Valuation of prerequisites

Part 2
 VALUATION OF PERQUISITES IN RESPECT OF FREE EDUCATION
[RULE 3(5)]

Facility provided to employee Not taxable

Facility provided to family member
Facility provided in an institution owned Child of the assessee: Cost of such
by the education in similar
employer institution subject to an exemption of `
Facility provided in any institution (not 1,000 p.m. per child
owned shall be taxable1
by the employer) by reason of his being in Other family member: Cost of such
employment. education in similar
institution shall be taxable.
Reimbursement of education expenditure Actual reimbursement shall be taxable.
to Such reimbursement
employee. of tuition fee shall also be taxable in the
hands of Central
Government employee. (Circular letter No
35/7/65–IT(B) dt
12/2/1965)
 Who is chargeable
Case Taxability in the hands of
In case of reimbursement; or All employee
School fee of family member of the
employee paid by the employer directly
to school
In any other case Specified employee
 VALUATION OF PERQUISITES IN RESPECT OF FREE
TRANSPORT [RULE 3(6)]

Case Taxability in the hands of

If employer is engaged in transportation Amount charged from public for such
business. facility is taxable in the
hands of specified employee.
In any other case Actual cost of employer for such facility is
taxable in the hands
of all employees.
 VALUATION OF PERQUISITES IN RESPECT OF
INTEREST FREE LOAN OR CONCESSIONAL RATE
OF INTEREST [RULE 3(7)(i)
• Perquisite in respect of interest free loan or loan at
concessional rate of interest to the employee or any
member
• of his household by the employer or any person on his
behalf, is not taxable if aggregate amount of loan given by
• the employer (or any other person on his behalf) does not
exceed ` 20,000. The taxable value of such perquisite
• shall be determined as per the rate as on the 1st day of the
relevant previous year charged by the State Bank of
• India in respect of loans for the same purpose advanced by
it.
a.Maximum outstanding monthly balance: Interest is
calculated on the maximum outstanding monthly
balance. Maximum outstanding monthly balance means
the aggregate outstanding balance for each loan
as on the last day of each month.
b. Loan for medical treatment: Nothing is taxable if loan is
given for medical treatment of the employee or
• any member of his household in respect of diseases
specified in rule 3A. However, such exempted loan willnot
include the amount that has been reimbursed by an
insurance company under any medical insurance
scheme.
c) Concessional interest: Any interest paid by the employee
to the employer for such loan shall be reduced
from the above computed value. If rate of interest charged
by the employer is higher than the above rate,nothing is
taxable as perquisite.
d) Amount on which interest shall be calculated: If loan
amount is more than ` 20000, interest shall be levied on
total loan amount, rather than the excess amount.
e) Treatment of outstanding loan taken earlier: Interest on
loan, taken before insertion of this provision, shall also
be treated as taxable perquisite.
 CLUB EXPENDITURE [RULE 3(7)
(vi)]
Where such expenses are incurred wholly Nil
and
exclusively for office purpose and
specified conditions#
are satisfied.
Where health club, sports and similar Nil
facilities are
provided uniformly to all employees by
the employer
Where the employer has obtained Amount incurred by employer for such
corporate facility shall
membership of the club and the facility is be taxable perquisite in the hands of all
enjoyed by employees.
the employee or any member of his However, initial fees paid for obtaining
household corporate
membership shall not be a taxable
perquisite.
Any payment or reimbursement by the If directly paid by the employer
employer of Any amount incurred by the employer as
any expenditure incurred (including the reduced by
 VALUATION OF PERQUISITES IN RESPECT OF USE OF MOVABLE
ASSETS [RULE 3(7)(vii)]

• If employee (or any member of his household)

uses any movable asset (other than the assets
for which provisions
• have been made) belonging to employer, then
such facility is taxable in the hands of all
employees. The value of
• such benefit is determined as per the
following table:
If the asset is owned by the employer 10% of the original cost of such asset.
If the asset is hired by the employer Charges paid or payable by the employer
 TAX ON EMPLOYMENT OR PROFESSIONAL TAX [SEC. 16(iii)]

• Tax on employment, profession, trade, etc.

levied by a State under Article 276 of the
Constitution will be allowed as
• deduction on cash basis, whether paid by
employee or by employer (on behalf of
employee) from gross taxable
• salary.
• Note:
• If employer (on behalf of employee) pays
Professional tax then:
• a. Firstly, it is to be included as taxable
perquisite; and
• b. Further, it is allowed as deduction u/s
16(iii).
• Illustration
• Illustration 35.
• Mr. Rohit a non-Government employee has the following
salary details:
• a. Basic Salary ` 5,000 p.m. b. D.A. ` 2,000 p.m.
• c. Entertainment Allowance ` 300 p.m.
• d. Professional tax paid by employee ` 600
• e. LIC Premium paid by employer ` 3,600
• f. Income tax paid by employee ` 2,000
• g. Professional tax paid by employer on behalf of
employee ` 1,600
A. Conversion of Net Salary into Gross Salary

• Sometimes net basic salary is given after

deduction of TDS, Loan repayment, PF
deduction etc that needs to be
• grossed up as under:
• Net Salary = Gross Salary – Employee’s
contribution to provident fund – TDS – loan
repayment by employee – other
• deduction from salary (if any).