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Perquisites covered under Income Tax Act

Perquisites covered under Income Tax Act – Circular 17/2014 dated 10.12.2014

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Perquisites includes:

I.         The value of rent free accommodation provided to the employee by his employer;

II.        The value of any concession in the matter of rent in respect of any accommodation provided to the employee by his employer;

III.      The value of any benefit or amenity granted or provided free of cost or at concessional rate in any of the following cases:

i)        By a company to an employee who is a director of such company;

ii)      By  a  company  to  an  employee  who  has  a  substantial  interest  in  the company;

iii)       By an employer (including a company)to an employee, who is not covered by (i) or (ii) above and whose income under the head ―Salaries (whether due from or paid or allowed by one or more employers), exclusive of the value of all benefits and amenities not provided by way of monetary payment, exceeds Rs.50,000/-.

[What constitutes concession in the matter of rent have been prescribed in Explanations 1 to 4 below  section 17(2)(ii) of the Act]

IV.      Any sum paid by the employer in respect of any obligation which would otherwise have been payable by the assessee.

V.        Any sum payable by the employer, whether directly or through a fund, other than a recognized provident fund or an approved superannuation fund or other specified funds u/s 17, to effect an assurance on the life of an assessee or to effect a contract for an annuity.

VI.  The value of any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the employer, or former employer, free of cost or at concessional rate to the employee and for this purpose,

(a)       ―specified security means the securities as defined in section 2(h)  of the Securities Contracts (Regulation) Act, 1956 and, where employees‘ stock option has been granted under any plan or scheme therefor, includes the securities offered under such plan or scheme;

(b)       ―sweat equity shares  means equity shares issued by a company to its employees or directors at a discount or for consideration other than cash for providing  know-how  or  making  available  rights  in  the  nature  of  intellectual property rights or value additions, by whatever name called;

(c)       the value of any specified security or sweat equity shares shall be the fair market value of the specified security or sweat equity shares, as the case may be, on the date on which the option is exercised by the assessee as reduced by the amount actually paid by, or recovered from the assessee in respect of such security or shares;

(d)       ―fair market value means the value determined in accordance with the method as may be prescribed (refer Rule 3(9) of the IT Rules);

(e)       ―option  means a right but not an obligation granted to an employee to apply for the specified security or sweat equity shares at a predetermined price;

VII.       The amount of any contribution to an approved superannuation fund by the employer in respect of the assessee, to the extent it exceeds one lakh rupees; and

VIII      The value of any other fringe benefit or amenity as prescribed in Rule 3.

5.2.2A Rules for valuation of such benefit or amenity as given in Rule 3  are as under :  –

I.   Residential Accommodation provided by the employer [Rule 3(1)]:-

“Accommodation” includes a house, flat, farm house or part thereof, hotel accommodation, motel, service apartment, guest house, a caravan,  mobile  home, ship or other floating structure.

A. For valuation of  the perquisite of rent free unfurnished  accommodation, all employees are divided into two categories:

(i) For  employees of the Central and State governments the value  of  perquisite  shall be equal to  the  licence fee charged for such accommodation as reduced by the rent actually paid by the employee. Employees of autonomous, semi-autonomous institutions, PSUs/PSEs & subsidiaries, Universities, etc. are not covered under this method valuation.

(ii) For  all others, i.e., those salaried taxpayers not in employment of  the  Central   government and  the  State government, the  valuation  of perquisite  in  respect  of accommodation  would  be at prescribed rates, as discussed below:

a) Where the accommodation provided to the employee is owned by the employer:

Cities having population as  per the 2001 census Perquisite

Exceeds 25 lakh

15% of salary
Exceeds 10 lakhs but does not exceed 25 lakhs 10% of salary

For other places

7.5 % of salary

b) Where the accommodation so provided is taken on lease/ rent by the employer:

The prescribed rate is 15% of the salary or the actual amount of lease rental payable by the employer, whichever is lower, as reduced by any amount of rent paid by the employee. Meaning of ‗Salary ‗for the purpose of calculation of perquisite in respect of Residential Accommodation:

a. Basic Salary;

b. Dearness Allowance, or Dearness Pay if it enters into the computation of superannuation or retirement benefit of the employees;

c. Bonus;

d. Commission;

f. All other taxable allowances (excluding the portion not taxable); and

g. Any monetary payment which is chargeable to tax (by whatever name called).

Salary from all employers shall be taken into consideration in respect of the period during which an accommodation is provided. Where on account of the transfer of an employee from one place to another, he is provided with accommodation at the new place of posting while retaining the accommodation at the other place, the value of perquisite shall be determined with reference to only one such accommodation which has the lower value for a period not exceeding 90 days and thereafter the value of perquisite shall be charged for both such accommodation.

B     Valuation of the perquisite of furnished accommodation- the value of perquisite as determined by the above method (in A) shall be increased by-

i)   10% of the cost of furniture, appliances and equipments, or

ii)     where the furniture, appliances and equipments have been taken  on hire, by the amount of actual hire charges payable and the value so arrived shall be reduced by any charges paid by the employee himself.

It is added that where the accommodation is provided by the Central Government or any State Government to an employee who is serving on deputation with anybody or undertaking under the control of such Government,-

(i).        the employer of such an employee shall be deemed to be that body or undertaking where the employee is serving on deputation; and

(ii).        the value of perquisite of such an accommodation shall be the amount calculated in accordance with Table in A(ii)(a) above, as if the accommodation is owned by the employer.

C.        Furnished Accommodation in a Hotel:

The value of perquisite shall be determined on the basis of lower of the  following two:

1.    24%  of  salary  paid  or  payable  in  respect  of  period  during  which  the accommodation is provided; or

2.  Actual charges paid or payable by the employer to such hotel,

for the period during which such accommodation is provided as reduced by any rent actually paid or payable by the employee.

However, nothing in C shall be taxable if following two conditions are satisfied:

1.  The  hotel  accommodation  is  provided  for  a  total  period  not  exceeding  in aggregate 15 days in a previous year, and

2.  Such accommodation is provided on an employee‘s transfer from one  place to another place.

It may be clarified  that  while services provided as an integral part of the accommodation, need not be valued separately as perquisite, any  other services over and above  that  for which the employer makes payment or reimburses the employee  shall be valued as a perquisite as per the residual clause. In other words, composite tariff for accommodation will be valued   as per the Rules and any other charges for  other facilities provided by the hotel will be separately valued under  the residual clause.

D.        However, the value  of any accommodation  provided to   an employee  working   at   a mining site or  an on-shore  oil  exploration  site  or  a  project   execution  site or a dam site or a power generation site  or  an off-shore site will  not be treated  as a perquisite if:

i)   such accommodation is located in a ―remote area or

ii)  where it is not located in a ―remote area, the accommodation is of a temporary nature having plinth area of not more than 800 square feet and should not be located within 8 kilometers of the local limits of any municipality or cantonment board.

A project execution site here means a site of project up to the stage of its commissioning. A “remote area” means an area located at least 40 kilometers away from a town having a population not exceeding 20,000 as per the latest published all-India census.

II Perquisite on Motor car provided by the Employer [ Rule 3(2)]:

(1)       If an employer provides motor car facility to his employee the value of such perquisite shall be:

a) Nil, if the motor car is used by the employee wholly and exclusively in the performance of his official duties.

b) Actual expenditure incurred by the employer on the running and maintenance of motor car including remuneration to chauffeur as increased by the amount representing normal wear and tear of the motor car and as reduced by any amount charged from the employee for such use (in case the motor car is exclusively for private or personal purposes of the employee or any member of his household).

c) Rs. 1800/- (plus Rs. 900/-, if chauffeur is also provided) per month (in case the motor car is used  partly  in  performance  of  duties  and  partly  for  private  or  personal  purposes  of  the employee or any member of his household if the expenses on maintenance and running of motor car are met or reimbursed by the employer). However, the value of perquisite will be Rs. 2400/-(plus Rs. 900/-, if chauffeur is also provided) per month if the cubic capacity of engine of the motor car exceeds 1.6 litres.

d) Rs. 600/- (plus Rs. 900/-, if chauffeur is also provided) per month (In case the motor car is used partly in performance of duties and partly for private or personal purposes of the employee or any member of his household if the expenses on maintenance and running of motor car for such private or personal use are fully met by the employee). However, the value of perquisite will be Rs. 900/- (plus Rs. 900/-, if chauffeur is also provided) per month if the cubic capacity of engine of the motor car exceeds 1.6 litres.

(2)       If the motor car or any other automotive conveyance is owned by the employee but the actual running and maintenance charges are met or reimbursed by the employer, the method of valuation of perquisite value is different and as below:

a) where the motor car or any other automotive conveyance is owned by the employee but actual maintenance & running expenses (including chauffeur salary, if any) are met or reimbursed by the employer, no perquisite shall be chargeable to tax if the car is used wholly and exclusively for official purposes. However following compliances are necessary:

The employer has maintained complete details of the journey undertaken for official purposes;

The employer gives a certificate that the expenditure was incurred wholly for official duties.

However if the motor car is used partly for official or partly for private purposes then the amount of perquisite shall be the actual expenditure incurred by the employer as reduced by the amounts in c) referred to in (1) above.

Normal wear and tear of the motor shall be taken at 10 % per annum of the actual cost of the motor car.

III  Personal  attendants etc. [Rule 3(3)]:  The  value of free service of all personal  attendants including  a  sweeper, gardener and a watchman is to be  taken at   actual  cost  to  the  employer. Where  the  attendant  is   provided  at the residence of the employee, full cost will be  taxed   as perquisite   in   the    hands   of    the    employee irrespective   of the degree of personal service rendered   to him.   Any amount paid by the employee for such facilities or services shall be reduced from the above amount.

IV Gas, electricity & water for household consumption [Rule 3(4)]:The value of perquisite in the nature of gas, electricity and water shall be the amount paid by the employer to the agency supplying the gas, electric energy or water. Where the supply is made from the employer’s own resources, the manufacturing cost per unit incurred by the employer would   be taken for the valuation of perquisite. Any amount paid by the employee for such facilities or services shall be reduced from the perquisite value.

V Free or concessional education [Rule 3(5)]:   Perquisite on account of free or concessional education for any member of the employee‘s household shall be determined as the sum equal to the amount of   expenditure incurred by the employer in that behalf.   However, where such educational   institution itself is maintained and owned by the employer or where such free educational facilities are provided in any institution by  reason of his being in employment of that employer, the value of the perquisite to the employee shall be determined with reference to the cost of such education in a similar institution in or near the locality if the cost of such education or such benefit per child exceeds Rs.1000/- p.m.  The value of perquisite shall be reduced by the amount, if any, paid or recovered from the employee.

VI Carriage of Passenger  Goods [Rule 3(6)]:  The value of any benefit or amenity resulting from the provision by an employer, who is engaged in the carriage of passengers or goods, to any employee or to any member of his household for personal or private journey free of cost or at concessional fare, in any conveyance owned, leased or made available by any other arrangement by such employer for the purpose of transport of passengers or goods shall be taken to be the value at which such benefit or amenity is offered by such employer to the public as reduced by the amount, if any, paid by or recovered from the employee for such benefit or amenity. This will not apply to the employees of any airline or the railways.

VII  Interest  free or concessional loans [Rule 3(7)(i)]: It  is  common practice, particularly in financial institutions, to  provide interest free or concessional loans to employees or any member of his household.  The value of  perquisite arising from such loans would be the excess of interest payable at  prescribed  interest rate over interest, if any, actually  paid  by  the employee or any member of his household.  The prescribed interest rate would  be the rate charged per annum by the State Bank of India as on the 1st day of the relevant financial year in respect of loans of same type and for the same purpose advanced by it to the general public. Perquisite value would   be calculated on the basis of the maximum outstanding   monthly balance method. For valuing perquisites under this rule, any other method of calculation and adjustment otherwise adopted by the employer shall  not be relevant. However, small loans up to Rs. 20,000/- in the aggregate are exempt.

Loans for medical treatment of diseases specified in Rule 3A are also exempt, provided the amount of loan for medical reimbursement is not reimbursed under any medical insurance scheme. Where any medical insurance reimbursement is received, the perquisite value at the prescribed rate shall be charged from the date of reimbursement on the amount reimbursed, but not repaid against the outstanding loan taken specifically for this purpose.

Click here to download Circular No: 17 / 2014 dated 10.12.2014 issued by Income Tax Department

Check the links below for more Details on Income Tax Circular No. 17/2014 dated 10.12.2014

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