The salary earned by an individual comprises a number of components such as wage, pension, salary advances, gratuity, provident fund, leave encashment and fees, commissions and perquisites. Perquisites are monetary value of any benefit or amenity granted free of cost or at a concessional rate by an employer. While certain perquisites are taxed in the hands of the employees as part of salary income, there are some fringe benefits that are taxed in the hands of the employer. Some perquisites that are taxable in the hands of the employee as salary income are mentioned below.
An accommodation includes a house, flat, farm house, hotel, motel, service apartment, guest house, caravan, mobile home, ship or any other floating structure.
Value of perquisite in respect of residential accommodation is i) basic salary ii) dearness allowance, if it enters into the computation of superannuation or retirement benefit iii) bonus iv) commission v) all other taxable allowances and vi) any monetary payment chargeable to tax.
Perk value for employees of central and state government shall be the licence fee as per the rules framed for its officers.
For any other employer, it is —
- Rent-free accommodation: This depends upon the population of the city as per 2001 census. It is i) 15 per cent of salary where population exceeds 25 lakh ii) 10 per cent of salary where it is between 10 and 25 lakh and iii) 7.5 per cent of salary in other areas.
- Accommodation taken on lease or rent by the employer: Actual lease rental paid or payable by the employer or 15 per cent of salary, whichever is lower.
- Now, a prevalent practice is to accept a large interest-free deposit with low-lease rent and such a deposit is neither advance nor additional rent and therefore, does not attract TDS.
- Furnished accommodation: This attracts 10 per cent of the original cost of the furniture and if the furniture is hired, the actual hire charges. This shall be added every year to the perk of unfurnished accommodation. ‘Furniture’ includes televisions, radios, refrigerators, other household appliances and air conditioning plant or equipment or other similar appliances or gadgets.
- If you have been using for the last 20 years a cupboard that cost Rs 5,000, you will have paid tax on Rs 10,000 (= 500 × 20) and will continue to pay this tax every year. There is no way out of this situation. Your only consolation is that the employer will be looking after the cost of repairs and maintenance. At some stage, it would be advantageous for you to buy the asset at its written down value, if the employer is willing to sell it to you.
- Hotel accommodation: 24 per cent of the salary or the actual charges of the hotel, whichever is lower. Composite tariff for accommodation will be valued as per these rules and other charges for other facilities provided by the hotel will be separately valued. However, if the employee is provided with a hotel accommodation for less than 15 days in the aggregate on his transfer from one place to another, it is not a perquisite.
- Accommodation located in a remote area: An employee working at a site for mining, on-shore oil exploration, project execution, building dam, power generation or an off-shore site is not a perk. A project site means a site of project up to the stage of its commissioning. Remote area means an area located at least 40 kilometres away from a town having a population not exceeding 20,000 as per the latest published all-India census.
- Accommodation not located in a ‘remote area’: It should be of a temporary nature having plinth area of not more than 800 square feet and should not be located within 8 kilometres of the local limits of any municipality or cantonment board. Off-shore sites of similar nature do not have to meet this distance requirement.
- Accommodation at the new place of posting while retaining the accommodation at the other place: The perk value is the lower of the value of these two accommodations. If this arrangement continues for over 90 days, it shall be charged for both. This is surely unkind for those who are forced to stay in new quarters sheerly out of necessity and are not in a position to surrender the old place.
- A car is owned or hired by the employer and used by the employee or any member of his household exclusively for his personal purposes and the running and maintenance expenses are met or reimbursed by the employer — Perk value is the actual amount of expenditure incurred by the employer on the running and maintenance including remuneration, if any, paid by the employer to the chauffeur, as increased by the amount representing normal wear and tear of the car.
- Car is used for part personal and part official purposes and the expenses on maintenance and running are met or reimbursed by the employer — Perk value is Rs 1,800 for a small car (cubic capacity of less than 1.6 litres) and Rs 2,400 for big car. However, if the expenses on running and maintenance for such private use are fully met by the assessee, the perk values are Rs 600 and Rs 900, respectively. If a chauffeur is also provided, additional value is Rs 900 in all the cases.
- Employee owns the car but the actual running and maintenance charges, including remuneration of the chauffeur if any, are met or reimbursed by the employer and such reimbursement is for the use of the vehicle partly for official and partly for personal purposes. Perk value is the actual expenditure incurred by the employer as reduced by the amount specified in ‘B’ above.
- Employee owns an automotive conveyance but the actual running and maintenance charges are met or reimbursed by the employer for use of the vehicle partly for official and partly for personal purposes. Perk value is the actual expenditure incurred by employer as reduced by ` 900.
- More than one car owned or hired by the employer are used by the employee otherwise than wholly and exclusively in the performance of his duties. Perk value shall be the amount calculated as if the employee had been provided with one car for use partly in the performance of his duties as per ‘B’ above plus the amount calculated in respect of the other car/s exclusively for his personal purposes is as per ‘A’ above.
- The car is used wholly and exclusively in the performance of official duty or that the actual expenses on the running and maintenance of the car owned by the employee for official purposes is more than the amounts deductible in ‘B’ or ‘C’ above. Perk value is a higher amount attributable to such official use provided:
- The employer has maintained complete details of date of journey undertaken for official purpose, destination, mileage, and the expenditure incurred thereon;
- Employer certifies that the expenditure was incurred wholly and exclusively for the performance of official duties.
The normal wear and tear of a car shall be 10 per cent p.a., of its cost.
The perk value of services for sweeper, gardener, watchman or personal attendant at the residence of the employee irrespective of the extent of service rendered shall be the actual cost to the employer. If domestic servant allowance is given to the employee, it is chargeable to tax as perquisite even if the allowance is used for engaging a domestic servant.
Gas, electricity and water
The perk value of supply of these amenities, for employee’s household consumption shall be the amount paid by the employer to the supplier. Where it is made from resources owned by the employer, the value of perquisite would be its manufacturing cost per unit. This is taxable in the hands of all employees, whether specified or not, provided that the water or electric meter is in the name of the employee and expenses are reimbursed by the employer. If, however, these are in the name of the employer and the expenses are borne by the employer, perquisite is taxable only in the hands of specified employees.
This perk value for any member of his household shall be the cost to the employer, unless it exceeds Rs 1,000 per month per child.
Where the educational institution is itself maintained and owned directly or indirectly by the employer or where this facility is provided in any other educational institution, by reason of his being in employment of that employer, it shall be the cost of a similar institution in or near the locality.
It appears that the concession of Rs 1,000 is available only when the educational institution belongs to the employer; not otherwise. Moreover, the perk value is nil only when the cost does not exceed Rs 1,000.
If you receive professional or educational allowance, exemption u/s 10(14) is available for fees paid for MBA.
The perk value of free or concessional journeys provided by an employer engaged in the carriage of passengers or goods, shall be the value at which such benefit or amenity is offered by such undertaking to the public. The conveyance may be owned, leased or made available by any other arrangement by the employer. Journey tickets for leave travel, tours and transfers which are already exempt u/s 10(5) and 10(14) would continue to be exempt. Railway and airline employees are exempt from this rule.
For such employees, the exempt amount is 70 per cent of such allowance paid to them for meeting their personal expenses during the duty performed in running the transport system from one place to another in India up to a maximum of Rs 10,000 per month provided the employee is not in receipt of any daily allowance.
The authors, AN Shanbhag and Sandeep Shanbhag, are tax consultants and can be reached at email@example.com