Rent free) provided to a Judge of High Court or Supreme Court or an Official of Parliament, Union Minister or Leader of Opposition in Parliament.
Interest free or loans under concessional rates are made available for medical treatment of specified diseases in the prescribed rule or where the loan does not exceed in the aggregate INR.20,000.
Expenses on telephones including a mobile phone incurred on behalf of the employee by the employer.

At what rate shall perquisites be taxable?

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.

Which form is applicable for perquisites?

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.

Whether perquisites are liable for TDS?

Yes, perquisites are liable for TDS.

What is capital gain tax in India on sale of a property?

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.

If my employer reimburses all the expenses on grocery and children’s education, will it be considered as part of my income?

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.

How are perquisites taxed?

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.