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Valuation of Use of Asset Including Furniture

Arranged by Employer
a. Owned: If asset including furniture is owned by employer then 10% p.a. of the original cost of the asset less
recovery is taxable. (not W.D.V of asset)
b. Hired: If asset including furniture is rented by employer then actual hire charges paid or payable less recovery is taxable.

E.g. 1: Mr. Taxcrazy has been provided with an air-conditioner costing ₹ 1,00,000 on 1-1-2017. The use
of furniture during the PY 2016-17 is for 3 months. Taxable value shall be 10% of 1,00,000 × 3 ÷ 12 =
₹ 2,500. Suppose the furniture is provided on 12-3-2017. In this case furniture is used by employee for only
20 days during the PY 2016-17. Value of furniture = 10% of 1,00,000 × 20 ÷ 365 = ₹ 548.

Note 1: Furniture includes radio sets, TV, AC, refrigerator and other household appliances.

Note 2: Other assets includes home theater system, scanner, CD Rom, etc.

Note 3: Use of computer, laptop and telephone facility is fully exempt from tax even if provided for personal
purpose.

Note 4: However reimbursement of telephone bill for personal purpose is fully taxable. If for official purpose
then exempt.

P1: Compute value for use of assets provided by the employer to the employee during the PY 2016-17.
1. Air-Conditioner costing ₹ 50,000. WDV as on 1-4-2016 ₹ 30,000.
2. Television provided on 1-1-2016 (Cost of television 19,000).
3. Fridge provided on 1-1-2017 (Cost of fridge 10,000).
4. Microwave oven worth ₹ 8,000 provided on 1-12-2016 on hire (Actual hire charges ₹ 50 p.m.).
5. Employer purchased geyser for ₹ 5,000. Provided to employee for use 3-3-2017 @ ₹ 15 p.m.
6. Use of computer (Cost of computer ₹ 50,000).
7 Own furniture of ₹ 20,000 and air-conditioners on hire. Hire charges of AC ₹ 8,000.
8. Laptop used by employee and his members of household.
9. Two telephones (cell and landline) used by her and her family members. Expenditure incurred by the company is ₹ 2,500 p.m. (cell) and ₹ 1,500 p.m. (landline).
10. Scanner worth ₹ 18,000 for 98 days.
11. Set-top box worth ₹ 3,500 for 5 months. Hire charges paid by the company is ₹ 150.
12. Furniture. Furniture purchased on 1-4-2015. WDV as on 1-4-2016 ₹ 63,000. (Rate of depreciation 10%)
13. Computer (cost ₹ 50,000) kept by the employer in the residence of X from October 1, 2010.

Solution

1	Air-Conditioner [10% of 50,000]	5000
2	Television [10% of 19,000]	1900
3	Fridge on 1-1-2017 [10% of 10,000 ÷ 12 × 3]	250
4	Microwave oven [50 × 4]	200
5	Geyser on 3-3-2017 [10% of ₹ 5,000 ÷ 365 × 29] – [₹ 15 ÷ 31 × 29]	26
6	Use of computer is exempt	nil
7	Use of furniture (10% of ₹ 20,000) + Hire charges ₹ 8,000	10000
8	Value for use laptop is exempt	nil
9	Value of telephone is exempt	nil
10	Value for use of scanner [10% of ₹ 18,000 ÷ 365 × 98]	483
11	Value for use set-top box	150
12	Value for use of furniture [10% of ₹ 70,000]	7000
13	Use of computer	nil

P2: Explain tax treatment of following perquisites in the hands of employee. Mr. X and members of his household enjoys following facilities provided by the employer :
(a) Telephone bill reimbursed at his residence wholly for personal purpose. Expenditure incurred by employer
₹ 9,000.
(b) He is reimbursed the expenditure of buying two newspapers for his home. The reimbursement by the
employer during the year is ₹ 3,000.
(c) Income tax paid by employer on behalf of employee ₹ 2,000.

Ans: 9,000; 3,000; ₹ 2,000.

Valuation of Gifts, Voucher or Token
Gifts are of two types. a. Personal Gift. b. Professional Gift. If employer provides gift to employee it is treated
as professional gift and hence taxable whether given on ceremonial occasions or otherwise.

However where the gift is given in kind then exemption of upto ₹ 5,000 can be claimed. But if gift given in cash
or through cheque then exemption is not available and such cash gifts are fully taxable.

P1: Explain tax treatment of the following.
(a) Employer gifts TV of ₹ 25,000 to son of Mr. X. His son got admission in IIM Ahmedabad.
(b) The employer presents a Rolex watch to X on his birthday. Cost of watch ₹ 17,000.

Ans: 20,000; 12,000.

Rule 3(7). Valuation of Sale of Moveable Assets

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 as under :

1. Computer or electronic items : Electronic items are those items which are related to the computer. Eg. Printer, scanner etc. TV, Calculator though electronic item but are not related to computer. TV, calculator shall come under other assets. Rate of depreciation on computer or electronic item as per IT rules is 50% WDV method for each completed year. Ignore the part of month.

2. Motor Car [four wheeler only]: Rate of depreciation as per IT rules is 20% WDV method for each completed year. Ignore the part of month.

3. Other Assets : Rate of depreciation as per IT rules is 10% SLM for each completed year. Ignore the part of
month. No perquisite value is determined where other asset is provided by the employer to the employee either free or at concessional rate after using the same by the employer for 10 years or more.

4. Sale of stock in trade : Goods or services (manufactured by the employer) sold by the employer to his
employees are fully exempt from tax.

5. Gifts: If the above assets are given for free it shall be treated as gifts and upto ₹ 5,000 shall be exempt from
tax.

Format for computation of sale of movable asset
Purchase price of the asset	xx
Less: Depreciation for completed year for the period the asset is put to use. [ignore the months or days]	(xx)
Cost to the employer	xx
Less: Sale price	(xx)
Value of sold asset	xx

P1: What is the rate of depreciation on following assets (i) Laptop (ii) Printer (iii) Music System (iv) Motor Car
(v) Two Wheeler (vi) Tablet (vii) Scanner (viii) Smart Phones (ix) UPS

Ans: (i) 50% WDV (ii) 50% WDV (iii) 10% SLM (iv) 20% WDV (v) 10% SLM (vi) 50% WDV (vii) 50% WDV
(viii) 50% WDV (ix) 10% SLM

P2: The company purchases a motor car for ₹ 4,00,000 on 4-8-2013. The company sells the motor car to one of its employees for ₹ 10,000 on 5-9-2016. Compute the value for sale of assets for the PY 2016-17.

Solution:

Computation of sale of movable asset
Purchase price of the asset		4,00,000
Less: Depreciation for completed year (3 years)
•	First year	(80,000)
•	Second year	(64,000)
•	Third year	(51.200)
Cost to the employer		2,04,800
Less: Sale price (Recovery)		(10,000)
Value of sold asset		1,94,800

P3: Compute the taxable amount of RJ Raina who is working in Samsung, it is the manufacturer of white goods
and electronic goods.

Samsung sells 8 month old furniture for ₹ 15,000 which was purchased by the company for ₹ 22,000.
Samsung sells 2 years 8 month old bike for ₹ 12,000 which was purchased by the company for ₹ 33,000.
Samsung sells brand new printer for ₹ 14,000.
Samsung gives an air conditioner to its employees of ₹ 50,000 and charges nothing from them.
Samsung sells an Antique clock (10 years 1 month) for ₹ 1,000.
On April 1, 2014, the Samsung purchased a computer for ₹ 50,000 and subsequently transferred it to RJ Raina on June 30, 2015.
If a company transfers second hand motor car to the employee, the perquisites is valued at ‘Actual cost less depreciation @ 20% for each completed year under WDV method’. True or False

Ans: (a) 7,000; (b) 14,400; (c) nil; (d) 45,000; (e) nil; (f) 20,000. [33,000 – 3,300 – 3,300 = 26,400 – 12,000 =
14,400] (g) True

P4: Find out the taxable value of perquisite from the following particulars in case of an employee to whom the
following assets held by the company were sold on June 13, 2016.

Car		Laptop	Furniture
Cost of purchase (May 2014)	8,72,000	1,22,500	35,000
Sale Price	5,15,000	25,000	10,000

The assets were put to use by the company from the day these were purchased.

[CA N02]

Ans: 43,080 + 5,625 + 18,000 = 66,705

P5: Compute the value for use of asset and value for sale of assets for the financial year 2016-17.
1. Purchased scanner on 1-6-2014 for ₹ 7,000 which was purchased by employee on 10-9-2016 for ₹ 500.
2. Purchased a laptop on 1-7-2016 for ₹ 55,000 which was purchased by employee on 1-1-2017 for ₹ 51,000.
3. A wooden table and 4 chairs were provided to X at his residence (dining table). This was purchased on
May 1, 2013 for ₹ 60,000 and sold to X on August 1, 2016 for ₹ 30,000.

CA M03

Ans: (1) Scanner: Use ₹ 313. [700 ÷ 365 x 163] Sold ₹ 1,250. (2) Computer: Use Nil; Sold ₹ 4,000. (3)Use of
asset : 2,000. Sale of asset : 12,000.

	Use of asset	Sale of movable asset
Computer / Laptop	Exempt	50% WDV
Electronic item related to computer	Taxable @ 10% p.a. of the original cost of the asset.	50% WDV
Electronic item not related to computer / other assets	Taxable @ 10% p.a. of the original cost of the asset.	10% SLM
Motor car	to be discussed	20% WDV

Rule 3(7)(i). Valuation of Loan

Where the employer provides loan to employee from his own account then

1. Value of loan = (Rate of interest as per the SBI lending rates as on 1-4-2016) x (Amount of each loan
outstanding on last day of each month).

2. Value of loan = nil in following two cases.
• Where the aggregate amount of loan do not exceed ₹ 20,000 in a previous year.
• Where the loans are made available for medical treatment in respect of diseases specified in Rule 3A.

Note : SBI lending rate of interest as on 1-4-2016. The rates need not be memorised since given in the question.

Rule 3A. Name of specified disease : (a) cancer; (b) tuberculosis; (c) acquired immunity deficiency syndrome; (d) disease or ailment of the heart, blood, lymph glands, bone marrow, respiratory system, central nervous system, urinary system, liver, gall bladder, digestive system, endocrine glands or the skin or other specified ailment or disease requiring surgical operation.

P1: Compute the value of loan from the following information :

	Case 1	Case 2	Case 3	Case 4
Purpose of loan	Purchase of House	Gold	Car	Fridge
SBI lending rate of interest	8.5% p.a.	15% p.a.	9% p.a.	10% p.a.
Amount of loan outstanding	6,00,000	30,000	9,00,000	20,000
Rate of interest charged by the employer	7.5% p.a.	nil	2% p.a.	nil

Ans: 6,000; 4,500; 63,000; nil.
P2: Mr. Taxcrazy takes an interest free loan of ₹ 1,50,000 from his employer on 15-6-2016 for purchase of Home Theatre. He repays ₹ 20,000 on the last day of each month every month starting from June month. Compute value of loan for the AY 2017-18. [SBI lending rate of interest 15.25% p.a.]

Solution

Month End	Outstanding Balance	Month End	Outstanding Balance
June end	1,30,000	October end	50,000
July end	1,10,000	November end	30,000
August end	90,000	December end	10.000
September end	70,000	Total outstanding balance	4,90,000

Value of loan = 15.25% of 4,90,000 ÷ 12 = 6,227.

P3: Mr. Taxcrazy takes an interest free loan of ₹ 3,00,000 from his employer on 10-7-2016 for purchase of Car.
The loan is repayable on first day of each month every month starting from the month of August in 10 equal monthly installment. Compute value of loan for the AY 2017-18. (Assume SBI rate of interest 8.5% p.a.)
Ans: 11,475.

P4: Mr. X takes a loan of ₹ 2,000 every first day of month w.e.f 1-4-2016. Compute value of loan for the AY 2017-18 assuming SBI rate of interest 8% p.a.
Ans: 306.67

P5: Mr. X takes a education loan of ₹ 20,000 on 11-12-2016 and car loan of ₹ 25,000 on 3-2-2017. Compute
value of loan for the AY 2017-18 assuming SBI lending of interest education loan 8% p.a. & Car loan 9% p.a.
Ans: 641.67

P6: X is working as a general manager of A Ltd., on a monthly salary of ₹ 20,000. In the previous year ending March 31, 2017, the company provides him following :

(i) Interest free loan (on October 1, 2016)
(a) For residential flat purchased (repayable in 8 years) [SBI lending rate 9% p.a.] 5,00,000
(b) Education loan for son [SBI lending rate 10.5% p.a.] 15,000

(ii) Loan for purchase of computer on October 1, 2016 (10.5 percent interest per 30,000
annum) [SBI lending rate of interest 15.25% p.a.]

You are required to state the basis of calculation and compute value of perquisite for the AY 2017-18.

(CA-N02)

Ans: 24,000. [22,500+787.50+712.50=24,000]

P7: Determine the taxable value of the perquisite in the following transactions for the AY 2017-18:

The employer provided an interest-free loan of ₹ 6,00,000 repayable after a period of 5 years to X, an employee, on 1st November, 2016 for construction of new house. (SBI rate of interest 9%).
An interest-free loan of ₹ 2,50,000 repayable after 3 years has been provided to Y, an employee, on October 1, 2016 for repairs of existing house. (SBI rate of interest 9%).
Z, an employee, has availed a loan of ₹ 1,00,000 from the employer for purchase of computer, loan bearing interest at 9.5 per cent per annum on July 1, 2016. (SBI rate of interest 15.25% p.a.)
A company gives two interest-free loan to A, an employee of the company : ₹ 12,000 for children education and ₹ 8,000 for purchasing a washing machine. (SBI rate of interest 15.25%). (CS-J03)
Loan from recognized provident fund (maintained by the employer) ₹ 40,000. Value of loan is taxable since aggregate amount of loan exceeds 20,000. (True / False)

Ans: (a) 22,500; (b) 11,250; (c) 4,312.50; (d) nil. (e) False. Nothing is taxable.

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FAQs on Valuation of 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 non-monetary benefits provided to employees by their employers in addition to their regular salary or wages. These benefits can include things like company cars, housing allowances, medical insurance, club memberships, and more. In taxation, perquisites are subject to certain rules and regulations and may be taxable.

2. Are all perquisites taxable?

Ans. No, not all perquisites are taxable. The taxation of perquisites depends on various factors such as the nature of the benefit, the value of the benefit, and the employee's position or designation. Some perquisites may be fully taxable, some partially taxable, and some may be exempt from taxation altogether. It is important for both employers and employees to understand the tax implications of the perquisites provided.

3. How are perquisites valued for taxation purposes?

Ans. The valuation of perquisites for taxation purposes is determined based on the rules and guidelines provided by the tax authorities. In general, the value of a perquisite is calculated as the cost incurred by the employer in providing the benefit. However, specific valuation methods may differ for different types of perquisites. For example, the value of a company car may be determined based on the car's cost, depreciation, or lease payments, while the value of housing accommodation may be based on the rent paid or the market value.

4. Is there a limit or threshold for tax-free perquisites?

Ans. Yes, there are certain limits or thresholds for tax-free perquisites. The tax laws may specify a maximum value or a percentage of the employee's salary beyond which the perquisite becomes taxable. For example, if the value of an employee's club membership exceeds a certain limit, the excess amount may be subject to taxation. It is important for employers to be aware of these limits and ensure compliance with the tax regulations.

5. What are the reporting requirements for perquisites in taxation?

Ans. Employers are typically required to report the value of perquisites provided to employees in their annual tax filings. This helps the tax authorities ensure proper taxation of these benefits. The reporting requirements may vary depending on the jurisdiction and the size of the employer. Employers may need to maintain records of perquisites provided, such as bills, invoices, or lease agreements, to support the reported values. Employees should also keep track of the perquisites received and consult with tax professionals to accurately report their taxable income.

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