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39. Perquisites

Taxability of Perquisites

Perquisite is defined as any casual emolument or benefit attached to an office or position in addition to salary or wages. “Perquisite” includes:

       Value of rent-free/concessional rent free accommodation provided by the employer.

       Any sum paid by the employer in respect of an obligation which was actually payable by the assessee.

       Value of any benefit/amenity granted free or at concessional rate to specified employees etc.

Valuation of Perquisites

As a general rule, the taxable value of perquisites in the hands of the employees is its cost to the employer. However, specific rules for valuation of certain perquisites have been laid down in Rule 3 of the I.T. Rules which are briefly given below:

       Residential Accomodation

       Hotel Accmodation

       Services of Sweeper, Gardner, Watchman or Presonal Attendant

       Supply of Gas, Electric Power or Water

       Free/Concessional Educational Facility

       Interest Free or Concessional Loan Facility

       Transfer of Movable Assets

       Perquisites exempt from Tax

Valuation of residential accommodation provided by the employer

Union or State Government Employees - The value of perquisite is the license fee as determined by the Govt. as reduced by the rent actually paid by the employee.

Non Government Employees - The value of perquisite is an amount equal to

(i) fifteen per cent of salary in cities having population exceeding twenty-five lakhs as per 2001 census;

(ii) ten per cent of salary in cities having population exceeding ten lakhs but not exceeding twenty-five lakhs as per 2001 census; and

(iii) seven and one-half per cent of salary in any other place.

In case the accommodation provided is not owned by the employer, but is taken on lease or rent, then the value of the perquisite would be the actual amount of lease rent paid/payable by the employer or 15% of the salary, whichever is lower.

In both of above cases, the value of the perquisite would be reduced by the rent, if any, actually paid by the employee.
Value of Furnished Accommodation: The value would be the value of unfurnished accommodation as computed above, increased by 10% per annum of the cost of furniture(including TV/radio/refrigerator/AC/other gadgets). In case such furniture is hired from a third party, the value of unfurnished accommodation would be increased by the hire charges paid/payable by the employer. However, any payment recovered from the employee towards the above would be reduced from this amount.

 

Value of hotel accommodation provided by the employer
The value of perquisite arising out of the above would be 24% of salary or the actual charges paid or payable to the hotel, whichever is lower. The above would be reduced by any rent actually paid by the employee. It may be noted that no perquisite would arise, if the employee is provided such accommodation on transfer from one place to another for a period of 15 days or less.

An employee, who is provided with accommodation at the new place of posting while retaining the accommodation at the other place, on account of his transfer from one place to another, the value of perquisite shall be determined with reference to only one such accommodation which has the lower value with reference to the Table above for a period not exceeding 90 days and thereafter the value of perquisite shall be charged for both such accommodations in accordance with the above Table.

Perquisite arising out provision of services of a sweeper, a gardener, a watchman or a personal attendant

The value of benefit to the employee or any member of his household resulting from the provision of services of a sweeper, a gardener, a watchman or a personal attendant by the employer, shall be the actual cost to the employer. The actual cost in such a case shall be the total amount of salary paid or payable by the employer for such services as reduced by any amount paid by the employee for such services.

Perquisite arising out of supply of gas, electric energy or water

The value of the benefit to the employee resulting from the supply of gas, electric energy or water for his household consumption shall be determined as the sum equal to the amount paid on that account by the employer. Where such supply is made from resources owned by the employer, without purchasing them from any other outside agency, the value of perquisite would be the manufacturing cost per unit incurred by the employer. Where the employee is paying any amount in respect of such services, the amount so paid shall be deducted from the value so arrived at.

Free/Concessional Educational Facility

The value of benefit to the employee resulting from the provision of free or concessional educational facilities for any member of his household shall be the amount of expenditure incurred by the employer or where the educational institution is itself maintained and owned by the employer or where free educational facilities for such member of employees’ household are allowed in any other educational institution by reason of his being in employment of that employer, the value of the perquisite to the employee shall be the cost of such education in a similar institution in or near the locality. Where any amount is paid or recovered from the employee on that account, the value of benefit shall be reduced by the amount so paid or recovered:

Provided that where the educational institution itself is maintained and owned by the employer and free educational facilities are provided to the children of the employee or where such free educational facilities are provided in any institution by reason of his being in employment of that employer, nothing contained in this sub-rule shall apply if the cost of such education or the value of such benefit per child does not exceed Rs. 1,000 p.m.

Provision of Interest free or Concessional Loan Facility

The value of the benefit to the assessee resulting from the provision of interest-free or concessional loan for any purpose made available to the employee or any member of his household during the relevant previous year by the employer or any person on his behalf shall be determined as the sum equal to the interest computed at the rate charged per annum by the State Bank of India as on the 1st day of the relevant previous year in respect of loans for the same purpose advanced by it on the maximum outstanding monthly balance as reduced by the interest, if any, actually paid by him or any such member of his household.

However, no value would be charged if such loans are made available for medical treatment in respect of diseases specified in rule 3A of these Rules or where the amount of loans are petty not exceeding in the aggregate Rs. 20,000:

Provided that where the benefit relates to the loans made available for medical treatment referred to above, the exemption so provided shall not apply to so much of the loan as has been reimbursed to the employee under any medical insurance scheme.

Transfer of Movable Asset

The value of benefit to the employee resulting from the use by him or any member of his household of any movable asset (other than assets already specified in Rule 3 and other than laptops and computers) belonging to the employer or hired by him shall be determined at 10% per annum of the actual cost of such asset or the amount of rent or charge paid or payable by the employer, as the case may be, as reduced by the amount, if any, paid or recovered from the employee for such use.

The value of benefit to the employee arising from the transfer of any movable asset belonging to the employer directly or indirectly to the employee or any member of his household shall be determined to be the amount representing the actual cost of such asset to the employer as reduced by the cost of normal wear and tear calculated at the rate of 10% of such cost for each completed year during which such asset was put to use by the employer and as further reduced by the amount, if any, paid or recovered from the employee being the consideration for such transfer:

Provided that in the case of computers and electronic items, the normal wear and tear would be calculated at the rate of 50% and in the case of motor cars at the rate of 20% by the reducing balance method.

Perquisites Exempt from Income Tax

Some instances of perquisites exempt from tax are given below:

Provision of medical facilities [Proviso to Sec. 17(2)]:
Value of medical treatment in any hospital maintained by the Government or any local authority or by the employer or approved by the employer or approved by the Chief Commissioner of Income-tax. Besides, any sum paid by the employer towards medical reimbursement other than as discussed above is exempt upto Rs. 15,000/-.

No perquisite shall arise if interest free/concessional loans are made available for medical treatment of specified diseases in Rule 3A or where the loan is petty not exceeding in the aggregate Rs. 20,000/-

No perquisite shall arise in relation to expenses on telephones including a mobile phone incurred on behalf of the employee by the employer.

Rent free official residence provided to a judge of High Court or Supreme Court or an Officer of parliament, Union Minister or Leader of Opposition.

Perquisites allowed outside India by the Government to a citizen of India for rendering services outside India (Sec. 10(7))