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Perquisites
of Tax
A perk
is an additional benefit provided by an employer, in cash or in kind,
apart from regular salary and allowances. It may be in cash or in kind and
results in a personal benefit to the employee.Valuation of rent-free unfurnished accommodation. For the purpose
of valuation of rent-free unfurnished accommodation, the employees have
been grouped as follows:
Union or State Government employees
Semi Government employees
Employees in private sector
Union or State
Government employees or Government employees on delegation to a
public sector undertaking or a Government body.Valuation is taken
at the rent that would have been payable by the employee in accordance
with the rules framed by the Government for allotment of houses to its
officers.
Employees in private sector
If
accommodation is provided in cities other than Delhi, Mumbai, Calcutta and
Chennai:
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Fair
Rent
Fair Rent is the municipal valuation of the accommodation, or rent
which a similar accommodation would realize in the same locality,
whichever is higher. However, it cannot exceed the standard rent,
if any, fixed or determine under a Rent Control Act. If the
employer hires the accommodation, Fair Rent Value is the actual
rent paid for the accommodation.
Salary
For the purpose of valuation of perks in respect of rent-free
accommodation, salary includes the following:
Basic Salary;
Dearness Allowance/ pay if the terms of employment so provide;
Bonus;
Commission;
Fees;
All other taxable allowances (however, allowances to the extent
they are exempt need not be included);
Income and professional taxes paid by the employer on behalf of
his employee; and
Electricity, gas , water supply expenses paid or reimbursed by an
employer to his employees.
However, salary does not include the following;
Dearness allowance/ pay if it is not taken into account while
calculating retirement benefits like provident fund, gratuity,
etc. or if it does not form part of salary according to the terms
of the employment;
Employer’s Contribution to provident fund account of an
employee;
Entertainment allowances to the extent deductible from salary; and
Value of perquisites .
Valuation of rent-free furnished
accommodation:
Calculate the perquisite value of unfurnished accommodation as per
the applicable category.Add either of the following to value of the unfurnished
accommodation so arrived at,10% of the original cost of furnishings, if the furnishings are
owned by the employer, or the actual hire charges if the furnishings are taken on hire.
Value of accommodation provided at a
concessional rent:
1)Calculate the perquisite value of unfurnished or furnished
accommodation as per the applicable category
2)Deduct the rent actually paid from the perquisite value so
determined to arrive at the taxable perquisite value.
Valuation of motor car provided for
personal use by the employer
1)In case the employee owns the and the employer pays the
maintenance and running expenses.
2)In case the
car is provided by the employer and
3)Maintenance
and running expenses are paid by employer.
4)Maintenance
and running expenses are met by employee.
Valuation of the perk in case the
employee owns the car
1)If car is used for official purpose - it is not taxable .
2)If car is
used for both official and private purpose a reasonable
proportion of the sum actually spent by the employer is taxable.
3)If
used wholly for private purpose the entire amount spent by the
employer is taxable .
Maintenance and running expenses are
met by the employer
1)If the car is used entirely for personal purposes, the value of
the perk is the sum of :
a) Remuneration paid to
the chauffeur, if any; and
b) Normal wear and tear
of the car if it is owned by the employer.
2)If
the car is taken on hire, the hire charges attributable to the use
of the car for personal purposes is taxable.
However, if the car is used for both personal and official
purposes, then the above expenses are taxable on a proportionate
basis as per the usage of car.
Maintenance and running expenses are
met by employee
1) If the car is used entirely for personal purposes, the value of
the perk is the sum of :
Remuneration paid to the chauffeur, if any; and
Normal wear
and tear of the car if it is owned by the employer.
2) If the car
is taken on hire, the hire charges attributable to the use of the
car for personal purposes is taxable.
Valuations
of other conveyance like two wheelers
1) If the employee uses a two wheeler provided by the employer
partly for official purposes, and partly for personal purposes, a
reasonable proportion of amount spent by the employer on running,
maintenance and the normal wear and tear is treated as a perk and
is chargeable to tax in the hands of the employee.
2) If the two wheeler is wholly used for personal purposes then the
entire amount actually spent on the expenses mentioned above and
the normal wear and tear is taxable as perk.
Valuation of free supplies of gas,
electricity and water for household consumption
1) If the supply is made from resources owned by the employer, the
perk value will be nil.
2) If
gas, electricity and water are purchased from third parties, the
expenditure incurred by the employer in procuring these is taxable
as perk. In case, the supplies are consumed partly for official
purposes and partly for personal purposes, the value of the perk
will be restricted to the amount actually spent by the employer or
6.25% of the employee’s salary whichever is less. For this
purpose "salary" includes dearness allowance, if the
terms of employment so provide, and includes commission based on a
fixed percentage of turnover achieved by an employee but excludes
all other allowances and perquisites.
3)If gas, electricity or water supply connection is taken in the
name of employee and bills are paid or reimbursed by the employer
perquisite is taxable in the hands of all employees.
Free educational facilities provided
by the employer
The actual expense incurred or reimbursed by the employer for
providing educational facilities to the family of the employee is
added to the employee’s salary. However, if the educational
institution is maintained by the employer, the value of perk is
determined with reference to cost of education in a similar
institution in or near the locality, and in such cases, is taxable
in the hands of specified employees only.
Leave Travel Concession
[section10(5)]
LTC is a perk received by an employee for a journey undertaken in
India. LTC is taxable to the extent it is not exempt from tax. The
exemptions are available as follows :
A taxpayer can claim exemption in respect of two journeys in a
block of 4 calendar years. The current block of 4 years is January
1, 1998 to December 31, 2001. If the employee has not availed of
the travel concession on one of the two permitted occasions (or on
both occasions) in a block of 4 years, the journey performed in
the first year following that block is also eligible for exemption
and such journey will not be taken into account for determining
the tax exempt journeys for that following block.
However, the employee will be taxed on the amount of leave travel
concession encashed by him without actually undertaking a travel.
The amount of LTC given to an employee for journeys (to any place
in India) with family, while in service or after retirement, is
exempt from tax to the extent of amount actually spent, subject to
the limits as prescribed:
In case of air travel :
an amount not exceeding the air economy fare of the National
Carrier by the shortest route to the destination; Where place of origin of journey and destination are not connected
by air but connected by rail or by any other mode of transport, an
amount not exceeding the first class AC rail fare by the shortest
route; and Where the
place of origin of journey and destination or a part of it is not
connected by rail, the amount eligible for exemption an amount not
exceeding the first class or deluxe class fare by the shortest
route, on a recognized public transport system, if such a system
exists ; and
an amount equivalent to the first class AC rail fare, for a
journey by the shortest route in case a recognised public
transport system is not present.An individual can claim the exemption in respect of only two of
his children born on or after October 1, 1998. Children born out
of multiple birth (e.g. twins) after the first child born after
October 1, 1998, will be treated as one child.
Perks under the Income Tax
Act includes
Rent free or concessional accommodation provided by the employer Any amenity granted or provided free of cost or at
concessional
rate to an employee:
who is a director;
has a substantial interest in the company;
does not fall in the above categories but whose salary income
excluding all non-monetary benefits or amenities exceeds Rs.
24,000 per annum; Any specified security allotted or transferred, directly or
indirectly, by any person free of cost or at concessional rate to
an employee;
Any sum paid by the employer in respect of any obligation that
would otherwise have been paid by the employee; Amount payable by the employer, whether directly or through a fund
other than a recognized provident fund or approved superannuation
fund or a deposit-linked insurance fund, to effect an assurance on
the life of the employee or to effect a contract for an annuity.
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