Taxation Exam > Taxation Notes > Income Tax for assessment (Inter Level) > Perquisites - Taxation
Perquisites - Taxation | Income Tax for assessment (Inter Level) PDF Download
1. Arrangement of perquisites & manner of payment
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Arranged by
|
Payment in |
||
|
a. |
Facility (see note 1) |
Employer |
Kind |
|
b. |
Reimbursements (see note 2) |
Employee |
Cash |
|
c. |
Direct payment (see note 3) |
Employee |
Kind |
Note 1: Where the word used is ‘facility’ it means perquisite is owned or hired by employer and is provided
in kind. E.g. Water facility.
Note 2: Where the question uses the word ‘reimbursement’ it means perquisite is arranged by employee but
discharged by employer in cash. E.g. Reimbursements of Water bill.
Note 3: Where the question uses the word ‘direct payment’ it means perquisite is arranged by employee but
discharged by employer in kind. Payment is made directly to the service provider. E.g. Payment of water
bill is made directly to the service provider.
2. Valuation of Perquisites
- Perquisites are valued on the basis of cost to the employer. Rule 3 of the Income Tax Rules, 1962 has provided specific methods of valuation of perquisites to be charged to tax.
- Where the facility is sold by employer to the employee then it is called recovery which is allowed as deduction from the value of perquisites so arrived.
Meaning of recovery. Where the employer provides any facilities, he recovers some amount from the
employee in respect of those facilities. Such recovery is deductible perquisite. Recovery is recovered
by the employer by deducting it from basic salary.
3. In whose hands perquisites are taxable?
Perquisites can be provided to employee or his members of household. In both the cases it is taxable in the
hands of employee under the head ‘Salary’.
Meaning of ‘Member of household’ : It shall include spouse, children and their spouses, parents, servants
and dependants.
Tax Treatment of Perquisites
|
Specified Employee |
Non-Specified Employee |
||
|
a. |
Category A perquisites |
Taxable |
Taxable |
|
b. |
Category B perquisites |
Taxable |
Not taxable |
|
c. |
Category C perquisites [other than A & B] |
Not taxable |
Not taxable |
Section 17(2)(iii). Meaning of Specified Employee
An employee satisfying any one of the following conditions is treated as a specified employee.
An employee satisfying any one of the following conditions is treated as a specified employee.
- An employee who is appointed as a director of a company in the relevant previous year. It is immaterial whether he is full time or part time or continuing for whole year or part of the year as a director; or
- An employee who is a shareholder having substantial interest in a company during the relevant previous year.
As per section 2(32) person who has a substantial interest in the company means, a person who is the beneficial owner of shares, carrying not less than 20% of the voting power.
- An employee drawing Income from Salary (whether due from, or paid or allowed by, one or more employers) excluding non-monetary benefits exceeding ₹ 50,000, then such employee is treated as specified employee.
It means you are required to compute cash taxable salary after providing all exemptions u/s 10 and deductions
u/s 16 (Standard deduction - omitted, Entertainment allowance and Professional or employment tax). This cash taxable salary if it exceeds ₹ 50,000 then such employee is treated as specified employee.
u/s 16 (Standard deduction - omitted, Entertainment allowance and Professional or employment tax). This cash taxable salary if it exceeds ₹ 50,000 then such employee is treated as specified employee.
Note 1: Any employee other than specified employee is a non specified employee
P1 : Say whether following shall form part of cash taxable salary or not.
1. Basic Salary.
2. Dearness allowance (10% forms part of salary for computation of retirement benefits).
3. Advance Salary.
4. Research and Development allowance (75% spends for official purpose).
5. Entertainment Allowance. He is a private employee.
6. Entertainment Allowance. He is a Govt. employee.
7. Bonus due but not yet received.
8. Water facility.
9. Cook engaged by employee. Salary of cook is paid by employer directly to the cook.
10. Reimbursement of professional tax paid by employer on behalf of employee.
11. Arrears of salary of current previous year not yet received.
12. Gratuity.
13. Pension.
14. Leave salary.
1. Basic Salary.
2. Dearness allowance (10% forms part of salary for computation of retirement benefits).
3. Advance Salary.
4. Research and Development allowance (75% spends for official purpose).
5. Entertainment Allowance. He is a private employee.
6. Entertainment Allowance. He is a Govt. employee.
7. Bonus due but not yet received.
8. Water facility.
9. Cook engaged by employee. Salary of cook is paid by employer directly to the cook.
10. Reimbursement of professional tax paid by employer on behalf of employee.
11. Arrears of salary of current previous year not yet received.
12. Gratuity.
13. Pension.
14. Leave salary.
Ans: (7) Bonus due (8) Water facility is not a cash salary, hence ignored. (9) Since salary of cook is paid directly to the cook, it is not included in computing Cash taxable Salary.
Types of perquisites
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Category A perquisites. |
AFLO SUL GMHCC EA |
|
Category B perquisites. |
GET MSC |
|
Category C perquisites. |
Perquisites other than Category A and Category B. |
Category ‘A’ Perquisites
Following perquisites are taxable in all cases of employee whether specified employee or non-specified
employee.
1. Accommodation. [Section 17(2)(i)/(ii)] The value of accommodation is included in salary income only if it
is actually provided to the employee whether it is enjoyed by the employee or not.
Following perquisites are taxable in all cases of employee whether specified employee or non-specified
employee.
1. Accommodation. [Section 17(2)(i)/(ii)] The value of accommodation is included in salary income only if it
is actually provided to the employee whether it is enjoyed by the employee or not.
2. Furniture. [Section 17(2)(i)/(ii)]
The value of furniture is included in salary income only if it is actually provided to the employee whether
it is enjoyed by the employee or not.
The value of furniture is included in salary income only if it is actually provided to the employee whether
it is enjoyed by the employee or not.
3. Life insurance premium. [Section 17(2)(v)]. Any life insurance premium payable by the employer or to
effect a contract for an annuity.
effect a contract for an annuity.
Year of taxability : Life insurance premium is chargeable to tax in the year in which it falls due. Suppose life
insurance premium of ₹ 6,000 due on 15-3-2017 is paid by employer on 1-4-2017. Then premium is taxable
in PY 2016-17 and not in PY 2017-18.
insurance premium of ₹ 6,000 due on 15-3-2017 is paid by employer on 1-4-2017. Then premium is taxable
in PY 2016-17 and not in PY 2017-18.
Note: Staff group insurance shall be fully exempt from tax.
Deduction u/s 80C can also be claimed on the amount of premium paid during the relevant PY.
Deduction u/s 80C can also be claimed on the amount of premium paid during the relevant PY.
Obligation. [Section 17(2)(iv)] Any sum paid by the employer in respect of any obligation which, but for
such payment, would have been payable by the employee for personal purpose.
such payment, would have been payable by the employee for personal purpose.
E.g. 1: Where employee engages a servant, it is the duty of employee to pay salary to the servant. But if
employer pays the salary of servant then it means that employer has discharged the obligation of employee.
Such sum shall be treated as perquisites and shall be added to gross salary of employee.
employer pays the salary of servant then it means that employer has discharged the obligation of employee.
Such sum shall be treated as perquisites and shall be added to gross salary of employee.
E.g. 2 : Where the gas bill is in the name of employee in such a case it is the responsibility of employee to pay
the gas bill but if employer pays gas bill, it means that employer has discharged the obligation of employee.
Such sum shall be treated as perquisites and shall be added to gross salary of employee.
the gas bill but if employer pays gas bill, it means that employer has discharged the obligation of employee.
Such sum shall be treated as perquisites and shall be added to gross salary of employee.
E.g. 3 : Where income tax, employment tax or any other tax of employee is paid by employer, then it is said
that employer has discharged the obligation of employee. Such payment made by employer shall be treated
as perquisites and shall be added to gross salary of employee. Reimbursements of professional tax shall be
allowed as deduction in the year of payment u/s 16(iii).
that employer has discharged the obligation of employee. Such payment made by employer shall be treated
as perquisites and shall be added to gross salary of employee. Reimbursements of professional tax shall be
allowed as deduction in the year of payment u/s 16(iii).
Year of taxability : The obligation is taxable on paid basis and not on accrual basis.
Suppose electricity bill dated 15-3-2017 of ₹ 6,000 is reimbursed by employer on 1-4-2017. Then such
reimbursement is taxable in the PY 2017-18 and not in PY 2016-17.
reimbursement is taxable in the PY 2017-18 and not in PY 2016-17.
5. Employees Stock Option Plan. [Section 17(2)(vi)]
6. Approved superannuation fund. In excess of ₹ 1,50,000 shall be taxable. [Section 17(2)(vii)]
7. Specified perquisites. [Section 17(2)(viii)]
|
i. |
Sale of moveable assets. |
iv. |
Gifts. |
vii. |
Club facility. |
|
ii. |
Use of assets. |
v. |
Meal facility. |
viii. |
Credit Card facility. |
|
iii. |
Loan facility. |
vi |
Holiday home facility. |
|
|
Note: The value of specified perquisites are taxable in the year in which it is provided.
Category ‘B’ perquisites
Following perquisites are taxable only in case of specified employee. [Section 17(2)(iii)]
|
i. |
Gas, electricity or water facility. |
iv. |
Medical facility. |
|
ii. |
Education facility. |
v. |
Servant facility. |
|
iii. |
Transport facility. |
vi |
Car facility. |
Note 1: The value of GETMSC facility is included in salary income in the year in which it is provided.
P1: In which previous year salary is taxable?
Solution:
Solution:
- Salary, allowances, pension are taxable either on due basis or on receipt basis whichever matures earlier. However following salaries are taxable only on receipt basis.
Advance salary; bonus; salary in lieu of notice period, arrears of salary which is increased with retrospective
effect.
effect.
- Life insurance premium is taxable on due basis.
- Reimbursements on paid basis
- Other perquisites is taxable when it is provided.
P2: Compute income from salary from the following information for the AY 2017-18.
|
|
Case 1 |
Case 2 |
|
Basic Salary |
40,000 |
5,00,000 |
|
Reimbursements of water bill on 31-3-2017. |
9,000 |
18,000 |
|
Reimbursements of electricity bill dated 31-3-2017 paid on 1-4-20 |
12,000 |
25,000 |
|
Life insurance premium of employee paid by employer on 1-4-2017. Due date of premium 31-3-2017. |
6,000 |
19,000 |
|
Gas Facility |
5,000 |
15,000 |
Ans: 55,000; 5,52,000.
P3 : 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.
Ans: False, it is an obligation of employee discharged by employer. S 17(2)(iv).
to be treated as perquisites in the hands of X.
Ans: False, it is an obligation of employee discharged by employer. S 17(2)(iv).
The document Perquisites - 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 Perquisites - Taxation - Income Tax for assessment (Inter Level)
| 1. What are perquisites in taxation? |  |
Ans. Perquisites, also known as perks or fringe benefits, refer to additional benefits or advantages received by an employee from their employer in addition to their salary or wages. These may include company cars, housing allowances, medical insurance, stock options, etc. In terms of taxation, perquisites are subject to certain rules and regulations that determine how they should be taxed.
| 2. How are perquisites taxed in the United States? | |
Ans. In the United States, perquisites are generally considered taxable income for employees. The value of the perquisites is added to the employee's total income and subject to federal income tax. Employers are required to report the value of perquisites on the employee's Form W-2. The specific tax treatment of perquisites may vary depending on the type of benefit and applicable tax laws.
| 3. Are all perquisites taxable in India? | |
Ans. No, not all perquisites are taxable in India. The Income Tax Act of India provides certain exemptions and allowances for specific perquisites. For example, the provision of medical facilities, leave travel concession, and certain types of allowances are exempt from taxation up to a certain limit. However, most perquisites are subject to taxation and their value is included in the employee's taxable income.
| 4. Can perquisites be taxed differently for different employees? | |
Ans. Yes, it is possible for perquisites to be taxed differently for different employees. The tax treatment of perquisites may vary based on factors such as the employee's salary level, job position, and the specific perquisite being provided. Some perquisites may be taxed at a higher rate for higher-income employees, while others may be fully or partially exempt for employees below a certain income threshold.
| 5. How can employers determine the value of perquisites for taxation purposes? | |
Ans. Employers can determine the value of perquisites for taxation purposes based on the fair market value of the benefit provided. For example, if a company provides a company car to an employee, the value of the perquisite would be calculated based on the market value of similar cars. In some cases, the tax authorities may provide specific guidelines or methods for valuing certain types of perquisites. It is important for employers to accurately determine the value of perquisites to comply with tax regulations.
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