tax treatment of perquisites

Taxability of Perquisites under Income Tax

Tax treatment of Perquisites

Treatment of Perquisites under Income Tax Act are updated for June 2023 and Dec 2023 Exams. These notes are beneficial for CS Executive New Syllabus of ICSI.  

Topics included in this Article

Introduction
Difference between Allowances and Perquisites
Tax treatment of Perquisites

Categories of employees from perquisites point of view
Who are Specified Employees
Perquisites specified under Section 17(2) of Income Tax Act, 1961
Value of Rent Free Accommodation/Accommodation at Concessional Rent (taxable in case of every employee whether specified or unspecified)[Rule 3(1)]
Taxability of certain benefits taxable in case of specified employees only
Valuation of Motor Car or other Vehicle [RULE 3(2)]
Value of facilities provided by employer to employee in the form of services of a sweeper, gardener, cook, watchman, other servant etc. [Rule 3(3)]
Value of facilities provided by employer to employee in the form of free or concessional gas, electricity, water etc. [Rule 3(4)]
Value of free or concessional education facility provided by employer to households of employee [Rule 3(5)]

Value of free or concessional journey to employee or member of his/her household by the employer engaged in the carriage of passengers or goods [Rule 3(6)]

Valuation of Fringe Benefits [Rule 3(7)]
Interest Free Loans or Loans at Concessional Interest Rate [Rule 3(7)(i)]

The value of travelling, touring, accommodation and any other expenses paid for or borne or reimbursed by
the employer for any holiday availed of by the employee or any member of his household [Rule 3(7)(ii)]
Value of free food and non-alcoholic beverages [Rule 3(7)(iii)]
Value of any gift, or voucher, or token [Rule 3(7)(iv)]
Value of expenses on Credit Cards [Rule 3(7)(v)]
Club membership and expenses incurred in a club [Rule 3(7)(vi)]
Use of Movable assets by employee [Rule 3(7)(vii)]
Transfer of any movable assets [Rule 3(7)(viii)
Valuation of Medical Facilities provided by the employer to the employees in India
Valuation of Medical Facilities provided by the employer to the employees outside India
Tax free perquisites in case of all employees

Introduction

Perquisites are additional benefits (benefits in addition to other components of salary) to the employee from/on behalf of the employer during the terms/course of employment. Perquisites are generally in 2 forms:

  • in the form of non-cash benefits (like rent free home, free use of employer’s car, facility of free servants, gas, water, electricity etc. from/on behalf of employer) and
  • in the form of cash reimbursements (payment of cash to the employee after the expense is done by the employee)

Difference between Allowances and Perquisites

AllowancesPerquisites
Allowances are cash benefits. Here employer pays fixed cash to employee for some specific purpose

Perquisites are in the form of

  • facilities (non-cash benefits) or
  • cash reimbursements

Generally in case of allowances, employer is least concerned whether the amount is utilised for specified purpose or not.

It means in case of allowances, employee may save even the entire amount received from employer.

In case of perquisites,

  •  amount is paid by employer directly to the facility/service provider; or
  • amount is reimbursed by the employer only after the expense is done by the employee.

It means first employee has to spend the money from his/her own pocket and only after that some or all money is reimbursed (given) by employer to employee.

Here we need not to calculate the value of allowances as they are in cash form. So here we have to find out only that part of allowances which are exempted as per the provisions of Income Tax Laws.

As perquisites may be in the form of non-cash benefits therefore we have to calculate the value of perquisites according to the provisions of Income Tax Laws.
Such value is considered as benefit in the hands of employees and is to be added in the taxable salary of employees unless and until that benefit or some part of the value of that benefit is exempted under Income Tax Laws.

Examples of Allowances:

  • House Rent Allowance (fixed cash for payment of house rent)
  • Medical Allowances (fixed cash for medical expenses)
  • Telephone allowance (fixed cash for telephone bills)
  • Food allowances (fixed cash for food)
  • Conveyance Allowance
  • Children Education Allowance

Examples of Perquisites:

  •  Rent Free Accommodation
  • Treatment of employee or his house members in employer owned /maintained hospital or reimbursement of medical bill in case of treatment in private hospitals.
  • Reimbursement of telephone bill or payment of telephone bill directly to telephone company
  • Free food or food coupons provided by employer

Tax Treatment of Perquisites

  • Find out whether a perquisite is taxable or not.
  • If a perquisite is taxable, find out the value of that perquisite according to the provisions of Income Tax Laws
  • Add the taxable part of that value in the salary of assessee.

Categories of employees from perquisites point of view

From perquisites point of view, we can divide all the employees into 2 main categories:

  • Normal Employees (Non-specified Employees)
  • Specified Employees
  • Some perquisites are exempted in the hands of all employees
  • Some perquisites are taxable in the hands of all employees, and
  • Some perquisites are taxable in the hands of specified employees only

Who are Specified Employees?

An employee is considered as Specified Employee if he/she falls under any of the following 3 categories:

  • if he/she is a director in the company; or
  • if he/she has a substantial interest in the company; or
  • if his/her income under the head ‘salaries’ exceeds Rs. 50,000 (after excluding all non-monetary benefits but after providing deductions under Section 16)

Substantial interest in the company
According to Section 2(32) of Income Tax Act, 1961, a person is considered to have substantial interest in a company if such person is a beneficial owner of shares carrying not less than 20% voting right in that company

Perquisites specified under Section 17(2) of Income Tax Act, 1961

According to Section 17(2), perquisite includes—

  1. the value of rent-free accommodation provided to the assessee by his employer;
  2. the value of any concession in the rent of any accommodation provided to the assessee by his employer;
  3. the value of any benefit or amenity granted or provided free of cost or at concessional rate to specified employees.
  4. any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assessee;
  5.   any sum payable by the employer to effect
    • an assurance on the life of the assessee or
    • to effect a contract for an annuity
      (Note: Sum payable by the e-linked Insurance Fund is not covemployer towards RPF or an approved superannuation fund or a Depositred here); 
  6.      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.
  7.   the amount or the aggregate of amounts of any contribution made to the account of the assessee by the employer—
    • in a recognized provident fund;
    • in the scheme referred to in sub-section (1) of section 80CCD [contributions made to the National Pension Scheme (NPS) or the Atal Pension Yojana (APY)]; and
    • in an approved superannuation fund,
      to the extent it exceeds Rs. 7.5 Lakh in a previous year (w.e.f. 1-4-2021)   
  8. the annual accretion by way of interest, dividend or any other amount of similar nature during the previous year to the balance at the credit of the fund or scheme referred to in sub-clause (vii) to the extent it relates to the contribution referred to in the said sub-clause which is included in total income under the said sub-clause in any previous year computed in such manner as may be prescribed; (w.e.f. 1-4-2021)
  9. the value of any other fringe benefit or amenity

Examples of monetary obligation of employee discharged by employer

  1. Bill of gas, electricity or water paid by employer or paid by employee but reimbursed by employer to employee
  2. Fee or other expenses related to Education facility to the family members of employee are paid by employer or paid by employee but reimbursed by employer to employee.
  3. Salary of domestic servants like sweeper, garden, watchman etc. paid by employer or paid by employee but reimbursed by employer to employee
  4. Medical bills related to employee or his/her family members paid by employer or paid by employee but reimbursed by employer to employee
  5. Loan of employee paid or reimbursed by employer
  6. Taxes of employee paid or reimbursed by employer

Examples of Fringe benefit or amenity provided by employer to employees

  1. Value of interest free loan or loan at concessional rate [Rule 3(7)(i)]
  2. Value of travelling, touring, accommodation and any other expenses paid or borne or reimbursed by employer for any holiday availed of by the employee or any other member of employee household [Rule 3(7)(ii)]
  3. Value of free food and non-alcoholic beverages to the employees [Rule 3(7)(iii)]
  4. Value of gift, voucher or token to the employee or any other member of employee household by the employer [Rule 3(7)(iv)]
  5. Value of expenses done on/through credit card by employee or any other member of employee household [Rule 3(7)(v)]
  6. Value of Club membership and expenses incurred in a club by employee or any other member of employee household [Rule 3(7)(vi)]
  7. Value of use of movable assets of employer by the employee or any other member of employee household [Rule 3(7)(vii)]
  8. Value of movable assets of employer transferred for free or at concessional rate to employee or any other member of employee household [Rule 3(7)(viii)]
  9. Value of any other fringe benefit or amenity provided by employer to employee [Rule 3(7)(ix)]

Value of Rent Free Accommodation/Accommodation at Concessional Rent (taxable in case of every employee whether specified or unspecified) [Rule 3(1)]

Accommodation provided by employer to an employee may be

  • furnished or
  • unfurnished

Accommodation and/or Furniture may be

  • owned by employer (means where employer need not to pay any rent) or
  • hired by employer / taken on lease by employer (means where employer need to pay rent for that accommodation or furniture)

For the purpose of this perquisite, employees may be divided into 2 categories:

  1. Central Govt. or State Govt. employees (holding office or post in connection with the affairs of the Union or of concerned State)
  2. Others employees (Semi-government Employee and Non-government Employees)

Further accommodation provided by employer may be

  • normal accommodation (Residential House)
  • in Hotel
  • an accommodation at mining site, onshore exploration site, project execution site, dam site or power generation site
  • an accommodation at new place of posting on transfer while employee has retained old accommodation at previous place of posting

General Procedure

  • Determine whether employee is Government Employee Non-Government Employee
  • Find the value of unfurnished accommodation as per the provisions of Income Tax Laws
  • Add value of furniture (if any) provided by employer
  • Deduct amount (if any) recovered by employer from employee in respect of accommodation or furniture

Determination of value of rent free accommodation

Case 1 – Where accommodation is normal accommodation

In case of Central Government or State Government employees
(whether accommodation is owned by employer or hired by employer)

Value of accommodation

Licence Fee
(as prescribed under the rules framed by concerned government)

(+)

Add

Value of furniture if accommodation is furnished

10% of the cost of furniture
(if furniture is owned by that employer)
OR
the actual amount paid/payable by the govt
(if furniture is hired by that govt.)

(-)

Less

Any sum recovered from employee

Sum recovered from employee for accommodation/furniture

It should be noted that where accommodation is provided by government to its employees, it is immaterial whether accommodation is owned by employer or not. In both cases method of calculating value of accommodation is same.

In case of Non-Government employees – Where accommodation is owned by employer

 

 

Value of accommodation

15% of the RFA salary
(if accommodation is provided in a city with population* more than 25 lakh)
OR
10% of the RFA salary
(if accommodation is provided in a city with population more than 10 lakh but not more than 25 lakh)
OR
7.5% of the RFA salary
(if accommodation is provided in a city with population upto 10 lakh)

(+)

Add

 

Value of furniture if accommodation is furnished

10% of the cost of furniture
(if furniture is owned by employer)
Or
the actual amount paid/payable by the employer
(if furniture is hired by employer)

(-)

Less

Any sum recovered from employee

sum recovered from employee for accommodation/furniture

*population shall be considered according to 2001 census

In case of Non-Government employees – Where accommodation is not owned by employer

 

Value of accommodation

Lower of the following:
15% of the RFA Salary
(accommodation may be in any city)
OR
actual amount paid/payable by employer

(+)

Add

 

Value of furniture if accommodation is furnished

10% of the cost of furniture
(if furniture is owned by employer)
OR
the actual amount paid/payable by the govt.
(if furniture is hired by employer)

(-)

Less

Any sum recovered from employee

sum recovered from employee

Where accommodation is in Hotel (Applicable in case of all employees whether government or non-government)

Value of accommodation in case assessee is provided  accommodation in Hotel for a period of 15 days or less on his/her transfer from one place to another

 

NIL

Value of accommodation in any other case like

  • If accommodation is provided for more than 15 days due to transfer from one place to another; or
  •   If accommodation is provided for any number of days not due to transfer from one place to another

Lower of the following:

24% of the RFA salary for P.Y
(accommodation may be in any city)
or
actual amount paid/payable by employer

(-)

Less

Any sum recovered from employee

sum recovered from employee

Thus first we have to calculate 24% of salary of P.Y and then we have to reduce such salary proportionately for the period during which such accommodation is provided

Case 3 – Where accommodation is provided to employees working at specified site

Value of accommodation provided to employees working at any of the following site

  • mining site
  • onshore oil exploration site
  • project execution site
  • dam site
  • power generation site
  • offshore site

Value of accommodation

  • being of temporary nature and
  • whose plinth area does not exceed 800 square feet and
  • located not less than 8 km away from the local limits of any municipality or cantonment board

 

 

NIL

Value of accommodation located in a remote area

NIL

Any other case

Value shall be calculated as in case of normal accommodation

Remote area means an area that is located at least 40 kilo meters away from a town having a population not exceeding 20,000 based on latest published all-India census

Case 4 – Value of accommodation at new place of posting on transfer while employee has retained old accommodation at previous place of posting

In such case, first calculate the value of both accommodations just like normal accommodation.

For first 90 days

The value of perquisite shall be determined with reference to only one such accommodation which has the lower value

After 90 days

Value of perquisite shall be charged for both such accommodations.

Points to note:

RAF Salary includes

  • Basic Salary,
  •   D.A (forming part of retirement benefits),
  • all taxable allowances, bonus or commission payable monthly or otherwise and
  • any monetary payment, by whatever name called from one or more employers, as the case may be,

but does not include the following, namely:

  1.  employer’s contribution to the provident fund account of the employee;
  2. the value of perquisites specified under section 17(2) of the Income-tax Act;
  3. any lump sum payment received/receivable at the time of retirement or termination of service like gratuity, leave encashment, pension etc.

Salary shall be computed on DUE BASIS for the period for which the RFA has been provided to the employee. Advance salary and arrears of salary shall not be considered for this purpose.

Accommodation includes house, flat, accommodation in a hotel, motel, guest house, farm house, caravan, mobile home, ship or any other floating structure.

Furniture including television sets, radio sets, refrigerators, other household appliances, air-conditioning plant or equipment

Taxability of certain benefits taxable in case of specified employees only
Employers can provide benefits, amenities and facilities to the employees in 2 ways:

  • Service and facility is hired/engaged by employee in his own name and paid/reimbursed by employer
  • Service and facility is owned/hired/engaged by employer in its own name and provided to the employees

In the 1st case, monetary obligations of employee are discharged by employer directly or indirectly. Such kinds of perquisites are taxable in case of all employees (whether specified or non-specified).
But in 2nd case, employer is providing services or facilities to the employee. Such kinds of perquisites are taxable in case of specified employees only.

For better understanding let’s take few examples

Perquisite taxable in the hands of all employees

Perquisite taxable in the hands of only specified employees

Servant is engaged by employee

  • Salary is paid by employer or
  • Salary is paid by employee but reimbursed by employer

Servant is engaged and paid by employer and facility of his services is provided by employer to employee

Motor car belongs to employee and expenses of running and maintenance of such car for personal use of employee are met by employer

Motor car and related expenses are provided by employer to employee for his/her personal use

Connection of Gas/electricity/water is in the name of employee

  • expenses are paid by employer or
  •   expenses are paid by employee but reimbursed by employer

Connection of Gas/electricity/water is in the name of employer and these facilities are provided by employer to employee

Examples of perquisites taxable in case of specified employees only

  1. Free boarding facility provided by employee
  2. Free conveyance for private use like motor car
  3. Free or concessional education facility to the family members of employee
  4. Gas, electricity or water supplied free of cost by employer for household consumption.
  5. Services of domestic servants like sweeper, garden, watchman etc. provided by employer.
  6. Free lunches or dinner

Case 3 – Where accommodation is provided to employees working at specified site

Value of accommodation provided to employees working at any of the following site

  • mining site
  • onshore oil exploration site
  • project execution site
  • dam site
  • power generation site
  • offshore site

Value of accommodation

  • being of temporary nature and
  • whose plinth area does not exceed 800 square feet and
  • located not less than 8 km away from the local limits of any municipality or cantonment board

NIL

Value of accommodation located in a remote areaNIL

Any other case

Value shall be calculated as in case of normal accommodation
Remote area means an area that is located at least 40 kilo meters away from a town having a population not exceeding 20,000 based on latest published all-India census

Case 4 – Value of accommodation at new place of posting on transfer while employee has retained old accommodation at previous place of posting

In such case, first calculate the value of both accommodations just like normal accommodation.

For first 90 days

The value of perquisite shall be determined with reference to only one such accommodation which has the lower value

After 90 days

Value of perquisite shall be charged for both such accommodations.

Points to note:

RAF Salary includes

  • Basic Salary,
  • D.A (forming part of retirement benefits),
  • all taxable allowances, bonus or commission payable monthly or otherwise and
  • any monetary payment, by whatever name called from one or more employers, as the case may be,

but does not include the following, namely:

  1. employer’s contribution to the provident fund account of the employee;
  2. the value of perquisites specified under section 17(2) of the Income-tax Act;
  3. any lump sum payment received/receivable at the time of retirement or termination of service like gratuity, leave encashment, pension etc.

Salary shall be computed on DUE BASIS for the period for which the RFA has been provided to the employee. Advance salary and arrears of salary shall not be considered for this purpose.

Accommodation includes house, flat, accommodation in a hotel, motel, guest house, farm house, caravan, mobile home, ship or any other floating structure.

Furniture including television sets, radio sets, refrigerators, other household appliances, air-conditioning plant or equipment

Taxability of certain benefits taxable in case of specified employees only

Employers can provide benefits, amenities and facilities to the employees in 2 ways:

  • Service and facility is hired/engaged by employee in his own name and paid/reimbursed by employer
  • Service and facility is owned/hired/engaged by employer in its own name and provided to the employees

In the 1st case, monetary obligations of employee are discharged by employer directly or indirectly. Such kinds of perquisites are taxable in case of all employees (whether specified or non-specified).

But in 2nd case, employer is providing services or facilities to the employee. Such kinds of perquisites are taxable in case of specified employees only.

For better understanding let’s take few examples

Perquisite taxable in the hands of all employees

Perquisite taxable in the hands of only specified employees

Servant is engaged by employee

  • Salary is paid by employer or
  • Salary is paid by employee but reimbursed by employer

Servant is engaged and paid by employer and facility of his services is provided by employer to employee

Motor car belongs to employee and expenses of running and maintenance of such car for personal use of employee are met by employer

Motor car and related expenses are provided by employer to employee for his/her personal use

Connection of Gas/electricity/water is in the name of employee

  • expenses are paid by employer or
  • expenses are paid by employee but reimbursed by employer

Connection of Gas/electricity/water is in the name of employer and these facilities are provided by employer to employee

Examples of perquisites taxable in case of specified employees only

  1. Free boarding facility provided by employee
  2. Free conveyance for private use like motor car
  3. Free or concessional education facility to the family members of employee
  4. Gas, electricity or water supplied free of cost by employer for household consumption.
  5. Services of domestic servants like sweeper, garden, watchman etc. provided by employer.
  6. Free lunches or dinners

Valuation of Motor Car or other Vehicle [RULE 3(2)] Case 1

Where car is provided by the employer to the employee
(perquisite taxable in case of specified employee only)

Situation 1

Situation 2

Situation 3

Situation 4

Car is used wholly for official purpose

Car is used wholly for personal purpose

Car is used partly for personal and partly for official and all expenses whether related to official use or personal use of car are met by the employer

Car is used partly for personal and partly for official and expenses related to personal use of car are met by the employee

No value

(provided employer has maintained proper records to show that car is used for official purpose only)

Expenses met by the employer on maintenance or running of car

(+)

Salary paid by employer to driver (if any) for running that car

(+)

Cost of car @ of 10% p.a. for normal wear and tear of car

(-)

Any amount recovered from the employee by the employer in this regard

In case small car value shall be

Rs.1,800 p.m. for car

(+)

Rs.900 p.m. for driver
(if any)

(nothing else shall be included)

In case big car value shall be

Rs.2,400 p.m. for car

(+)

Rs.900 p.m. for driver
(if any)

(nothing else shall be included)

In case small car value shall be

Rs. 600 p.m. for car

(+)

Rs.900 p.m. for driver
(if any)

(nothing else shall be included)

In case big car value shall be

Rs. 900 p.m. for car

(+)

Rs.900 p.m. for driver
(if any)

(nothing else shall be included)

Note:
In  3rd and 4th situation, it is not mentioned by the rule that amount recovered from the employee should be reduced from the above value.

Case 2

Where car is owned by employee and expenses are incurred by employer
(perquisite taxable in case of all employee)

Situation 1

Situation 2

Situation 3

Car is used wholly for official purpose

Car is used wholly for personal purpose

Car is used partly for personal and partly for official purpose and all expenses whether related to official use or personal use of car are met by the employer

No value
(provided employer has maintained proper records to show that car is used for official purpose only)

Expenses met by the employer on maintenance or running of car
(+)
Salary paid by employer to driver (if any) for running that car
(-)
Any amount recovered from the employee by the employer in this regard

In case small car value shall be
Actual amount of expenditure incurred by employer
(-)
Rs. 1,800 p.m.
(-)
Rs.900 p.m. for driver
(if any provided by employer
(-)
Any amount recovered from the employee by the employer in this regard

In case big car value shall be
Actual amount of expenditure incurred by employer
(-)
Rs. 2,400 p.m.
(-)
Rs.900 p.m. for driver
(if any provided by employer)(-)

Any amount recovered from the employee by the employer in this regard

However, in situation 3, if the actual expenditure of employee for official purpose is more than the amount specified above (1800/2700 p.m. in case of small car and 2400/3300 p.m. in case of big car), employee can claim deduction of such actual amount of expenditure 

Case 3

Where employee owns any other auto motive conveyance and expenses are incurred by employer
(perquisite taxable in case of all employee)

If such conveyance is used wholly for official purpose

If such conveyance is used partly for personal and partly for official and all expenses whether related to official use or personal use are met by the employer

No value

Actual amount of expenditure incurred by employer
(-)
Rs. 900 p.m.
(-)
Any amount recovered from the employee by the employer in this regard

Here employer shall maintain specified documents

However, in this case, if the actual expenditure of employee for official purpose is more than the amount specified above (900 p.m), employee can claim deduction of such actual amount of expenditure 

Case 4

Where more than one car is provided by employer to employee

Value of 1 car

Value of 1 car shall be calculated as if such car is used partly for personal and partly
for official purpose and all expenses whether related to official use or personal use of
car are met by the employer. 

Value of other car

Value of all other cars shall be calculated as if such cars are used wholly for personal
purpose

  

Points to note:

Note

  • Small car means cars where cubic capacity (CC) of engine does not exceed 1.6 litres (i.e. upto 1600cc cars)
  • Big car means cars where cubic capacity (CC) of engine exceeds 1.6 litres (i.e. more than 1600 cc
    cars)
  • Specified documents include details of journey undertaken for official purpose which may include
    date of journey, destination, mileage and amount of expenditure
  • Use of any conveyance provided by an employer to employee for commuting from residence to
    office and office to residence shall not be considered as perquisite (benefit) in the hands of employee
    and therefore exempted from tax.
  • Conveyance facility provided to the High Court Judges and Supreme Court Judges is not taxable

Value of facilities provided by employer to employee in the form of services of a sweeper, gardener, cook, watchman, other servant etc. [Rule 3(3)]

Case

Value

Taxability

Where servants are engaged and paid by or on behalf of employer

Amount/Salary paid by or on behalf of employer
(-)
Amount recovered from employee (if any) 

Taxable in case of specified employee only

Where servants are engaged by employee but

  • Salary is paid by employer o
  • Salary is paid by employee but reimbursed by employer

Same as above

Taxable in case of all employee

Value of facilities provided by employer to employee in the form of free or concessional gas, electricity, water etc. [Rule 3(4)]

Where Connection of Gas/ electricity/ water is in the name of employer
(taxable in case of specified employees only)

Case

Value

Where the source of such gas/electricity/water is owned by the employer

Manufacturing Cost incurred by employer

(-)

Amount recovered from employee (if any)

In any other case

Actual amount paid by employer in this regard

(-)

Amount recovered from employee (if any)

Where connection of such gas/ electricity /water is in the name of employee but

  • expenses are paid by employer o
  • expenses are paid by employee but reimbursed by employer

value of such benefits shall be taxable in case of all employees

Value of free or concessional education facility provided by employer to households of employee [Rule 3(5)]

Cases

Value

Where

  • free educational facilities is allowed in any educational institution maintained and owned by the employer, or
  • free educational facilities is allowed in any educational institution (not maintained and owned by the employer) by reason of employee being in employment of that employer

cost of such education in similar institution in or near the locality
less (-)
sum recovered from employee in this regard

In any other case

Cost incurred by employer
less (-)
sum recovered from employee in this regard

If the cost of such education or the value of such benefit per child does not exceed Rs. 1,000 p.m.

NIL

 Note:

  1. In any of the above cases,
    • if fee is paid by employer directly to educational institute, or
    • if fee is paid by employee but reimbursed by employer to the employee

value of such perquisite (benefit) is taxable in the hands of all employee.  

  1. Amount incurred by the employer for providing free educational facility or training to employee is not taxable.

Value of free or concessional journey to employee or member of his/her household by the employer engaged in the carriage of passengers or goods [Rule 3(6)]

Cases

Value

In case of employee of an airline or railways

Nil

In case of any other employee

Value at which such benefit is offered by such employer to the public
(-)
amount recovered from employee in this regard

 

Valuation of Fringe Benefits [Rule 3(7)]

Interest Free Loans or Loans at Concessional Interest Rate [Rule 3(7)(i)]

Here we have to find out the value of the benefit to the employee resulting from the provision of interest-free or concessional loan for any purpose made available to the employee or any member of his household during the relevant previous year by the employer or any person on his behalf.

Method of Valuation

Sum equal to the interest computed at the rate charged per annum by the SBI as on the 1st day of P.Y in which loan is taken by employee on the maximum outstanding monthly balance

Less

Sum equal to the interest computed at the rate actually paid by employee or any such member of his household to employer

Note
No value shall be considered

  • if such loans are made available for medical treatment in respect of diseases specified in Rule 3A of Income Tax Rules, 1962 or
  • where the amount of loans are not exceeding in the aggregate Rs. 20,000

Where the benefit relates to the loans made available for medical treatment referred to above, 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.

The value of travelling, touring, accommodation and any other expenses paid for or borne or reimbursed by the employer for any holiday availed of by the employee or any member of his household [Rule 3(7)(ii)]

Value of benefit shall be

  • the sum equal to the amount of the expenditure incurred by such employer in that behalf.

Where such facility is maintained by the employer, and is not available uniformly to all employees,
Value of benefit shall be taken to be

  • the value at which such facilities are offered by other agencies to the public.

Where the employee is on official tour and the expenses are incurred in respect of any member of his household accompanying him
Value of benefit shall be taken to be

  • the amount of expenditure so incurred in respect of such member of household

The amount so determined above shall be reduced by the amount, if any, paid or recovered from the employee for such benefit or amenity.

Value of free food and non-alcoholic beverages [Rule 3(7)(iii)]

The value of free food and non-alcoholic beverages provided by the employer to an employee shall be

  • the amount of expenditure incurred by such employer.

The amount so determined shall be reduced by the amount, if any, paid or recovered from the employee for such benefit or amenity.

In case food and non-alcoholic beverages at office during working hour or through not transferable vouchers
No Value shall be considered in case of food and non-alcoholic beverages provided by such employer

  • during working hours at office or business premises or
  • through paid vouchers which are not transferable and usable only at eating joints,

if value thereof in either case does not exceed Rs. 50 per meal. It means expenditure in excess of Rs. 50 should be treated as perquisite (after reducing the money recovered from the employee)  

In case of tea or snacks during working hours
No Value shall be considered in case of tea or snacks provided to the employee during working hours

In case food and non-alcoholic beverages at remote area or an off-shore installation
No Value shall be considered in case of free food and non-alcoholic beverages during working hours provided in a remote area or an off-shore installation.

Value of any gift, or voucher, or token [Rule 3(7)(iv)]

The value of any gift, or voucher, or token in lieu of which such gift may be received by the employee or by member of his household from the employer shall be determined as the

  • sum equal to the amount of such gift.

But if the value of such gift, voucher or token, as the case may be, is below Rs. 5,000 in the aggregate during the previous year, the value of perquisite shall be taken as “nil”.

Note

  • If the gift is in cash or in any form which can be converted into cash (like cheque), entire amount shall be taxable.
  • If the value of gift is above Rs. 5000, the value in excess of Rs. 5000 shall be taxable.

Value of expenses on Credit Cards [Rule 3(7)(v)]

Value of expenses including membership fees and annual fees incurred by the employee or any member of his household, which is charged to a credit card (including any add-on-card) provided by the employer, or otherwise, paid for or reimbursed by such employer

Value is – actual amount paid or reimbursed by employer less the amount paid or recovered from the employee.

If expenses are incurred wholly and exclusively for official purposes
No value of such benefit where expenses are incurred wholly and exclusively for official purposes and the following conditions are fulfilled:—

  • 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.

Club membership and expenses incurred in a club [Rule 3(7)(vi)]

The value of benefit to the employee resulting from the payment or reimbursement by the employer of any expenditure incurred (including the amount of annual or periodical fee) in a club by him or by a member of his household

  • actual amount of expenditure incurred or reimbursed by such employer on that account less amount recovered from the employee.

If employer has obtained corporate membership
If employer has obtained corporate membership of the club and the facility is enjoyed by the employee or any member of his household,

  • the value of initial fee paid for acquiring such corporate membership shall not be considered.

Where facilities are provided to all employees uniformly
No value shall be considered in case of use of health club, sports and similar facilities if such facilities are provided by employer uniformly to all employees.

Use of Movable assets by employee [Rule 3(7)(vii)]

The value of benefit to the employee resulting from the use by the employee or any member of his household of any movable asset (other than motor car, laptops and computers) belonging to the employer or hired by him

In case of use of laptops and computers by employee

  • No value (NIL)

In case of use of any other movable assets

  • If asset is owned by employer à 10% per annum of the actual cost of such asset
  • If asset is hired by employer à the amount of rent or charge paid or payable by the employer

Reduce the amount, if any, paid or recovered from the employee for such use.

Transfer of any movable assets [Rule 3(7)(viii)]

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

In case of laptops, computers and other electronics item

  • the actual cost of such assets to the employer less 50% of such cost for each completed year during which such asset was put to use by the employer, on the basis of reducing balance method

 In case of motor car

  • the actual cost of motor car to the employer less 20% of such cost for each completed year during which such asset was put to use by the employer, on the basis of reducing balance method

In case of any other asset

  • the actual cost of motor car to the employer less 10% of such cost for each completed year during which such asset was put to use by the employer, on the basis of straight line method

Valuation of Medical Facilities provided by the employer to the employees in India

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

Nil

Actual expenditure incurred by employee on his or his family member’s medical treatment in any hospital maintained by the Government or any local authority or in a hospital approved by the Government for medical treatment for its employees;

Nil

Expenditure actually incurred by employee on his or his family member’s medical treatment in respect of prescribed diseases or ailments a prescribed in rule 3A of the Income-tax Rules, in any hospital approved by the Principal or Chief Commissioner of Income-tax having regard to the prescribed guidelines.

Nil

Group medical insurance obtained by the employer for his employees (including family members of the employees) or all medical insurance payments made directly or reimbursement of insurance premium to such employees who take such insurance.

Nil

In any other case (Sum paid by employer on medical expenses actually incurred by the employee in a private hospital)

Fully Taxable

Valuation of Medical Facilities provided by the employer to the employees outside India

Expenses on medical treatment of the employee or any member of his family outside India.

Exempted to the extent permitted by RBI

Expenses on stay abroad of the employee or any member of his family for medical treatment with one attendant who accompanies the patient in connection with such treatment.

Exempted to the extent permitted by RBI

Travel expenses of the patient (employee or his family member) and one attendant who accompany the patient in connection with such treatment:

  • Where gross total income (before including therein the such travel expenditure as perquisite) of employee does not exceed Rs. 2,00,000
  • In any other case

Nil

100% taxable

Tax free perquisites in case of all employees

  • Perquisites to Government employees posted outside India.
  • Goods sold to employees, by their employer, at concessional rates.
  • Rent-free house to High Court Judges and Supreme Court Judges
  • Rent-free furnished residence (including maintenance thereof) provided to an Officer of Parliament, a Union Ministry and a leader of opposition in Parliament.
  • Conveyance facility to High Court and Supreme Court judges
  • Employer‘s contribution to staff group insurance scheme.
  • Interest free loan to an employee if the amount of loan does not exceed Rs. 20,000.
  • Interest free loan to an employee for treatment of any disease specified in Rule 3A of Income Tax Rules
  • Use of Computer/laptops of employer by employee
  • Free educational facility to the children of the employee, if cost of such education or value of such benefit does not exceed Rs. 1,000/- per month per child.
  • Training or education of employee for the purpose of business development
  • Use of health club, sports or similar facility provided by employer uniformly to all employees
  • Telephone expenses of employee (whether personal or official) incurred by employer
  • 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.
  • Food and non-alcoholic beverages provided by the employer to his employees during working hours at office or business premises – exempted up to Rs. 50 per meal
  • Non-transferable non-cashable food coupons or vouchers which can be used only at eating joints – exempted up to Rs. 50 per meal
  • Any tea or snacks provided by the employer to the employee during working hours
  • Food and non-alcoholic beverages of any value provided by the employer to the employee during working hours in a remote area or on offshore installation
  • Accommodation provided by the employer to the employee at mining site or an onshore oil exploration site or a project execution site, or a dam site or a power generation site
  • Accommodation provided by the employer to the employee in any remote area
  • Accommodation provided by the employer to the employee
    • if the accommodation is of temporary nature and
    • area of such accommodation does not exceeds 800 square feet and
    • such accommodation is located not less than 8 km from local limits of municipality or cantonment board.

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