Tax on perquisites – How is benefits from your employment taxed?

 

In this article we are going to discuss everything about perquisites. What is meant by perquisite? What is its taxability? We will be discussing all these aspects in a step by step manner.

First of all let us understand the meaning of perquisite. Perquisites, also known as perks, are the benefits that are provided to an employee in addition to salary by the employer. But, watch out! These perquisites may be taxable in your hands as part of salary. Let us look at the common perquisites and their taxability.

Rent free accommodation

When rent free accommodation is received by your from your employer the taxation depends on whether accommodation is owned by employer or has been taken on rent.

1. Accommodation owned by employer

 

Population of city Value of perquisite
Exceeds 25 lakhs 15% of salary
10 lakhs to 25 lakhs 10% of salary
Less than 10 lakhs 7.5% of salary

 

2. Accommodation rented by employer: Lease amount paid Or 15% of salary, whichever is lower; 

3. Hotel accommodation: Actual amount paid Or 24% of salary, whichever is lower (permitted only upto 15 days)

Any amount that is paid by the employer to the employee would be reduced from the above mentioned amounts to reach at the value of perquisite.

When your employer provides you furnished accommodation, then the value will be increased by 10% of cost of furniture, or the hire charges in case furniture is hired. If you have paid any amount towards furniture, that will be reduced from the value.

Motor car

Let us understand the valuation of perquisite due to car provided to you by your employer, under different situations:

1. If car is owned by your employer and you have been given the car for use

 

Situation Engine capacity <1.6 litre Engine capacity >1.6 litre
Car used by employee for office purpose only No value No value
Car used by employee for personal purpose and running expenses are met by employer or reimbursed Actual expense incurred including amount paid to driver less amount recovered from employee. Actual expense incurred including amount paid to driver less amount recovered from employee.
Car used by employee for personal as well as official use
Running expenses met or reimbursed by employer ₹ 1,800 p.m. (plus ₹ 900 p.m. in case driver is provided) ₹ 2,400 p.m. (plus ₹ 900 p.m. in case driver is provided)
Running expenses met or reimbursed by employee ₹ 600 p.m. (plus ₹ 900 p.m. in case driver is provided) ₹,900 p.m. (plus ₹ 900 p.m. in case driver is provided)

 

2. Car owned by employee and running expenses are met or reimbursed by employer:

 

Situation Engine capacity < 1.6 Litre Engine Capacity > 1.6 Litre
Car used by employee for office purpose only No value No value
Car used by employee for personal as well as official use Actual expense – amount recovered from employee Actual expense – amount recovered from employee

 

Services and facilities

Interest free or concessional loans

It is a common practice by organizations to provide loans at concessional rates or to provide interest free loans to their employees. In such a case the value of perquisite shall be the difference in rates at which loan which is provided and the prescribed rate (It is the rate charged by State Bank of India on the first day of relevant previous year on the maximum monthly outstanding balance).

However, loans up to ₹ 25,000/- or loans provided for medical treatment of specified diseases will not be considered.

Travel expenses 

If the expenses of travel, tour and accommodation of your holidays are borne by your employer, then the value of perquisite shall be the actual amount incurred by employer.

Use of asset

If any movable asset (other than laptop or computer) is provided to you by your employer for use by you or your family, the value of perquisite shall be 10% of per annum of cost of the asset ( rent charges in case it is leased) less any amount that is recovered from you.

Transfer of asset

If any movable asset belonging to employer is transferred to you, the value shall be the actual cost of the asset as reduced by 10% for of such cost for each completed year of use by the employer as further reduced by any amount which is recovered from you. (The rate shall be 50% in case of computers and electronics and 20% in case of motor cars)

Gift from employer

Received gift from employer? In such a case it shall amount to perquisite and the value shall be the amount of the gift. 

Medical treatment

When any expense is incurred or any amount is reimbursed for medical treatment of employee of his family member in excess of ₹ 15,000/-, the amount in excess of ₹ 15,000/- shall be treated as perquisite. In case the medical expense relates to specified diseases, no perquisite shall arise.

Securities or sweat equity shares

If any securities or sweat equity shares have been allotted to the employee by the employer, then the value of perquisite shall be the value of such security or share being average of opening and closing price of the share on the recognized stock exchange.

 

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