Valuation of Credit Card Facility - Taxation | Income Tax for assessment (Inter Level) PDF Download

Arranged by Employer
Credit card is in the name of employer : Regular expenditure (including membership and annual fees) incurred by the employer less any amount paid or recovered from the employee is taxable. Regular expenditure is expenditure incurred through credit card. Membership fees is initial fees is not taxable.

Arranged by Employee
Credit card is in the name of employee : Amount reimbursed by the employer is taxable on paid basis.

Exempt if
1. Add on card.
2. Expenses have been incurred for official purpose
(a) complete details in respect of such expenditure are maintained by the employer which may, inter alia, include the date of expenditure and the nature of expenditure.

(b) the employer gives a certificate for such expenditure to the effect that the same was incurred wholly and exclusively for the performance of official duties.

E.g. Employee uses his own card for purchase of air tickets for a business tour is exempt since expenditure is incurred for official purpose.

P1: Explain tax treatment of the following.
(a) Mr. X uses company’s credit card both for official purpose and personal purpose. On one occasion he is sent to Cochin to buy spices for the company. He purchases spices for ₹ 60,000 and spent ₹ 10,000 on his personal cloths.
(b) X, has taken a Citi Bank gold card. Out of initial fees ₹ 2,500, the employer pays ₹ 1,800 on behalf of X.

(c) Personal purchases through credit card provided by the company amounting to ₹ 10,000 was paid by the
company. No part of the amount was recovered from X. The taxable value is...... CA M03

Ans: (a) 10,000; (b) 1,800. (c) 10,000

Valuation of Club Facility

Arranged by Employer
Membership of club is in the name of Employer : Regular expenditure (including membership and annual fees)
incurred by the employer less any amount paid or recovered from the employee is taxable.

Arranged by Employee
Membership of club is in the name of Employee : Amount re-imbursed by the employer is taxable on paid basis.
Exempt if

1. Where the employer has obtained corporate membership of the club, the initial fees paid for acquiring such  corporate membership is not chargeable to tax. However annual fees and  expenditure incurred at club shall  be taxable.
2. Use of health club, sports and similar facilities (like recreational facilities) provided uniformly to all employees by the employer is exempt. However if swimming pool located in MD’s house maintained by employer shall  be taxable.
3. Expenses have been incurred for official purpose.
   • complete details in respect of such expenditure are maintained by the employer which may, inter alia,  include the date of expenditure and the nature of expenditure.
   • the employer gives a certificate for such expenditure to the effect that the same was incurred wholly and exclusively for the performance of official duties.

P1: Explain tax treatment of the following.

(a) The company employed a yoga teacher on a salary of ₹ 1,00,000 p.a. The yoga teacher provides yoga training in company’s premises. All employees are eligible for training.
(b) X joins a health club in his neighbourhood. The annual fees of ₹ 7,000 is paid by the company on behalf of
X.
Ans: nil; 7,000.

Valuation of Holiday Home Facilities :
Travelling, Touring and Accommodation
 

Arranged by Employer
a. Facility available uniformly to all employees: Expenditure incurred by the employer less any amount paid
or recovered from the employee is taxable. (Cost to the employer less recovery is taxable)
b. Facility not available uniformly to all employees: The value of benefit shall be taken to be the value at which such facilities are offered by other agencies to the public less any amount paid or recovered from the employee is taxable. [Market rate less recovery is taxable]

Arranged by Employee
Amount re-imbursed by the employer is taxable on paid basis.
 

Exempt if
1. Where any official tour is extended as a vacation, the value of such benefit will be limited to the expenses
incurred in relation to such extended period of stay or vacation. i.e. Expenses incurred on official tour is
exempt.
2. Where the employee is on official tour and the expenses are incurred in respect of any member of his household
accompanying him, then expenditure incurred on members of household is chargeable to tax.

P1: Explain tax treatment of the following.
(a) The company sends X to official tour of 10 days to Maldives. X takes his wife also. The expenditure incurred
by the company on both were of ₹ 60,000 for 12 days. The scenic beauty of Maldives kept them there for two more days. The company maintains its guest house in Maldives.

(b) The company maintains a guest house at Kodaikanal (Near Madurai) exclusively for Key Man employee of the company. Mr. X was in Kodaikanal for personal purpose for 5 days. The company incurred an expenditure of ₹ 1,000 per day. However market rent of such facility is ₹ 1,500 per day.
(c) The company maintains a holiday home at Puri. The employer gave a discount of 70% for staying and charged ₹ 1,400 where X went to Puri with his family on vacation.
(d) Expenditure on accommodation in hotels while touring on official duties met by the employer ₹ 30,000. Taxable amount is....

Ans: (a) 35,000; (b) 7,500; (c) 3,267. (d) nil

Valuation of Meal Facilities

Arranged by Employer
Owned canteen:
a. During office hours at office or business premises : Expenditure incurred by the employer less any sum recovered from the employee for such benefit is taxable. Exemption allowed is upto ₹ 50 per meal.
b. Outside office hours or outside business premises : Expenditure incurred by the employer less any sum recovered from the employee for such benefit is taxable. No exemption.

Hired canteen:
a. Non-Transferable paid vouchers usable only at eating joints : Expenditure incurred by the employer less any
sum recovered from the employee for such benefit is taxable. Exemption allowed is upto ₹ 50 per meal.
b. Transferable or Non - Paid vouchers or not usable at eating joints: Expenditure incurred by the employer less any sum recovered from the employee for such benefit is taxable. No exemption.

Arranged by Employee
Amount re-imbursed by the employer is taxable on paid basis.

Exempt if
1. Tea, coffee or snacks provided during office hours is fully exempt.
2. Free meals during working hours provided in a remote area or an offshore installation is fully exempt.

P1: Explain tax treatment of the following.
(a) X enjoys meal @ ₹ 10 per meal. Expenditure incurred by the company is ₹ 70 per meal for 200 days. The
meal is provided during office hours at the business premises of the company.
(b) Suppose in the above question meal is provided outside office. How much is taxable ?
(c) He is provided with refreshment during office hours. Company incurred the expenditure of ₹ 60 per day.
(d) The value of lunch provided during office hours at business premises ₹ 15,000.
Ans: 2,000; 12,000; nil; nil - Assume Cost per meal do not exceed ₹ 50 per meal.

Valuation of Gas, Electricity & Water Facilities

1. Arranged by Employer
- Own source: Manufacturing cost per unit less any amount recovered from the employee is taxable.
- Purchased from outside agency: Actual expenditure incurred by the employer less any amount recovered
from the employee is taxable.

Note: Taxable only in case of specified employees in the year in which it is provided.

2. Arranged by Employee
It is treated as an obligation: Actual expenditure reimbursed by the employer is taxable.

Note: Taxable in both the cases of employees whether specified employee or non-specified employee in the
year in which it is reimbursed.

P1 : Compute income from salary for the AY 2017-18.

Ans: 5,33,000; 50,000.

Valuation of Servant Facilities
1. Arranged by Employer
Actual expenditure incurred by the employer less any amount recovered from the employee is taxable.

Note: Taxable only in case of specified employees in the year in which it is provided.

2. Arranged by Employee
It is treated as an obligation: Actual expenditure re-imbursed by the employer is taxable.
 

Note: Taxable in both the cases of employees whether specified employee or non-specified employee in the
year in which it is re-imbursed.

3. Servants can be Sweeper, watchman (Durban), gardener, any other servant (cook) or personal attendant.

P1: Compute income from salary from the following information.