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salary or wages. In other words, perquisites are the benefits in addition to normal salary to which the employee has a right by virtue of his employment. Definition of perquisite as per Section 17(2) of the Income-tax Act. • • • • • • • • • Section 17(2) of the Income-tax Act, 1961 gives an inclusive definition of perquisite. As per this Section perquisite includes. The value of rent-free accommodation provided to the assessee by his employer. The value of any concession in the matter of rent respecting any accommodation provided to the assessee by his employer. The value of any benefit or amenity granted or provided free of cost or at concessional rate in any of the following cases. By a company to an employee, who is a director thereof. By a company to an employee being a person who has a substantial interest in the company. By any employer to an employee whose income under the head 'Salaries' exceeds Rs.24000 excluding the value of non monetary benefits or amenities. Any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assessee. Any sum payable by the employer whether directly or through a fund, other than a recognised provident fund or EPF, to effect an assurance on the life of the assessee or to effect a contract for an annuity.
Note that benefits under sections 10(13A), 10(5), 10(14), 17 etc., continue to be exempt. It is only rule 3 has been amended. Following are details of the large-scale amendments:
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Tax Free Perquisites. Medical Facilities. Leave Travel Concession. Perquisites on account of accommodation provided by the employer. Perquisite value on account of motorcars or other vehicles provided by the employer. Perquisite value for household servants provided by the employer. Facility of holiday home for employees.
Medical facility: Any medical facility provided by the employer to the employee and his family members in a hospital, dispensary or a nursing home maintained by the employer. Medical reimbursement: Any medical expenses reimbursed by the employer for the treatment of his employee and his family members in an approved Hospital subject to maximum of Rs.10,000 per annum upto assessment year 1998-99. The limit of Rs.10,000 has been raised to Rs.15,000 per annum w.e.f. assessment year 1999-2000. Refreshments: Any refreshment provided to the employees during office hours at the place of work. Subsidised lunch or dinner provided by the employer: When lunch or dinner is provided at subsidised rates i.e. the employer charges some amount for the lunch or dinner then only it is tax-free perquisite. Recreational facilities: Any recreational facility provided to a group of employees by the employer is not taxable. These should not be resricted to only a few employees.
Tax Free Perquisites In Indian Tax System
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engaged in the business of transport. is not a taxable perquisite in the hands of employees.000/.in such a situation medical perquisites are treated as tax-free perquisites. manufacturing fans.from the assessment year 1999-2000. it is not a taxable perquisite e.000/. who are citizen of India for rendering services outside India.15. sells the fans to its employees at concessional rates. Goods sold by the employer at a concessional rate to his employees: When the employer sells the goods being manufactured by him to his employees at concessional rates. ○ .p. a Union Minister or Leader of Opposition in Parliament. Expenditure incurred by the employee on himself or his family member's medical treatment in respect of prescribed diseases in a hospital approved by the Chief Commissioner of Income Tax. Employers contribution: Employers contribution to pension. is not a taxable perquisite even if such telephone is used for official as well as personal benefit of the employee. for providing training to the employees or by way of payment of fees of refresher management courses attended by the employee. would not be taxable because these enable the employees to perform their services more efficiently. the concession given to the employees shall not be taxable. Loans to employees: If the employer gives a loan to an employee either without interest or at a concessional rate of interest for construction or purchase of a house or for a conveyance. When an employee is granted medical facilities or his family members are granted medical facilities in any hospital. then the benefit of interest availed of by the employee would not be taxable. Transportation facilities: If an employer. a company. Perquisites provided outside India: Perquisites provided by the Government to its employees. deferred annuity scheme and staff group insurance scheme of employees. the benefit given to the employee is taxable.: Rent free furnished residence (including maintenance thereof) provided to an officer of the Parliament. 10. is not a taxable perquisite. dispensary or nursing home maintained by the employer . if paid/reimbursed by the employer. are not taxable. provides transport facilities to its employees and his family members either free of cost or at concessional rate then it would not be a taxable perquisite.a. However.• • Telephone Bills: Telephone bills of the telephone installed at the residence of the employee for offiicial purposes . However in the following cases medical treatment of the employee and his family members shall be fully tax free even if the amount paid or reimbursed exceeds these specified limit of Rs. Rent free House: Rent free official residence and conveyance facilities provided to a Judge of a High Court/Supreme Court is not a taxable perquisite. For example. a certificate from the hospital specifying the disease for which medical treatment was required and the receipt for the amount paid to the hospital. In case of reimbursement by the employer of an amount actually spent by the employee for obtaining medical treatment for himself or his family members is a tax free perquisites up to a ceiling of Rs. Training of employees: Any expenditure incurred by the employer. free passes provided by the Indian Railways to its employees are not taxable in the hands of the employees.000/. Residence to officials of Parliament etc. if the employer sells other goods to the employees at a value lower than the market value of the goods. • • • • • • • • Medical Facilities For Employees In India [Provison to Section 17(2)] Expenditure on medical treatment in India • In certain cases medical facilities are treated as tax free. To avail the benefit under this Section the employees has to attach. Insurance: Any portion of the premia paid by an employer to effect or to keep in force an insurance on the health of the employee under an approved scheme. This covers reimbursement of the expense incurred by the employee for schemes approved under section 80D also.as mentioned above : • ○ Actual expenditure incurred by employee on himself or his family's medical treatment in a Government Hospital or in a hospital approved by the Government for its employees. alongwith his return of income.15.g. This ceiling has been raised to Rs.
the traveling expenses of the patient as well as the attendant shall become a taxable perquisite.• Any insurance premium for insurance of the health of the employees under a scheme approved by the Central Government. Expenses incurred on the attendant who accompanies the patient in connection with the treatment of the employee shall also be tax-free perquisite to the extent admitted by Reserve Bank of India. the first class or deluxe class fare by the shortest route. In certain situations expenditure incurred by the employer on treatment of the employee or his family members outside India is treated to be a tax free perquisite. Any reimbursement by the employer of any insurance premium paid by the employee for insurance of his health or her spouse or dependent parents or dependent children under a scheme approved by the Central Government is also a tax-free perquisite. air-conditioned first class rail fare applicable to the distance. LTC given to an employee and his family in connection with his proceeding to any place in India after retirement from service or after the termination of his service is exempt subject to conditions laid down as in the case of Central Government employees. Expenditure on medical treatment outside India • • • • Leave Travel Concession Reimbursement of expenses incurred by employee and his family for travelling while on leave are exempt up to stipulated limits. 2. if paid by the employer. in case the Leave Travel Concession is encashed by the employee without performing the actual journey the entire amount received by the employee would be taxable in the relevant previous year.00. 2. Expenses relating to traveling of the patient and one attendant who accompanies the patient shall be tax-free perquisite in the case where the gross total income of the patient does not exceed Rs. • • • Perquisites On Account Of Accommodation Provided By The Employer Value of rent free unfurnished accommodation • For calculating the perquisite for rent free accommodation the employees have been divided into three categories viz. an amount not exceeding the air economy fair of the national carrier by the shortest route to the place of destination. The factors which determine the value of rent free accommodation are the category of employees. Accordingly-• Many employers grant the facility to the employees and their families of travelling to their home town or any other place in India in a block of two or four years. Where the journy is by air.000/. and Where such system does not exist. Where a recognised public transport system exists. This perquisite on account of Leave Travel Concession if actually availed by the employee is exempt from Income Tax subject to the limits of expenses prescribed. statutory corporation) and other employees. fees and commission. income tax and professional tax of the employee. dearness allowance. If the accommodation is owned by the employer. government employees. the exemption shall not exceed i. salary of the gardener and the maintenance expenses of the swimming pool are included in the FRV. Salary for the calculating the value of the rent free accommodation includes basic salary.(Rs. taxable allowances. • • • . semi-government employees( which cover the employees of Reserve Bank of India. the location of the accommodation. the fair rental value of the accommodation and the salary of the employee. bonus. Where the origin of journy and destination or part thereof are not connected by rail. then the maintenance expenses of the garden.000/. if the gross total income exceeds Rs.00. Two Hundred Thousands). ii. In other words. Fair rental value is the rent which a similar accommodation would realise in the same locality or the municipal valuation whichever is higher [Explanation 2 to Rule 3(a)]. Expenses on medical treatment of the employee or any member of his family incurred outside India shall be tax free perquisite to the extent permitted by Reserve Bank of India. However.
Value of accommodation provided at concessional rate • Where an accommodation has been provided by the employer to his employee and the employer charges a concessional rent from him. Calcutta. Mumbai. When the car is used for private purposes the actual expenditure reimbursed by the employer is a taxable perrquisite. then it is an accommodation provided at a concessional rate and the value of the concession shall be the taxable perquisite. the reasonable proportion of the sum spent by the employer. When the car is used for private purposes only. When the car is used wholly for official purposes. Assume that the accommodation provided is a rent free accommodation (which may be furnished or unfurnished) and value the same as per the provisions discussed above. • • • • • • • When the car is owned by the employee and the maintenance and running expenses are reimbursed by the employer. The value of this perquisite shall be determined in the following manner. shall be the value of the accommodation provided at concessional rate. • • • • • Value of rent free furnished accommodation: In case the employee has been provided rent free furnished accommodation. From the value determined under step-1. normal depreciation and the salary of the driver if any and hire charges of the car are taxable as a perquisite. If the fair rent is less than 10% of the salary. When the car is used partly for official and partlly for private purposes the Assessing Officer can reasonably apportion the amount and determine the taxable perquisite. After calculating the value in this fashion. If the fair rent is 10% of salary or more but not more than 60% of salary. the value of the benefit is not a taxable perquisite. whichever is less. fair rent minus 50% of salary is taxable. actual hire charges payable are added to the value of rent free unfurnished accommodation. the value of the benefit is taxable as perquisite in the hands of the employee. The rules for valuation of motorcar or other vehicles are explained as under . The balance amount. 10% of the original cost of furniture is added if the furniture is owned by the employer or if the furniture is hired by the employer. In the case of semi-government employees in respect of properties located anywhere in India. When the car is used partly for official purposes and partly for private purposes. 10% of salary is taxable value of the perquisite. and Chennai. deduct the rent charged from the employee. if any. in respect of properties located at Delhi. When the car is owned or hired by the employer and the maintenance and running expenses are reimbursed by the employer. the value of the benefit is not a taxable perquisite. fair rent is taken as the taxable value of the perquisite. • • Perquisite Value On Account Of Motorcars Or Other Vehicles Provided By The Employer When an employee provided motor car by his employer. The value is determined on the basis of many factors namely if the car is owned by the employee or the car is owned by the employer. the value of perquisite of a rent free unfurnished accommodation is as per the rules framed by the government. When the car is used wholly for official purposes. In the case of other employees. • . If the fair rent exceeds 60% of salary. the value of perquisite is 10% of salary or Fair Rental Value of accommodation. The value of the perquisite is determined as shown in the paragraph for calculating value of rent free unfurnished accommodation. then the actual expenditure incurred by the employer on the running and maintenance .• In the case of government employees. the valuation of the perquisite is determined by presuming that the accommodation is unfurnished.
then Rs. Where an employer provides to his employees the facility of a holiday home maintained by the employer then the value of the facility is taxable perquisite. 200 per month for a car upto 16 Horse Power and enginge capacity 1. When maintenance and running expenses are met by the employee. 300/. I will go to the extent of sharing that the employee can directly engage the service of a helper and claim reimbursement from the employer without it being considered as perk. watchman or personla attendant the residence of employee irrespective of the degree of personal service rendered.73 clarified that if the employer employs a gardner for building belonging to the employer. Then Rs. But the salary of the gardner is to be taken into account in determining the fair rental value of the accommodation. paricularly at the top level.• If it is difficult to work out such proportion and if the Horse Power does not exceed 16 and the engines capacity is 1. 300 per month is the taxable perquisite. 300/. Circular 122 dated 19. If a driver is provided additional sum of Rs.watchman and domestic servant to the employee the perquisite value is determined as under:When employer pays or reimburse wages of the gardner. This principle continues to be applicable even now with the possibility of it being extrapolated to other servants.10.per month is the taxable perquisite and if the driver is provided Rs.88 litres then Rs.is the additional sum of the perquisite for the driver. 300 per month is the taxable perquiste. sweeper. A helper engaged for performance of the duties of an office or employment of profit is not considered as perk under rule 2BB. Many employees. • • • • • • Perquisite Value For Household Servants Provided By The Employer The perk value of services. If a driver is provided additional sum of Rs. it would not be treared as perk.88 litres.per month and if the driver is provided Rs.88 Litres is the taxable perquisite. the value of the perquisite is Rs.is the additional sum of the perquisite for the driver. If the car is used for private purposes then the normal running and maintenance expenses are taxable perquisites. 800/. for sweeper gardener. When the car is used for partly for official and partly for personal purposes and if it is difficult to work out the proportion. watchman and domestic servant to the employee 100% of the wages paid are taxable as a perquiste. sweeper . read with Section 10(14). In case the employee is reimbursed the expenses on account of holiday home for his stay in a hotel the valuation of the perquisite shall be the actual amount spent by the employer. carry out part of the work at their residence. 300 per month is the taxable perquisite. When the Horse Power rating exceeds 16. 600/. In a situation where an accommodation owned by an employer is provided to the employee and the services of the gardner are also provided with the accommodation his services are not a perquisite in the hands of the employee. • • • Facility Of Holiday Home For Employees • . shall be the actual cost to the employer • • • When the employer provides gardner. The value shall be the market value of the facility availed. If the Horse Power rating does exceed 16 and engine capacity exceeding 1. Servant allowance given by the employer to the employee to meet the expenses on account of the salary of the servant is fully taxable.