Tax Exemptions and Eligibility for Start-ups in India
April 23, 2018
Deduction under Section 80J
April 23, 2018

Section 17(2) – Perquisites under the Income Tax Act

Last Update Date : April 23, 2018

Perquisites are nothing but the benefits that are enjoyed by or entitles to a person on account of his position or job. This article deals with the taxability of additional benefits provided by the employers to their employees as provided and regulated by section 17(2) of the Income Tax Act, 1961.

section 17(2)

What does Salary Include?

The term ‘salary’ for purposes of income tax is much wider in meaning than our regular understanding. The term ‘salary’ as per the act will include

  • Monetary payments (Example: Basic salary, commission, bonus, allowances) and
  • Non-monetary facilities (Example: Housing accommodation, medical facility, interest-free loans, etc.)

Such non – monetary additional facilities provided to employees are treated as perks the taxability of which is dealt with by section 17(2) of the Income Tax Act.

What is Perquisite?

The term ‘perquisite’ indicates some extra benefit in addition to the normal salary provided to the employees. These may be provided free of cost or at concessional rates to the employees.

Some examples of perquisites are rent-free accommodation, provision of a motor car for personal use, use of health club, refreshment during office hours, etc.
The questions that arise from a tax point of view is

  • Whether such perks are taxable?
  • If yes, how do we value the benefit received?
  • Whether there are any exemptions available?

Let us discuss the features and taxability of these perquisites and how can it impact your income tax return.

Features of a Perquisite

  • It may be provided in cash or in kind
  • Reimbursement of expenses incurred during performance of official duty is not a perquisite
  • Perquisite can be made taxable only if it has a legal origin. An undue advantage taken by the employee without the employer’s sanction cannot be considered as a perquisite

Categories of a Perquisite

The perquisites received by an employee from his employer can be classified into 2 categories based on taxability:

  • Perquisite taxable in the case of all employees
  1. Rent free accommodation or accommodation at a concessional rate subject to certain conditions
  2. Value of motor car provided for personal use subject to certain conditions
  3. Specified security or sweat equity shares allotted
  4. Provision of personal worker / attendant
  5. Gas, electricity or water supplied by the employer
  6. Reimbursement of medical expenditure over and above Rs. 15000 in a financial year
  7. Interest-free concessional loans provided (Except in the case where the loan is made available for treatment of prescribed diseased, and the aggregate amount of loans are exceeding Rs. 20,000 in total)
  8. Free / concessional education facilities provided to children of the employee only if the value of such benefit per child exceeds Rs 1,000 per month
  9. Free / concessional food and non-alcoholic beverages over and above the amount of Rs. 50 per meal provided
  10. Gift, token or voucher in lieu of such gift only if the value exceeds Rs. 5,000 in aggregate during the year
  11. Travelling, touring and accommodation facilities provided or expenses reimbursed by the employer
  12. Club Expenditure except in a case where the membership of health club, sports are provided uniformly to all the employees
  13. Credit card expenses borne by the employer
  14. Use of movable assets other than laptops and computers
  15. Transfer of movable assets in the name of an employee based on certain conditions

Note: If the value of perquisites is below the monetary limits as prescribed in some of the above cases, it would be treated as exempt.

  • Perquisite exempt in the case of all employees
  1. Telephone Facility
  2. Transport Facility
  3. Privilege passes and tickets
  4. Training provided to the employees
  5. Leave travel concession subject to certain conditions
  6. Medical facilities subject to certain prescribed limits
  7. Perquisites allowed by the Government for rendering services outside India

Valuation of Perquisites

Now that we are clear on which perquisites are required to be taxed, the next question that arises is how to calculate the value of the benefit received. Let us discuss the valuation of some important perquisites as covered in most of the pay packages.

Valuation of Rent-Free Accommodation

The valuation of the benefit received in respect of rent-free accommodation can be categorised as follows

  • Where the employer owns the accommodation provided
    The value in respect of such an accommodation would depend upon the population of the place where such accommodation is provided
Population in the place where the accommodation is provided Value of Perquisite to be taxed
Less than 10 Lakhs 7.5% of salary
10 to 25 Lakhs 10% of salary
More than 25 Lakhs 15% of salary

Salary would be calculated in respect of the period during which the said accommodation was occupied by the employee during the previous year

  • Where the is taken on lease / rent by the employer
    The value of perquisite in such a case would be lower of the two
  1. Actual rent paid / payable by the employer or
  2. 15% of the salary

Note: The above values are calculated in respect of unfurnished accommodation. However, if a furnished accommodation has been provided, the value of the furniture would be required to be added separately to the above-calculated values which can be ascertained as follows:

  1. If the furniture is owned by the employer – 10% of the cost of the furniture for each year
  2. If the furniture is hired from a third party – Actual hire charges payable for the same
  • Where the accommodation has been provided in a hotel
    The value of perquisite in such a case would be lower of the two
  1. Actual hotel charges paid / payable by the employer or
  2. 24% of the salary

Note: Salary for the purpose of this section would mean Basic salary + Dearness allowance (if terms of employment so provide) + All taxable cash components of salary like bonus, commission, allowances, etc.

Valuation of the Motor Car for Personal Use

The valuation of benefit in respect of motor car provided can be categorised as follows

Situation A: Employee’s Car and expense borne by the employer
Situation B: Employer’s Car and expense borne by the employer
Situation C: Employer’s Car and expense borne by the employee

The value of taxable perquisite can be calculated as follows

Scenario Situation 1 Situation 2 Situation 3
Mixed usage of motor vehicle – Both private and personal use Actual cost borne by employer less fixed amounts as below

(Car<1.6cc: Rs 1800 per month Car>1.6cc: Rs 2400 per month)

If the driver is provided by the employer, further Rs 900 per month in respect of driver to be reduced

Fixed amount per month as follows

(Car<1.6cc: Rs 1800 per month Car>1.6cc: Rs 2400 per month)

If the driver is provided by the employer, further Rs 900 per month in respect of driver to be added

 

A fixed amount per month as follows

(Car<1.6cc: Rs 1800 per month Car>1.6cc: Rs 2400 per month)

If the driver is provided by the employer, further Rs 900 per month in respect of driver to be added

 

Usage fully for private purpose Cost to Employer Cost to Employer + additional wear and tear cost @ 10% per annum of the cost of vehicle Cost to Employer + additional wear and tear cost @ 10% per annum of the cost of vehicle

Usage of Movable Assets of the Employer

The value of taxable perquisite can be calculated as follows

Nature of Asset Value of taxable perquisite
Computers and Laptops Nil
Other assets owned by the employer 10% per annum of cost
Other assets taken on lease by the employer Actual hire charges

Transfer of Movable Assets of the Employer

The value of taxable perquisite can be calculated as follows

Nature of Asset Value of taxable perquisite
Electronic items and computers Actual cost Less depreciation charged at 50% by WDV method for each completed year of usage
Motor Car Actual cost Less depreciation charged at 20% by WDV method for each completed year of usage
Any other asset Actual cost Less depreciation charged at 10% by SLM method for each completed year of usage

The valuation in respect of other perquisites would depend upon the actual benefit received by the employee / cost incurred by the employer for providing such a perquisite.

Differences Between Allowances and Perquisites

Allowances are paid in cash as a fixed amount of sum on a monthly basis to meet certain particular requirements for use in the course of the performance of duties. This amount may or may not be borne by the employee for that specified purpose whereas. The amount of allowances paid forms part of pay package of the employee whereas perquisites are additional benefits in addition to the normal salary received by an employee. This may or may not be provided in cash and the amount to be taxed depends on the value of the benefits received. Perquisite may or may not form part of the pay package of the employee

In case you need any other assistance related to taxability of perquisites or income tax return filing, feel free to consult our tax experts at H&R Block. You can get comprehensive assistance related to your taxes including understanding the investment options which could help you save your taxes.

  • Share: 

Still Have Questions?