Perks are additional benefits or privileges employees receive over and above their regular salary or wages from an employer. They are typically non-monetary and consist of provisions like company cars, housing allowances, medical covers, gym subscription, and stock options, among others. In this article we will discuss about the value of perquisites as per section 17(2) of Income Tax Act.
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What is value of perquisites as per Section 17(2)?
An employee may be given perquisites from the employer in addition to their pay. Perquisites can be in cash form or as non-monetary. Reimbursements made by an employer shall not necessarily be termed as part perquisites. These perks are subject to tax when legal requirement as it may be categorized as either taxable or not. The values of perquisites as per section 17(2) include:
- Accommodations given by employers.
- Any concession in rent given to the employee by his employer.
- Liabilities incurred by the employee.
- Money spent while travelling.
- Free or concessional service/benefit given to defined employees, etc..
- The value of each specific security or sweat equity shares issued or transferred at a reduced price to the employee.
- The employer pays any given amount, directly or indirectly, either organized through a trust other than an authorized fund manager or a registered pension scheme to secure the life of the assessee or to purchase an annuity policy.
- Where the employer contributes to an approved superannuation scheme deduction will be allowed in respect of the assessee.
- Any other fringe benefit or amenity shall also be included in value.
Taxability of value of perquisites as per section 17(2)
1. Tax-Free Perquisites
These benefits are provided by the company that are tax free which are as follows:
- Provident Fund: Contributions by employer into a recognized Provident Fund (PF) are tax exempt up to a certain specified maximum.
- Gratuity: Any gratuity received by government employees from employer which is covered by payment of gratuity act Payment of Gratuity Act is exempt as per income tax act.
- Phone/Mobile Expenses: Charges for phone or mobile device, for whatever use, both for office and privately, are free from tax for a considerable amount.
- Office Meals: The value of free or cheaply subsidised meals given to staff is tax exempt if the same is provided at the time of work.
- Medical Reimbursement: The medical reimbursement covers $15,000 per year and is tax-free for an employee and his/her family members.
- Conveyance Allowance: Conveyance allowance allows for $1,600 per month that is tax-exempted for going to work from home.
- Leave Travel Allowance (LTA): If you go on a trip within your country while you are on leave, it is not subject to taxation. In total, this deduction can be made twice over the period of four consecutive calendar years against an actual cost of traveling.
- Employer’s NPS Contribution: In respect of an employee’s National Pension System (NPS) account, employers making contributions to it will not be taxed, in other words, an employee can contribute up to 10% of his/her basic plus DA from his take home pay without being taxed.
- Interest free or Concessional Loans: The difference between the market rate and the actual interest charged on loans provided by companies to their employees at no interest or below market rate shall enjoy tax exemption.
2. Taxable Perquisites
The below benefits provided to employee by employers are taxable perquisites that include:
- Rent free accommodation
- Supplies such as gas, water and electricity
- Servants salaries paid by the employer
- Employee pays medical bills what is reimbursed by employer later.
- Any additional perquisites like gifts which has value above ₹5,000
- Free meals, memberships of gym, access for club and similar benefits provided by employer
3. Perquisites Taxable Only for Employers
Some benefits like using vehicles of company for performance of duties, facility of childcare, and domestic help are taxable as per income tax act.
Calculation of Tax on perquisites
The taxability of perquisites is based on the average of income tax due. You need to consider the following factors during the calculation of tax on perquisites:
- The income mentioned under the head of salaries.
- The slab rate of tax for a relevant financial year
- The value of benefits for which the tax has been paid by employer.
For a better understanding, see the below example:
Let’s say income under “salaries” is Rs 10 lakh including perquisites provided by employer of ₹1 lakh. As per Income Tax Act, the tax on perquisite will be calculated as follows:
- Income under the head of salaries: ₹10 lakh
- Tax payable including 4% health and education cess: ₹54,600 (As per the new tax regime)
- Average rate of tax will be (54600/10,00,000 x 100) = 5.46%
- Tax payable on ₹1 lakh= (1,00,000 x5.46%)= ₹5,460
- The deduction required is ₹455 per month (₹5,460/12), so employer will deduct TDS of ₹455 from salary.
Rules for Taxability of Perquisites under head of “Salaries”
Under the head of salary, only some types of perquisites are covered and are liable for tax. The conditions include:
- These perks must be directly related to the service provided by employee.
- These perks must be provide for the duration of work.
- These perks must be personal benefits for employee.
- These perks must be received from the employer.
- These perks must have a legitimate source.
Perquisites may be non-monetary and monetary forms. Non-monetary perquisites are taxable for specific employees whereas monetary perquisites are taxable for all employees.
What are not value of perquisites as per section 17(2)
The below perquisites are specific received by employees and are not taxable:
- The amount paid by the employer for an employee’s health insurance to start or maintain coverage.
- Contribution by the employer towards medical expenses incurred by the employee.
- The value of healthcare services provided to employees.
- The amount the employee must pay for medical care.
Difference between Perquisites and Allowances
| Parameters | Perquisites | Allowances |
|---|---|---|
|
Definition
|
These are the benefits provided by the employer due to the professional services given by the employee.
|
These are the fixed amounts given by the employer to cover the specific expenses of the employee.
|
|
Taxability |
It can be either taxable or non-taxable based on the type of perquisite and may not necessarily increase the tax liability.
|
It is taxable when included with salary hence it increase the overall tax liability. |
|
Mode of Payment
|
It is normally provided in kind but sometimes reimbursed in cash by employer.
|
It is normally paid in cash by employer.
|
|
In-hand Salary
|
It does not affect the in-hand salary.
|
It increases in-hand salary when included in the salary.
|
|
Examples |
Rent free accommodation, company provided transportation facilities, etc. |
Medical allowances, house rent allowance, etc.
|
The company can pay for an employee’s food during her fieldwork trip,or even cover her travel expenses. Thus, business trips do not become a personal financial burden to employees required to do this often.
Read also: Everything About Section 10(14)(i) of Income tax Act, 1961
Final Words
In a number of ways, an employee benefits from allowances. For instance, a fieldwork-appointed staff has to do a lot of travelling while conducting job-related activities. This implies that if a worker’s firm caters for meals and transport costs the worker has a less heavy load.
Frequently Asked Questions (FAQ)
An employee gets allowances like house allowance and travel allowance at the same time with benefits in kind such as perquisites which are offered to the employee.