Taxation Exam  >  Taxation Notes  >  Income Tax for assessment (Inter Level)  >  Valuation of Medical,Car,Transport,Provident Facilities - Taxation

Valuation of Medical,Car,Transport,Provident Facilities - Taxation | Income Tax for assessment (Inter Level) PDF Download

Valuation of Medical,Car,Transport Facilities - Taxation

Valuation of Medical Facilities
1. Arranged by Employer
- Medical facility provided to employee or his family member in a hospital, clinic, dispensary or nursing home maintained by employer is fully exempt.

- Medical treatment taken from any doctor for himself or his family members is exempt upto Rs 15,000. 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. Exemption upto Rs 15,000 is available if medical expenditure is reimbursed for employee or his family members.

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

3. Other points - 

-Medical facility in Govt. hospital: Payments or reimbursement made by employer in connection with the medical treatment of employee or his family members in a hospital, clinic, dispensary or nursing home maintained by Govt. or a local authority or a hospital approved by the Govt. is fully exempt.

- Medical treatment of prescribed disease: Payments or reimbursement made by employer in connection with the medical treatment of employee or his family members for treatment of prescribed disease in an approved hospital, clinic, dispensary or nursing home is fully exempt.
Note : Do remember exemption is available only if medical treatment is provided to employee or his family.

4. Meaning of family: It means spouse, child (dependent or non-dependent) and only dependent father, mother, brother and sister.

P1: (A) Amount of expenditure incurred by the employer for medical treatment of employee and his members of household.

 

Members of household

Case 1

Case 2

Case 3

1.

X and Mrs. X

16,000

4,000

11,000

2.

Married son

500

2,500

4,000

3.

Married daughter

800

330

1,200

4.

Father (not dependent)

1,000

650

2,400

5.

Dependent brother

600

4,200

3,500

6.

Married sister

900

1,000

500

7.

Dependent grandmother

2,100

6,500

1,200

 
Compute taxable medical facilities of Mr. X who is a specified employee.
(i) Expenditure is incurred by the employer for treatment in employer’s own hospital.
(ii) Expenditure is incurred by the employer for treatment of prescribed disease in an approved hospital.
(iii) Expenditure is incurred by the employer for treatment in private hospital.
Ans : (i) 4,000; 4,000; 6,900 (ii) 8,150; 8,150; 8,150 (iii) 4,100; 4,100; 8,800.
 
(B) What would be your answer if Mr. X is a Non-specified employee.
Ans : Not taxable in all cases
 
(C) What would be your answer if Mr. X is a Non-specified employee but medical bills are reimbursed.
Ans : (i) 4,000; 4,000; 6,900 (ii) 8,150; 8,150; 8,150 (iii) 4,100; 4,100; 8,800.

P2: X & his family members are treated in the hospital maintained by the employer. Calculate the value of medical facility which is taxable in the hands of Mr. X.

X, Mrs X and their minor child Rs 7,000 Major Son of Mr. X (self-dependent)

Rs3,200

Parents of Mr. X (Dependent)

5,000

Parents of Mrs. X (Dependent on Mr. X)

11,000

Brother of Mr. X (Dependent on Mr. X)

7,300

Sister of Mr. X (Not dependent on Mr. X)

18,000

Besides, Mr. X took the reimbursements from employer for the payment made to private medical practioner as follows :

Treatment of Mrs. X and their children
Rs 3,000
Treatment of mother of Mr. X
4,800
Treatment of Mrs. X’s father
2,700

Ans: 31,700.

Valuation of Motar Car Facilities

There is a golden rule of perquisite that any expenses incurred by employer for the benefit of employee becomes taxable. Now let us see what are those expenses which can be incurred by employer in relation to the car.

A. Facility for use of car. It is computed  @ 10% p.a. of the cost of the car if the car is owned by the employer. Where car is taken on hire, then actual hire charges becomes taxable. (Let us call this use.) Car can be a big car or small car.

Big car : If engine capacity exceeds 1600 cc or 1.6 litres or 16 h.p.

Small Car : If engine capacity is upto 1600 cc or 1.6 litres or 16 h.p.

B. Regular expenses of the car. It means expenses like petrol, repairs and maintenance, insurance of the car and parking. and

C. Remuneration of chauffeur if provided.

Tax Treatment

Cases

Car is owned or hired by

Regular expenses borne by

Car is used wholly for personal purpose

Car is used for mixed purpose (Both official and personal)

A

Employer

Employer

Use+ regular

upto 1600 cc

? 1,800 p.m. taxable

17(2)(iii)

 

 

expenses + salary of driver - recovery is taxable.

ABC - R = T

Exceeds 1600cc

? 2,400 p.m. taxable

 

 

 

Driver

? 900 p.m. taxable

 

 

 

Recovery is not applicable.

B

Employer

Employee

Use+ salary of driver

Upto 1600cc

? 600 p.m. taxable

17(2)(iii)

 

 

- recovery is taxable.

Exceeds 1600cc

? 900 p.m. taxable

 

 

 

AC - R = T

Driver

? 900 p.m. taxable

 

 

 

 

Recovery is not applicable.

C

Employee

Employer

regular expenses +

Upto 1600cc

? 1,800 p.m. exempt.

17(2)(iv)

 

 

salary of driver - recovery is taxable. BC - R = T

Exceeds 1600cc

? 2,400 p.m. exempt.

 

 

 

Driver

? 900 p.m. exempt.

 

 

 

Recovery is applicable.

 
In following cases value of use of motor car facility is fully exempt from tax.
1. Where the car is used wholly for official purposes. Conditions to be fulfilled to claim that expenses have been incurred for official purpose.
(a) the employer has maintained complete details of journey undertaken for official purpose which may include date of journey, destination, mileage, and the amount of expenditure incurred thereon;
(b) the employer gives a certificate to the effect that the expenditure was incurred wholly and exclusively for the performance of official duties.
 
2. Where car provided by the employer is used to  commute between residence to office or other place of work and back.
 
Note 1: Value of perquisite in Situation C, is taxable in all cases of employees whether specified or non-specified employee since obligation.
 
Note 2: In the case of car facility month means complete calendar month and any part of it is ignored. E.g. Suppose car is given on 15-7-2016. Computation shall be done from 1-8-2016 which comes to 8 months. In another case where car is used by employee for 4 months 7 days, its computation shall be done for 4 months only.
How to solve: First find out the situation in which the problem falls, then visualise the table and solve the problem accordingly.
 
P1: (A) Compute taxable perquisite of car on the assumption that he is a specified employee by applying Case A, B & C.
 

 

Case 1

Case 2

Cubic capacity of car

1,800 cc

1,600 cc

Cost of the car

6,00,000

3,50,000

Expenditure on maintenance and running of the car

1,20,000

75,000

Salary of driver

48,000

60,000

Amount charged by the employer

8,000

Nil

 
(B) What would be your answer in all the above cases if he is a Non-specified employee.
Solution : case 1

 

Car is owned by

Regular expenses borne by

Car is used wholly for personal purpose

Car is used for mixed purpose

A

Employer

Employer

60,000 + 1,20,000 + 48,000 - 8,000 = 2,20,000

28,800 + 10,800 = 39,600

B

Employer

Employee

60,000 + 48,000 - 8,000 = 1,00,000

10,800 + 10,800 = 21,600

C

Employee

Employer

1,20,000 + 48,000 - 8,000 = 1,60,000

1,20,000 - 28,800 + 48,000 - 10,800 - 8,000 = 1,20,400

 
Solution : case 2

A

Employer

Employer

1,70,000

32,400

B

Employer

Employee

95,000

18,000

C

Employee

Employer

1,35,000

1,02,600

 
 
P2: Determine the value of perquisite in the following cases.
 
(a) Motor car (cubic capacity of engine below 1.60 litres) owned by employer and provided to employee. It is partly used for official and personal purposes by the employee. Expenditure fully met by the employer Rs 25,600 (car is self-driven by the employee).
(b) The company has given a motor car of 1.8 litre both for personal and official use. The actual expenditure for running and maintenance of car is Rs 25,000 plus Rs 3,000 for salary of the driver.
(c) Mr. A was provided with company’s car (self-driven) also for personal use and it is not possible to determine expenditure on personal use and all expenses were borne by the employer.
(d) Motor car running and maintenance charges fully paid by employer (motor car is owned and driven by employee. The engine cubic capacity is below 1.60 litres. The motor car is used for both official and personal purpose by the employee. Expenditure incurred by the Company 36,000. How much value of car is taxable.
Ans : (a) 1,800 x 12 = 21,600. (b) 3,300 x 12 = 39,600. (c) 1,800 x12 = 21,600. (d) 36,000 – 1,800 x 12 = 14,400
 
Valuation of Transport Facilities
Transport facilities provided by Indian Railways to its employees is fully exempt from tax. Similarly transport facilities provided by Indian Airlines and Air Indian employees to its employees is fully exempt from tax.
 
Conveyance Facility Provided to Judges
Conveyance facility provided to Supreme Court or High Court Judges is fully exempt from tax.
Note 1: Allowances provided to Supreme Court or High Court judges is also exempt from tax.
Note 2: Accommodation provided to Supreme Court or High Court judges is also exempt from tax.

Category ‘c’ Perquisites

1. Travelling facility for official purposes is exempt.

2. Conveyance (cab) facility provided to an employee to cover the journey between office and residence is fully exempt.

3. Insurance

(a) Employer’s contribution towards staff group insurance scheme is fully exempt.

(b) Payment of annual premium by employer on personal accident policy effected by him in respect of his employee is fully exempt.

(c) mediclaim insurance premium paid by an employer in relation to an employee is fully exempt.

Category C Perquisites : FULLY EXEMPTED PERQUISITES

1.

Staff group insurance.

11.

HHF - official purpose exempt.

2.

Use of laptop, computer and telephone is exempt.

12.

Meal upto Rs 50 per meal is exempt.

3.

Gifts in kind upto Rs 5,000 is exempt.

13.

Meal in remote area is exempt.

4.

Sale of SIT to its employees is exempt.

14.

Hotel accommodation - transfer and upto 15 days.

5.

The other asset which is 10 year old is exempt.

15.

Education facility upto Rs 1,000 per month per child.

6.

Loan facility upto Rs 20,000 is exempt.

16.

Training of EE’s

7.

Loan given for treatment of specified disease is exempt.

17.

S 10(16). Scholarship.

8.

Credit card / club if given for official purpose is exempt.

18.

Medical facilities upto Rs 15,000.

9.

Health club - for all employees

19y

Medical facility in Own / Govt. hospital.

10.

Corporate membership - initial fees is exempt

20.

Medical treatment of specified disease in an approved hospital

 
Assignment
P1: Miss Taxcrazy, an Indian citizen, has been working as a Public Relation Officer in the German Embassy at Delhi for the last 5 years. She gets salary Rs 35,000 p.m., house rent allowance Rs 50,000. She has been provided a motor car facility of 20 h.p. all its expenses including driver’s salary Rs 5,000 p.m. are borne by the Embassy. The car is used for her public relation work only. She has been provided a free telephone at her residence and all expenses Rs 25,000 in the previous year were borne by the Embassy. During the previous year, she went to Germany for training for one month, where besides salary she was paid a foreign allowance of Rs 5,000.
Embassy reimbursed Rs 25,000 on account of medical treatment of her dependent parents, out of which Rs 8,000 were incurred for the treatment in a government hospital and the remaining amount was incurred for the treatment in a private hospital. She resides in a rented house in Delhi, the annual rent of which is Rs 80,000 she has been provided the facility of periodicals and newspapers also on which a sum of Rs 3,000 was incurred during the previous year.
She gets her house repaired for which the employer reimburses Rs 4,600. Compute Miss Taxcrazy’s income from salary from the above information.
Ans: 4,43,600. [4,20,000+12,000+0+0+5,000+2,000+4,600=4,43,600]
P2 : X is a CA employed in S Ltd. The company pays annual CA fees. The fees so paid by the company is not to be treated as perquisites in the hands of X.  True or False
Ans : False, it is an obligation of employee discharged by employer. Taxable as perquisites u/s 17(2)(iv).
P3 : L Ltd. reimburses the school fees and hostel fees of three children of Mr. M amounting to ₹ 400 per child per month. The exemption allowable to Mr. M is...
Ans : Nil

Provident Fund

1. Provident fund means making provision for the future. It is an instrument of saving in the hands of employee where both the employer and employee contributes. The total contributed amount is invested in Bank, Post office or Govt. securities to earn interest.

2. The Govt. passed a law Provident Fund Act, 1925. Under this Act two funds were set up.

STATUTORY PROVIDENT FUND : It is applicable to Central Govt. employees or State Govt. employees or employees working in Universities.

PUBLIC PROVIDENT FUND : This fund is for general public. It is applicable to all individuals whether employee or not. In this provident fund employer does not play any role. PPF A/c can be opened at post office or at any branch of State Bank of India and designated branches of private banks.

3. For private employees Govt. passed another law Provident Fund Act, 1952. Under this employer opens a provident fund account in the name of employee with the provident fund commissioner. This account is known as unrecognised provident fund (URPF).

Where such unrecognised provident fund (RPF) is recognised by Commissioner of Income Tax it becomes recognised provident fund. Recognition is given as per fourth schedule of the Income Tax Act. 

TAX TREATMENT OF PROVIDENT FUND
 

 

Particulars

SPF

PPF

URPF

RPF

1.

Employer’s contribution towards PF.

Not Taxable

Does not contribute

Not Taxable

Excess of

12% of sAs is taxable

2.

Employee’s contribution towards PF. Whether deduction u/s 80C available?

Available

Available

Not

Available

Available

3.

Interest credited to PF.

Not Taxable

Not Taxable

Not Taxable

Excess of 9.5% is taxable

4.

Lump sum withdrawal from PF.

Exempted u/s 10(11)

 Exempted u/s 10(11)

Taxable

Exempted u/s 10(12)

 
Note 1: Tax treatment of lump sum withdrawal from URPF at the time of retirement or cessation of service.
a. Withdrawal of employer’s contribution chargeable under the head “Salary”
b. Interest on employer’s contribution chargeable under the head “Salary”
c. Withdrawal of employee’s contribution not taxable since not an income
d. Interest on employee’s contribution chargeable under the head “Other Sources”.
 
Note 2: Lump sum withdrawal from RPF at the time of retirement or cessation of service is not taxable provided 5 years of continuous service with same employer or different employer.
 
P1: Explain tax treatment of provident fund in the following cases.
1. Basic Salary 25,000. DA (100%) 5,000. Employer’s contribution towards RPF 13% of salary.
2. Basic Salary 1,00,000. DA (20%) Rs 20,000. Employer’s contribution towards RPF Rs 20,000.
3. Basic Salary 1,00,000. DA (20%) Rs 20,000. Employer’s contribution towards RPF 15% of basic salary.
4. Interest on RPF contribution @ 10.5% is Rs 10,500.
5. Interest on RPF contribution @ 11.5% is Rs 3,000.
6. Interest on RPF contribution @ 11% is Rs 6,000.
7. Interest credited to recognised provident fund Rs 13,500 on 1-1-2017 on outstanding balance of Rs 1,00,000.
8. On retirement from service, A received Rs 60,000 being his dues from unrecognised provident fund. The amount comprised Rs 25,000 as own contribution, Rs 5,000 as interest thereon and the balance of Rs 30,000 being employer’s contribution and interest thereon. Discuss A’s liability for taxation, if any.
9. Date of joining 1-1-2015. Pay scale 10,000-2,000-16,000. Employer’s contribution towards RPF 15% of salary. (a) salary falls due on the last day of each month. (b) salary falls due on first day of next month.
 
Ans: (1) 1% of 30,000 = 300 is taxable (2) 7,520. (3) 2,520. (5) taxable interest is 1%. But on which amount? Let the amount be x. 10.5% of x = 10,500. X = 1,00,000. Taxable is 1% of Rs 1,00,000 = Rs 1,000. Alternatively taxable amount = 10,500 × 1/10.5 = 1,000. (5) 522 (6) 818 (7) 4,000. (8) Rs 30,000 is chargeable under the head salary and Rs 5,000 under the head Income from Other Sources. (9) Rs 4,500; Rs 4,440.
 
Solution to case 1

SAS = 25,000 + 5,000 = 30,000

 

Employer’s contribution towards RPF (13% of 30,000)

3,900

Less: 12% of SAS (12% of 30,000)

3.600

Employer’s contribution in excess of 12% of SAS towards RPF

300

 
Solution to case 4

Let the outstanding amount of PF on which interest is credited = x

 

10.5% of x = 10,500 therefore by solving we get x = 1,00,000.

 

Taxable amount of interest in excess of 9.5% towards RPF (1% of 1,00,000)

1,000

 

Alternatively

Total interest

............................. x Interest rate in excess of 9.5%

Total rate of interest

10,500

-------- x 1% = 1,000

10.5%

 

P2: Mr. Taxcrazy who retires on 31-3-2017 furnishes following information:

Salary after deduction of employee’s contribution towards provident fund of ₹ 20,000
76,000 
Dearness allowance (100% forms part of salary).
24,000 
Interest @ 10% towards provident fund.
15% of salary 

 

Interest @ 10% towards provident fund.
20,000

 

On 31-3-2017 following amounts are withdrawn from provident fund.

1. Withdrawal of employer’s contribution RS 1,00,000.

2. Interest on employer’s contribution RS 50,000.

3. Withdrawal of employee’s contribution RS 1,00,000.

4. Interest on employee’s contribution RS 50,000.

You are required to compute Total Income for the AY 2017-18 if type of provident fund is (a) Statutory provident fund (b) recognised provident fund (c) unrecognised provident fund.

Ans: (a) 1,00,000 (b) 1,04,600 (c) 3,20,000.

Solution

 

SPF

RPF

URPF

Basic Salary

96,000

96,000

96,000

Dearness Allowance

24,000

24,000

24,000

Employer’s contribution towards provident fund

not taxable

3,600

not taxable

Interest @ 10% towards provident fund

not taxable

1,000

not taxable

Lump sum withdrawal from provident fund

 

 

 

• Employer S contribution

Exempt

Exempt

1,00,000

• Interest on Employer S contribution

Exempt

Exempt

50,000

Income from Salary

1,20,000

1,24,600

2,70,000

Income from Other Sources

 

 

 

• Interest on employee S contribution

exempt

exempt

50,000

 

Gross Total Income

1,20,000

1,24,600

3,20,000

Less: Deduction u/s 80C (Employee’s contribution towards PF)

(20.000)

(20,000)

not available

Total Income

1,00,000

1,04,600

3,20,000

 

P3: Compute ‘Total Income’ of Mr. X from the following informations.

(i) Net salary received after deduction of :                                   1,50,000

(a) His own contribution in recognised provident fund                     20,000

(b) Income Taxv                                                                              10,000

(ii) Employer’s contribution to recognised provident fund                   23,600

(iii) His other income                                                                          1,00,000

Ans : 1,80,000 + 2,000 = 1,82,000 + 1,00,000 = 2,82,000 – 20,000 = 2,62,000.

Income Deemed to be Recieved

(i) Employer’s contribution in excess of 12% of salary towards recognised provident fund.

(ii) Interest credited to the recognised provident fund in excess of 9.5%.

(iii) The transferred balance in a recognised provident fund from unrecognised provident fund.

(iv) The contribution made by employer in the previous year to the account of an employee under a new pension scheme referred to in section 80CCD. (New pension Scheme set up by Central Govt.).

 
The document Valuation of Medical,Car,Transport,Provident Facilities - Taxation | Income Tax for assessment (Inter Level) is a part of the Taxation Course Income Tax for assessment (Inter Level).
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FAQs on Valuation of Medical,Car,Transport,Provident Facilities - Taxation - Income Tax for assessment (Inter Level)

1. What is the valuation of medical facilities for taxation purposes?
Ans. The valuation of medical facilities for taxation purposes is the process of determining the monetary worth of medical equipment, supplies, and assets owned by a medical facility. This valuation helps in determining the taxable value of these assets and enables the facility to comply with tax regulations.
2. How are cars valued for taxation?
Ans. Cars are valued for taxation based on their market value or the price they would sell for in the open market. The taxation authorities may use various methods such as using car valuation guides, considering depreciation factors, or conducting independent appraisals to determine the taxable value of a car.
3. What is the valuation process for transportation facilities for taxation?
Ans. The valuation process for transportation facilities for taxation involves assessing the worth of vehicles, infrastructure, and other assets owned by the transportation facility. This assessment is based on factors such as the condition, age, market value, and depreciation of these assets. The resulting valuation helps in determining the taxable value of the transportation facilities.
4. How are provident facilities valued for taxation purposes?
Ans. Provident facilities, such as retirement or pension funds, are valued for taxation purposes based on the total assets held by the facility. These assets can include investments, real estate, stocks, bonds, and cash reserves. The valuation is determined by considering the fair market value of these assets and any applicable tax regulations.
5. Can the valuation of medical, car, transport, and provident facilities impact tax liabilities?
Ans. Yes, the valuation of medical, car, transport, and provident facilities can impact tax liabilities. The taxable value determined through the valuation process directly affects the amount of taxes owed by the respective facilities. Higher valuations may lead to increased tax liabilities, while lower valuations may result in reduced tax obligations. It is essential for facilities to accurately determine the valuation of these assets to ensure compliance with tax regulations.
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