Perquisites in Income Iax
For those with jobs in India, the term “perquisite” is regularly considered when structuring their salary and planning their taxes. Basic salary, HRA, and bonuses are usual parts of a salary, but other benefits called perquisites are also given by the employer. They are often not money and are treated the same way as salary under tax laws. This article explains perquisites in income tax, the types available, the tax effect on them, how to value them, and what exemptions exist in the Income Tax Act of 1961.
What are Perquisites?
Fringe benefits, also called perquisites, provide employees with things besides their regular compensation. Some can be goods, some can be services, and some can include facilities. The taxes they attract depend on their details and the income tax rules. File your income tax returns now with TaxDunia
Section 17(2) of the Income Tax Act defines perquisite as:
- Rent-free accommodation
- Concessional accommodation
- The costs of personal expenses are covered by the company
- Perks linked to motor car, gas, electricity, and so on.
- Beyond the limit, money put into the Provident Fund, Superannuation Fun,d or NPS by an employer
- Stock options
- Club expenses
- The cost of their children’s education
- The contribution by the employer for insurance.
Types of Perquisites
Perquisites are usually arranged into three main types.
1. Taxable Perquisites
They are included in the employee’s salary and are fully subject to tax.
- The employer gives free housing as part of the employment.
- A car made available by the company for private use
- Loans at a reduced interest rate
- Company officials deduct income tax from the employee’s pay every month
- Funding for membership comes from the employer.
- The company reimburses the costs for the employee’s child’s educational expenses.
2. Benefits that Are Free from Taxes
Taxes are not applied to these, either in full or up to a particular amount, based on the Income Tax Act:
- All the services and facilities you get in a government-approved hospital
- The cost of health insurance is covered by the employer.
- You’ll receive a laptop or computer for work only
- Office-hour snacks
- Costs for mobile and internet services used for work are reimbursed.
- You get gifts or vouchers worth up to ₹5,000 each financial year
3. Only Perquisites Given to Specified Employees Are Taxed
Rule 3 of the Income Tax Rules says that only some employees are liable to pay tax on certain perquisites. A specified employee is a person who:
- Is one of the company’s directors.
- Holds at least 20% of the company’s equity.
- For those with a yearly salary over ₹50,000.
Such workers are taxed for getting things like:
- In preparation, a sweeper, gardener, watchman or personal attendants were brought in.
- Schooling for children without paying any tuition
- Motor car can be used both for work and travel.
- Gas, electricity and water costs are offered by the employer.
Valuation of Perquisites
The method for valuing perquisites is indicated in Rule 3 of the Income Tax Rules, 1962. The method for valuing a benefit is determined by its particular features. Some significant examples are included here:
Rent-Free Accommodation stands for:
- For employers, less than ₹1 lakh p.a.: 15% in metro cities, 10% in other cities.
- If rented by company, it is the lower of the employee’s salary or the rent.
Motor Car Facility
- If you use a car up to 1.6 liters partly for your job and partly for yourself, you will pay ₹1,800/month (plus an extra ₹900/month for the driver).
Interest-Free Loan:
- The difference between what SBI lends at and what the employer charges.
Stock Options are Electricians’ Stock Options or ESOPs.
- Taxed as a perquisite at the time you acquire the shares: Fair Market Value on the date of exercise – exercise price.
Taxability of Perquisites
All perquisites received with salary are taxed under “Income from Salary” and appear on the Form 16 issued to you by your employer. TDS should be deducted on perquisites by the companies offering them.
- This is how you pay taxes on your perquisites:
- Gross salary includes all fully taxable perquisites.
- Taxable income does not include exempt perquisites.
Exemptions and Reliefs
The exemption on Medical Reimbursement of up to ₹15,000 per annum has been removed by the new tax law.
- LTA (Leave Travel Allowance) is tax-exempt for two journeys within a block of four calendar years as long as the conditions are met.
- Gift cards and vouchers are exempt up to ₹5,000 per year.
- If you use your mobile or office phone for work reasons, you don’t need to pay taxes on the bills paid by the employer.
- Thanks to the new tax regime (Section 115BAC), exemptions and deductions such as those for perquisites are mostly no longer permitted. Workers have to decide if they would prefer the old or new working system.
Get Started with TaxDunia
Perquisites are important components of both how salaries are paid and tax planning. Being familiar with the way employees, employers, and benefits are categorised and how they are valued helps people follow the rules and save taxes. While any perks may add comfort to your life, some can also raise your tax bill. It’s best to plan your salary so that you keep tax costs under control.
