What are Perquisites in Income Tax?
Perquisites in Income Tax are any excess benefit or advantage given to an employee by their employer in addition to the basic wages or salaries. These benefits usually form a part of the total cost to the company (CTC) and the pay structure of every employee. However, a prerequisite does not include a simple reimbursement of any expense made by the employee on behalf of the employer. Since, salary income forms a part of the total income of every taxpayer, the valuation of perquisites in Income Tax is given utmost importance. In this matter, the Income Tax act is clear in terms of its taxability and valuation.
The following is an inclusive list under the definition of perquisites in Income Tax.
- The amount of rent free accommodation received by an employee from the employer
- Value of any concession in the matter of rent respecting any accommodation provided to the assessee by his employer.
- Amount paid by the employer against any obligation on behalf of the employee.
- Amount of benefit or amenity provided by the employer free of any charge or at a lower or concessional rate
- Value of sweat equity shares the employer provides to its employees either without any charge or at a lower amount.
- Amount paid towards the assurance of the life of the employee or against a contract of the annuity. However, this does not apply to any payment to a recognized provident fund or an approved superannuation fund.
- Any sum paid towards a superannuation fund by the employer. If the contribution is less than Rs 1 lakh then it will not be considered a perquisite.
- The amount of any other fringe benefit, advantage, or concession provided by the employer to its employees as a part of the employment.
Who Pays Perquisites in India?
An employer pays perquisites to its employee during the period of employment as a part of the employment or salary. It may be a recurring benefit for every month or a one time benefit. Moreover, a perquisite can be a monetary benefit or a non-monetary benefit. Basically, a perquisite is any advantage that benefits the employee and is a cost to the employer.
Treatment of Perquisites in Income Tax
Perquisites in income tax are taxable along with the salary income under the head income from salary. The net salary is taxable at the applicable slab rate. You can use our income tax calculator and estimate your taxable income under the old and new tax regime. The salary slip will contain the details of these perquisites.
- Perquisites that are taxable
- Exempt or non taxable perquisites in Income Tax
- Taxable in the hands of specific employees only
Explore: Income Tax Slabs
Perquisites That are Taxable
The following table illustrates the taxable perquisites in Income Tax and their valuation. These perquisites are taxable in the hands of the employees as a part of their salary income.
|Unfurnished Rent Free Accommodation||Based on population of the city and ownership of the accommodation|
|Furnished Rent Free Accommodation||Value of Unfurnished Rent Free Accommodation + additional charge for furnishing|
|Benefit/amenity granted free or at concessional rate||Cost to the employer at an arms’ length transaction minus employee’s contribution|
|Amount paid on behalf of the employee||Cost to the employer at an arms’ length transaction minus employee’s contribution|
|Amount towards a fund for assurance on life or annuity||Actual amount|
|Motor car facility for personal use||Depends on the ownership of a motor vehicle, running cost. Maintenance cost, and driver facility|
|Perquisite arising out of supply of gas, electric energy or water||The amount paid to the agency or service provider of such utilities|
|Free/Concessional Educational Facility||Actual amount of expense minus amount recovered from the employee.|
|Free/Concessional journeys||Provided by an undertaking engaged in the carriage of passengers or goodsActual amount of expense minus amount recovered from the employee.|
|Provision for domestic help or attendants||Such as sweeper, gardener, watchman or personal attendantsActual amount of expense minus amount recovered from the employee.|
|Other fringe benefits.||Interest free loan, free meals, gifts, club membership, credit card.On the basis of the actual amount of expense or limits.|
Exempt or Non Taxable Perquisites in Income Tax
The following perquisites in Income Tax are not taxable on fulfilment of the following conditions:
Unfurnished or furnished rent free accommodation
- Such accommodation is a 15-day or less temporary accommodation. The sole purpose is to accommodate the transfer or relocation of the employee from one place to another.
- Accommodation is provided at a mining/ oil exploration/ project execution/ Dam/ Power generation/off-shore site. The location of such a site is in a remote area. Otherwise, the location has a plaintiff area of less than 800 sq. ft and within 8 months of municipality boundary limits.
- If the employer pays or reimburses medical insurance premiums then it is exempt.
- If the employer pays or reimburses medical expenses for the medical treatment of an employee or its dependents then it is exempt. However, the treatment must be in any of the following hospitals in India:
- The employer maintains or owns the hospital
- The Government or local authority maintains the hospital.
- Any hospital that is approved by the Government in this regard for its employees.
- The Principal Chief Commissioner or Chief Commissioner has given approval to the hospital. The approval is regarding the treatment of specific diseases.
- In case the employer spends or reimburses any other medical expense to it then it is exempt. However, the amount must be less than Rs 15,000.
- If the hospital is outside India then the following conditions apply:
- The medical expense is exempt to the extent it is permissible by the RBI
- The expense for the stay-abroad of the patient as well as one attendant. Here again, the exemption is available to the extent it is permissible by the RBI
- The expense of treatment in outside India of an employee and the accompanying attendant. The gross total income of the employee must be less than Rs 2,00,000.
Taxable in the Hands of Specific Employees Only
Who is a Specified Employee?
The following employees are considered to be specified employees:
- An employee who is a director of the company
- An employee whose income from salary is more than Rs 50,000. Here the salary income should be excluding the perquisites.
- If the employee holds 20% or more ownership in the company then he or she is a specified employee. The ownership will be the number of equity shares held by the employee.
The following non monetary perquisites in Income Tax are taxable in the hand of specified employees:
- Free domestic help at the residence of the employee
- Free utilities such as water, electricity, gas, etc at the residence of the employee
- Motor car facility
- Free or concessional rate child education support in excess of Rs 1,000
- Private journey or travel without any charge or at a lower rate.