Saturday, May 17, 2014

Income Under the Head Salaries: Taxability of Perquisites

Perquisites (Sec. 17[2]):
The term perquisite is defined to signify some benefit in addition to the amount that may be legally due by way of contract of services rendered. 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 being 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 actually 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:
Ø  Rent fee accommodation or House at concessional rate.
Ø  Obligation of employee met by employer e.g. professional Tax and Income Tax paid by employer.
Ø  Amount payable by an employer to effort an assurance on the life of the assessee or to affect a contract for an annuity.
Ø  Domestic servants engaged by employee and salary paid by employer.
Ø  Gas water and electricity bills in the name of employee paid by the employer.
Ø  Interest free loan or loan at concessional rate.
Ø  Transfer of employers movable assets to the employees.
Ø  Use of employer’s movable assets other than lap top and computer.
Ø  Car or other conveyance owned by employee used for private purpose and expenses are met by employer.
Ø  Lunch or dinner provided by the employers in office hours is taxable.
Ø  Gift or gift voucher exceeding Rs. 5000  is taxable.

2. Perquisites which are fully exempted:
Ø  Medical facility in employer’s hospital, clinic, dispensary (or) nursing home to the members of employee’s family (spouse, children, dependent parents, dependent brother and sister).
Ø  Medical facility in a government hospital paid or reimbursed by the employer.
Ø  Any medical expenses paid (or) reimbursed by the employer to the employee for treatment in a hospital for notified diseases.
Ø  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.
Ø  Refreshment provided by employee to all during office hours.
Ø  Recreation facilities provided by employer to employees.
Ø  Amount spent on training of employees. Cost of refresher course attended by employee, met by employer including expenditure of higher education or training India or abroad.
Ø  Goods manufactured and sold by employer to his employees at concessional rates.
Ø  Free telephones including mobile phone provided by the employer for personal or official purpose or official purpose etc.
Ø  Free education facility provided to the children of employee in an institution owned/maintained by employer provided fair value of education does not exceed Rs 1000.
Ø  Interest-fee/concessional loan of an amount not exceeding or loan taken for medical treatment of member of the family of employee.
Ø  Computer/laptop given to an employee for official/personal use.
Ø  Transfer of movable assents (other than computer, car or electronic items) to 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.
Ø  Domestic servants provided by employer.
Ø  Gas, electricity or water for household purpose provided by employer.
Ø  Education facility provided employer.
Ø  Leave travel concession
Ø  Car or any other automotive conveyance.
Ø  Transport facility by a transport under taking.

Explanation of Some Specific Perqusites
A. Rent free furnished/unfurnished accommodation or House at concessional rent
a. For govt. employee: License fees fixed by government + 10% of cost of furniture or hire charges – amount recovered from 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 cost or hire charges
Add 10% of cost or hire charges
If concessional house
Deduct amount recovered from employee
Deduct amount recovered from 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, salary of domestic servant, Life insurance premium = actual expenses met by employer

C. Annual contribution to approved superannuation fund = in excess of Rs. 100000

D. Interest free loan or loan at concessional rate = Interest charged by SBI on similar loan – amount recovered from employee. But it is exempted if loan amount is upto Rs. 20000 and if taken for medical treatment.
E. Gift vouchers upto Rs. 5000 is exempted

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

G.  Use of assets movable assets except computer or laptops= 10% of 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

Engine CC is upto  1.6 ltrs
Engine CC is above 1.6 ltrs
Car owned or hired by employer and expenses are met or reimburse 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 reimburse by employer:
Nil

Actual expenses + salary of driver+10% of cost of car – amount recovered from employee
1800 p.m + 900 p. m. (salary to driver)
Car owned or hired by employer and expenses are met or reimburse by employer:
Nil

Actual expenses + salary of driver+10% of cost of car – amount recovered from employee
2400 p.m + 900 p. m. (salary to driver)
Car is owned by employee but its running and maintenance expenses are met or reimbursed by employer:
a. Used for Official Purpose

b. Used for both pvt. And official purpose

Car is owned by employee but its running and maintenance expenses are met or reimbursed by employer
No value to be taxed

1800 p.m + 900 p. m. (salary to driver)
Car is owned by employee but its running and maintenance expenses are met or reimbursed by employer
No Value to be taxed

2400 p.m + 900 p. m. (salary to 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

Where any other vehicle owned by the employee but expenses met or reimbursed by the employer:
No value to be taxed

Actual expenditure – 900.

Where any other vehicle owned by the employee but expenses met or reimbursed by the employer:
No value to be taxed

Actual expenditure – 900 p.m.
Free use of car between office and residence
No perquisite
No perquisite
Conveyance facility to high court and supreme court judges
Exempted
Exempted
More than one car provided by employer
One car @ Rs. 1800 p.m. + 900 p.m. and other car as deemed to be used for personal purpose and valued as mentioned above
One car @ Rs. 1800 p.m. + 900 p.m. and other car 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 own children: if fair cost of education is less than Rs. 1000 then value of perk is to be taken as nil and if fair cost of education is more than Rs. 1000 p.m.  then 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 employers hospital (b) Reimbursement of treatment in private or unrecognised clinic up to Rs.15000 (c) Treatment in government hospital (d) 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 upto amount allowed by RBI. Expenses of travelling with one attendant fully exempted if gross total income excluding such travelling expenses does not exceeds Rs. 200000

L. Refreshments: Free meals provided during office hours in business premises is exempt up to Rs.50 per meal Computer, laptops, landline given for official purpose

M. Transfer of movable assets which are more than 10 years old without any consideration is fully exempted.

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