Section 17(2) of the Income-tax Act, 1961 gives an inclusive definition of 'perquisite'. As per this section 'perquisite' includes:
(i) the value of rent-free accommodation provided to the assessee by his employer;
(ii) the value of any concession in the matter of rent respecting any accommodation provided to the assessee 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:
(a) by a company to an employee, who is a director thereof;
(b) by a company to an employee being a person who has a substantial interest in the company;
(c) by any employer (including a company) to an employee to whom the provisions of clause (a) and (b) do not apply 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 or amenities not provided for by way of monetary payment, exceeds ₹50,000.
These employees are also known as "specified employees"
(iv) any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assessee;
(v) any sum payable by the employer whether directly or through a fund, other than a recognised provident fund or an approved superannuation fund or deposit-linked insurance fund, to effect an assurance on the life of the assessee or to effect a contract for an annuity;
(vi) The value of any specified security or sweat equity shares allowed or transferred directly or indirectly by the employer or former employer free of cost or at concessional rate to the assessee;
(vii) Contribution by the employer to the approved superannuation fund in respect of assessee to the extent it exceeds ₹1,50,000.
Amendment made by the Finance Act, 2020 :
the amount or the aggregate of amounts of any contribution made to the account of the assessee by the employer—
(a) in a recognised provident fund;
(b) in the scheme referred to in sub-section (1) of section 80CCD; and
(c) in an approved superannuation fund,
to the extent it exceeds ₹7,50,000 in a previous year;
(viii) The value of any other fringe benefit or amenity as may be prescribed.
Taxability of Perquisites
For Income-tax purposes, perquisites may be divided into five categories:
(1) Perquisites which are taxable in the hands of all categories of employees.
(2) Perquisites which are taxable only when the employee belongs to a specified group i.e. he is a specified employee.
(3) Specified security or sweat equity shares allotted or transferred by the employer to the assessee.
(4) Contribution by the employer to the approved superannuation fund in respect of assessee to the extent it exceeds ₹1,50,000.
Amendment made by the Finance Act, 2020 :
the amount or the aggregate of amounts of any contribution made to the account of the assessee by the employer—
(a) in a recognised provident fund;
(b) in the scheme referred to in sub-section (1) of section 80CCD; and
(c) in an approved superannuation fund,
to the extent it exceeds ₹7,50,000 in a previous year;
(5) Tax-free perquisites.
(1) Perquisites which are taxable in the hands of all categories of employees - for computing Salary Income.
The following perquisites are taxable in the hands of all employees:
(i) Rent free accommodation provided by the employer to the employee. Such accommodation may be furnished or unfurnished.
(ii) Any concession in the matter of rent in respect of the accommodation provided or granted by the employer to the employee.
(iii) Any sum paid by the employer in discharging the monetary obligation of the employee which otherwise would have been payable by the employee e.g. the school fees of the children of the employee paid by the employer or the Income-tax of the employee paid by the employer.
(iv) Any sum payable by the employer whether directly or through a fund (other than recognized provident fund (RPF), Approved Superannuation Fund or Deposit Linked Insurance Fund) to effect an assurance on the life of the assessee or to effect a contract for an annuity.
(v) The value of any other fringe benefit or amenity as may be prescribed.
(2) Perquisites which are taxable only in the case of Specified Employees - for computing Salary Income.
All monetary obligations of the employee discharged by the employer are perquisites which are taxable in the hands of all employees. But sometimes the employer, instead of making the payment in respect of such monetary obligations or reimbursing such amount to the employee, provides the perquisite in the form of a facility to the employee. Such facility will be a perquisite only for specified employees mentioned in section 17(2)(iii).
For example, if a watchman/sweeper is engaged by the employee and his wages are reimbursed/paid by the employer, it is a perquisite for all employees because it is the duty of the employee to pay the salary of his watchman/ sweeper.
On the other hand, if the watchman/sweeper is engaged by the employer and facility of his services is provided to the employee, it will be a perquisite only for specified employees.
Similarly, if a motor car is provided by the employer to the employee for his personal use it shall be taxable perquisite in case of a specified employee only.
Whereas if the car belongs to employee but expenses relating to personal use of such car are paid or reimbursed by the employer, it shall be a taxable perquisites in the hands of all employees, whether specified or not.
Any benefit/amenity in the form of a facility (other than rent free accommodation, concession in the matter of rent or fringe benefits or amenities as may be prescribed) provided by the employer, which is not tax-free, shall be taxable only in the hands of specified employees.
Some of these are:
(i) services of a sweeper, gardener, watchman or personal attendant,
(ii) free or concessional use of gas, electric energy and water for household consumption,
(iii) free or concessional educational facilities,
(iv) use of motor car,
(v) personal or private journey provided free of cost or at concessional rate to an employee or member of his household,
(vi) the value of any other benefit or amenity, service, right or privilege provided by the employer.
If the above perquisites are provided in 'Money' (monetary terms) whether by way of reimbursement of expenses incurred by the employee for such facilities or by way of payment on behalf of employee, these perquisite shall be taxable in case of all employees e.g. if the school fees of the children of the employee is reimbursed to him or paid on his behalf to the school, such amount shall be perquisite in case of all employees.
On the other hand if the children of the employee are studying in a school maintained by the employer, the education facility provided is not in money but in kind and it shall be perquisite only for specified employees.
Similarly, if the personal gas bills of the employee are in the name of employee and the employer reimburses the amount of such gas bills to him or pays on his behalf to the gas agency, it is in monetary terms and taxable in case of all employees; on the other hand, if such bills are in the name of employer, it will be perquisite in case of specified employee only.
Note :
Who is a Specified Employee [Section 17(2)(iii)]:
An employee shall be a specified employee, if he falls under any of the following three categories:
(i) he is a Director of a company; or
(ii) he, i.e. the employee, has a substantial interest in the company.
As per section 2(32), person who has a substantial interest in the company, in relation to a company means a person who is the beneficial owner of shares, not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits, carrying not less than 20% of the voting power;
(iii) his income under the head 'Salaries' (whether due from, or paid or allowed by, one or more employers), exclusive of the value of all benefits or amenities not provided for by way of monetary payment, exceeds ₹50,000.
Income, for this purpose, shall include all taxable monetary payments like basic salary, dearness allowance, bonus, commission, taxable allowances/perquisites but shall not include the value of any non-monetary benefits/ perquisites. The following are to be deducted from salary for this purpose:
(a) standard deduction to the maximum extent of ₹50,000 (₹40,000 for A.Y. 2019-20) [Section 16(ia)]
(b) entertainment allowance [to the extent deductible under section 16(ii)];
(c) tax on employment [Section 16(iii)]. |
(3) Perquisites of Specified Security or Sweat Equity Shares allotted or transferred by the employer to the assessee - for computing Salary Income.
(1) "Specified Security" means the securities as defined in clause (h) of section 2 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;
(2) "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;
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 assessee shall be a taxable perquisite in the hands of the assessee.
Further, the value of such 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.
Note :
(3) "Fair market value" means the value determined in accordance with the method as may be prescribed;
(4) "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.
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1. Valuation of Specified Security or Sweat Equity Share being a share in the company [Rule 3(8)]
(A) Fair market value where the shares are listed on a recognized stock exchange:
In a case where, on the date of the exercising of the option, the share in the company is listed on a recognized stock exchange, the fair market value shall be the average of the opening price and closing price of the share on that date on the said stock exchange.
(i) Fair market value where the shares are listed on more than one recognized stock exchange:
Where, on the date of exercising of the option, the share is listed on more than one recognized stock exchanges, the fair market value shall be the average of opening price and closing price of the share on the recognized stock exchange which records the highest volume of trading in the share.
(ii) Fair market value where there is no trading in the shares on any recognized stock exchange:
Where, on the date of exercising of the option, there is no trading in the share on any recognized stock exchange, the fair market value shall be—
(a) the closing price of the share on any recognised stock exchange on a date closest to the date of exercising of the option and immediately preceding such date; or
(b) the closing price of the share on a recognised stock exchange, which records the highest volume of trading in such share, if the closing price, as on the date closest to the date of exercising of the option and immediately preceding such date, is recorded on more than one recognized stock exchange.
(B) Fair market value where the shares are not listed on any recognized stock exchange:
In a case where, on the date of exercising of the option, the share in the company is not listed on a recognized stock exchange, the fair market value shall be such value of the share in the company as determined by a merchant banker on the specified date.
Note :
1. "Closing price" of a share on a recognised stock exchange on a date shall be the price of the last settlement on such date on such stock exchange.
Provided that where the stock exchange quotes both "buy" and "sell" prices, the closing price shall be the "sell" price of the last settlement.
2. "Opening price" of a share on a recognized stock exchange on a date shall be the price of the first settlement on such date on such stock exchange: Provided that where the stock exchange quotes both "buy" and "sell" prices, the opening price shall be the "sell" price of the first settlement.
3. "Merchant banker" means category I merchant banker registered with Securities and Exchange Board of India;
4. "Specified date" means,—
(i) the date of exercising of the option; or
(ii) any date earlier than the date of the exercising of the option, not being a date which is more than 180 days earlier than the date of the exercising.
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2. Valuation of Specified Security not being an Equity Share in the Company [Rule 3(9)]
The fair market value of any specified security, not being an equity share in a company, on the date on which the option is exercised by the employee, shall be such value as determined by a merchant banker on the specified date. For meaning of "merchant banker" and "specified date" see box above.
(4) Perquisites of any Contribution to an Approved Superannuation Fund - for computing Salary Income.
The amount of any contribution to an approved superannuation fund by the employer in respect of the assessee, to the extent it exceeds ₹1,50,000 shall be taxable perquisite in the hands of the employee.
Amendment made by the Finance Act, 2020 :
the amount or the aggregate of amounts of any contribution made to the account of the assessee by the employer—
(a) in a recognised provident fund;
(b) in the scheme referred to in sub-section (1) of section 80CCD; and
(c) in an approved superannuation fund,
to the extent it exceeds ₹7,50,000 in a previous year;
(5) Tax-free Perquisites (for all employees) - for computing Salary Income.
(1) Medical facility:
The value of any medical treatment provided to an employee or any member of his family in a hospital, dispensary or a nursing home maintained by the employer shall be a tax-free perquisite.
(2) Recreational facilities:
Any recreational facility provided to a group of employees (not being restricted to a select few employees) by the employer is not taxable.
(3) Training of employees:
Any expenditure incurred by the employer, for providing training to the employees or by way of payment of fees of refresher courses attended by the employees.
(4) Use of health club, sports and similar facilities provided uniformly to all employees by the employer.
(5) Expenses on telephone, including a mobile phone, actually incurred on behalf of the employee by the employer.
(6) Employer's contribution:
Employer's contribution to superannuation fund of the employee or provided such contribution does not exceed ₹1,50,000 per employee per year.
Amendment made by the Finance Act, 2020 :
the amount or the aggregate of amounts of any contribution made to the account of the assessee by the employer—
(a) in a recognised provident fund;
(b) in the scheme referred to in sub-section (1) of section 80CCD; and
(c) in an approved superannuation fund,
to the extent it exceeds ₹7,50,000 in a previous year;
(7) The premium paid by the employer on an accident policy taken out by it in respect of the employee would not be a perquisite.
(8) Amount given by employer of assessee to assessee's child as scholarship is Exempt under section 10(16).
(9) Food and Beverages provided to employees:
The following shall be a tax free perquisite in the hands of the employees—
(i) free food and non-alcoholic beverages provided by the employer to his employees during working hours:
(a) at office or business premises or
(b) through paid vouchers which are not transferable and usable only at eating joints. Provided the value of such meal is upto ₹50 per meal.
(ii) Any tea or snacks provided during working hours.
(iii) Free food and non-alcoholic beverages during working hours provided in a remote area or on offshore installation.
(10) Loans to employees:
In the following cases the value of benefit to the assessee resulting from the provision of interest free or concessional loan shall be nil:
(a) where the amount of loans are petty, not exceeding in the aggregate ₹20,000;
(b) loans made available for medical treatment in respect of diseases specified in rule 3A of the Income-tax Rules. However, 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.
(11) Perquisites provided outside India:
Perquisites provided by the Government to its employees, who are citizens of India for rendering services outside India, are not taxable. [Section 10(7)]
(12) Rent free House/Conveyance facility:
Rent free official residence and conveyance facilities provided to a Judge of the Supreme Court/High Court is not a taxable perquisite.
(13) Residence to officials of Parliament, etc.:
Rent free furnished residence (including maintenance thereof) provided to an officer of the Parliament, a Union Minister or Leader of Opposition in Parliament, is not a taxable perquisite.
(14) Accommodation in a remote area:
The accommodation provided by the employer shall be a tax free perquisite if the accommodation is provided to an employee working at mining site or an onshore oil exploration site or a project execution site, or a dam site or a power generation site or an offshore site which—
(a) being of a temporary nature and having plinth area not exceeding 800 square feet, is located not less than eight kilometres away from the local limits of any municipality or a cantonment board; or
(b) is located in a remote area.
(15) Educational facility for children of the employee:
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, there shall be no perquisite value if the cost of such education or the value of such benefit per child does not exceed ₹1,000 p.m.
(16) Use by the employee or any member of his household of laptops and computers belonging to the employer or hired by him.
(17) Leave Travel Concession .
(18) Tax paid by the employer on non-monetary perquisites:
Tax paid by the employer on nonmonetary perquisites of the employee shall be exempt in the hands of the employee. [Section 10(10CC)] |
