Perquisites which are Taxable in case of Specified Employees

1. Valuation of Perquisites in respect of Motor Car and other Modes of Conveyance [Rule 3(2)]

1. When the Motor Car is Owned or Hired by the Employer

(A). Motor Car is used wholly and exclusively in the performance of Official Duties :

  • When the CC is less than / or more than 1600 CC : –
    • Perquisites Value is NIL

(B). Motor Car is used exclusively for Private / Personal Purposes :

  • When the CC is less than / or more than 1600 CC : –
    • Perquisites value is actual Expenditure incurred by the employer on the running and maintenance of Car + Salary of Chauffeur + Normal Wear and Tear ( i.e. 10% p.a. of the Vehicle Cost) or Hire Charges.
    • In case Expenses on Maintenance and running are met by the Employee : Perquisites Value is confined to Salary paid to Chauffeur and normal Wear and Tear ( i.r. 10% p.a. of the Vehicle Cost).
    • If any amount is recovered from employee the same shall be Deducted from the Perquisite Value.

(C). Motor Car is Used Partly in the performance of Duties and Partly for Private / Personal Purposes.

  1. When CC does not exceed 1600 CC :
  • When Expenses on maintenance and running are met by the Employer ..
    • Perquisites Value is Rs. 1800 p.m. ( plus Rs.900 if Chauffeur is provided)
  • When Expenses on maintenance and running are met by the Employee ..
    • Perquisites Value is Rs. 600 p.m. ( plus Rs.900 if Chauffeur is provided)
    • If any amount is recovered from employee is Not Deductible
Perquisites under the head Salary
Perquisites under the head Salary

2. When CC exceed 1600 CC :

  • When Expenses on maintenance and running are met by the Employer ..
    • Perquisites Value is Rs. 2400 p.m. ( plus Rs.900 if Chauffeur is provided)
    • If any amount is recovered from employee is Not Deductible
  • When Expenses on maintenance and running are met by the Employee ..
    • Perquisites Value is Rs. 900 p.m. ( plus Rs.900 if Chauffeur is provided)
    • If any amount is recovered from employee is Not Deductible

2. When the Motor Car is Owned by the Employee

1. When Expenses on maintenance and running are met by the Employee ..

  • Perquisites Value is NIL

2. When Expenses on maintenance and running are Met or Reimbursed by the Employer ..

(A) Motor Car is used wholly and exclusively in the performance of Official Duties :

  • When the CC is less than / or more than 1600 CC : –
    • Perquisites Value is NIL

(B) Motor Car is used Partly in the performance of Official Duties and Partly for Private / Personal purposes :

  • When the CC of Motor Car does not exceed 1600 CC :-
    • Perquisites value is Actual Expenditure incurred by the Employer as Reduced by the amount of Rs. 1800 p.m. plus (+) Rs.900 p.m. if chauffeur is provided Less amount recovered from the employee.
  • When the CC of Motor Car excees 1600 CC :-
    • Perquisites value is Actual Expenditure incurred by the Employer as Reduced by the amount of Rs. 2400 p.m. plus (+) Rs.900 p.m. if chauffeur is provided Less amount recovered from the employee.

(C) Motor Car is used exclusively for Private Purposes

  • When the CC is less than / or more than 1600 CC : –
    • Perquisites value is Actual Expenditure incurred by the Employer Less amount recovered from the employee.

3. Perquisites in case of Other Conveyance like Scooter, Motor Cycle etc. but not Motor Car

1. When Conveyance is provided and expenses are met by the Employer :

(A) Used exclusively for Official Purposes

  • Perquisites Value is Nil

(B) Used exclusively for Private Purposes

  • Perquisites value is actual amount spent by the employer on running & maintenance and normal wear and tear of the vehicle.

(C) Used partly for Official and partly for Private Purposes

  • Reasonable proportion of expenses on running and maintenance and normal wear and tear attributable to private use.

2. When Conveyance is owned by the employee and expenses are met by the Employer

(A) Used exclusively for Official Purposes

  • Perquisites value is Nil

(B) Used Partly for Official and Partly for Private Purposes

  • Perquisites value is acutal expenditure incurred by the Employer as reduced by Rs.900 p.m. or such higher sum as certified by Employer and reduced by the amount recovered from the employee.

(C) Used exclusively for Private purposes

  • Perquisites value is actual amount spent by the employer

Documentation, a must:—

Specified documentation is required to be maintained when the Conveyance is used either wholly or partly in the performance of the official duties.

  1. The Employer has maintained the records pertaining to the details of journey such as date ofjoumey, destination, mileage, amount of expenditure incurred.

  2. The Employer gives a certificate to the effect that the expenditure was incurred wholly and exclusively for the performance of official duties.

Notes :

  1. When the employer recovers any amount from the employee, such amount shall be reduced from the Perquisite value arrived as above except specifically prohibited as stated.

  2. When the conveyance is owned by the employee, he can claim inore than the eligible expenditure specified under the respective categories subject to maintenance of Documentation as a proof thereof.

  3. When the employer provides two cars to the employee, the perquisite value of one car shall be calculated as if the same has been used exclusively for private purposes.

2. Valuation of Perquisites in respect of Free Domestic Servants [Rule 3(3)]

The value shall be the actual cost to the employer i.e. the total amount of salary paid or payable by the employer or any other person on his behalf for such services as reduced by any amount paid by the employee for such services.

  • If the above servants are engaged by the employer and the facility of such servants are given to the employees it will be a perquisite for specified employees only.
  • On the other hand, if these servants are employed by the employee and wages of such servants are paid or reimbursed by the employer, it will be a perquisite for all categories of employees.

However, in both the cases the valuation of perquisites shall be done in the same manner as discussed above.

3. Valuation of Perquisite in respect of Gas, Electricity or Water Supply provided Free Of Cost [Rule 3(4)]

The Valuation is explained in the following chart :

Circumstances Value of Benefit

(a) Where such supply is made from resources owned by the employer without purchasing from the outside agency

It shall be the manufacturing cost per unit incurred by the employer

(b) In any other case

Amount paid on this account by the employer to the agency supplying the gas, electric energy or water

  • However, in both the above cases, if employee is paying any amount in respect of such services, the amount, so paid, shall be deducted from the value so arrived at.

If the gas, electricity/water connections are in the name of the employees and the expenses on the supplies are met by the employer, it is an obligation of the employee being discharged by the employer and therefore this perquisite is taxable in the hands of all employees.

4. Valuation of Perquisites in respect of Free or Concessional Education Facilities to any member of Employees’ household : [Rule 3(5)]

The Valuation is explained in the following chart :

Circumstances Value of Benefit

(a) Where the educational institution is itself maintained and owned by the employer

  • The cost of education in a similar institution in or near the locality.

  • However, if educational facilities are provided to the children of the employee (any other member of the household not covered here), the value of this perquisite shall be NIL… if the cost of such education or the value of benefit per child does not exceed Rs. 1,000 p.m.

(b) Where free education facilities for such members of employees’ household are allowed in any other educational institution by reason of his being in employment of that employer

  • The cost of education in a similar institution in or near the locality.

  • However, if educational facilities are provided to the children of the employee (any other member of the household not covered here), the value of this perquisite shall be NIL … if the cost of such education or the value of benefit per child does not exceed Rs. 1,000 p.m.

  1. However, in all the above cases, if any amount is paid or recovered from the employee on this account, the value of benefit computed above shall be reduced by the amount so paid or recovered.

  2. Where cost of education exceeds ₹1,000 p.m. per child, the whole amount shall be taxable in the hands of the employee and no deduction of ₹1,000 p.m. shall be allowed.

  1. Payment of fee by the employer directly to educational institution for the education of members of household including children or reimbursement of such fee to the employee shall be taxable in the hands of all employees.

  2. Amount incurred by the employer for providing free education facility or training to an employee is not taxable.

5. Valuation of Perquisites in respect of Free Transport provided by a Transport undertaking to its Employees [Rule 3(6)]

Particulars Value of Perquisites

Provision of transport to the employee or to a member of his household by the employer who is engaged in the carriage of passengers or goods—

 

(a) in the case of employee of an airline or the railways

NIL

(b) in the case of any other employee :

 

(i) if provided free of cost

Value at which such benefit or amenity is offered by such employer to the public

(ii) if provided at concessional rate

Reduce from the above value, the amount paid by or recovered from the employee for such benefit or amenity.

6. Valuation of  Perquisites in respect of Sweat Equity Shares or Employees Stock Option Plan (ESOP) [ Section 17(2)(vi) & Rule 3(8) & (9)]

The perquisite in respect of “sweat equity shares” or ESOP is chargeable to tax in the hands of employees, if such shares are allotted or transferred to the concerned employee after March 31, 2009.

What is “sweat equity shares” :

It means shares issued by a company to its employees (including directors, former employees) at a discount or for consideration other than cash for providing know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called”. Such shares may be equity shares, any other shares, scrips, debentures, derivatives or units. These may be transferred/allotted directly or indirectly to the employee.

What is ESOP (Employees Stock Option Plan) :

ESOP is an abbreviation which stands for employee stock option plans. Under the ESOP plan, an employee (at his option) can acquire shares in the employer-company at a reduced price after completion of a specified period of service.

In which year it is Chargiable to Tax :

Value of perquisite on the above basis will be taxable in the hands of employee in the previous year in which shares or securities are allotted or transferred to him. It may be noted that fair market value shall be calculated on the date on which the employee exercises the option but perquisite will be taxable in the year in which shares are allotted.

How to find out Taxable Value of Perquisites :

The value of such specified security or sweat equity shares shall be the “Fair Market Value” of the specified security or sweat equity shares, as the case may be, on the date on which the option is exercised by the assessee as reduced by the amount actually paid by, or recovered from the assessee in respect of such security or shares.

“Fair Market Value”

  • In the case of shares listed in India, the fair market value shall be the average of the opening stock exchange price and closing stock exchange price of the share on the date of exercise of option.

  • Where, however, on the date of exercise of the option, the share is listed on more than one recognized stock exchanges, the fair market value shall be the average of opening price and closing price of the share on the recognised stock exchange which records the highest volume of trading in the share.

  • Where on the date of exercise of the option, there is no trading in the share on any recognized stock exchange in India, the fair market value shall be the closing price of the share on any recognised stock exchange on a date closest to the date of exercise of the option and immediately preceding such date.

  • In the case of unquoted shares, the fair market value shall be determined by a merchant banker.

7. Employer’s contribution towards Approved Superannuation Fund

The amount of any contribution to an approved superannuation fund by the employer in respect of the assessee, to the extent it exceeds ₹1,50,000 shall be taxable perquisite in the hands of the employee.

8. Valuation of Medical Facilities [Proviso to Section 17(2)]

(A). Medical Facilities / Reimbursement in INDIA

The provisions are given below—

1. Employer’s hospital/Government hospital/approved hospital –

The perquisite in respect of medical facility provided by an employer in the following hospitals/clinic is NOT Chargeable to Tax

  1. hospital owned/maintained by the employer,

  2. hospital of Central Government/State Government/local authority,

  3. private hospital if it is also recommended by the Government for the treatment of Government employees,

  4. specified medical facility (given in rule 3A) in a hospital approved* by the Chief Commissioner.

2. Health insurance premium –

Medical insurance premium paid or reimbursed by the employer is NOT Chargeable to Tax.

3. Any other facility in India –

Any other expenditure incurred or reimbursed by the employer for providing medical facility in India is chargeable to tax (exemption of Rs. 15,000 was available for such reimbursement up to the assessment year 2018-19).

(B). Medical Facilities Outside INDIA

Any expenditure incurred by the employer (or reimbursement of expenditure incurred by the employee) on medical treatment of the employee or any member of the family of such employee outside India, is taxable subject to the conditions given below —

1. Perquisites Not Chargeable to Tax

  • Medical treatment of employee or any member of family of such employee outside india

  • Cost on travel of the employee/any member of his family and one attendant who accompanies the patient in connection with treatment outside India

  • Cost of stay abroad of the employee or any member of the family for medical treatment and cost of stay of one attendant who accompanies the patient in connection with such treatment

Condition to be satisfied

  1. Expenditure shall be excluded from perquisite only to the extent permitted by the Reserve Bank of india

  2. Expenditure shall be excluded from perquisite only in the case of an employee whose gross total income, as computed before including therein the expenditure on travelling, does not exceed Rs. 2,00,000

  3. Expenditure shall be excluded from the perquisite only to the extent permitted by the Reserve Bank of India

9. Valuation of Leave Travel Concession or Assistance (LTC/LTA) in India. [Section 10(5) & 10(6)(i)]

The employee is entitled to exemption under section 10(5) in respect of the value of travel concession or assistance received by or due to him from his employer or former employer for himself and his family, in connection with his proceeding—

  1. on leave to any place in India.
  2. to any place in India after retirement from service or after the termination of his service.

The exemption shall be allowed subject to the following

Different Situations Amount of Exemption if journey is performed on or after 1,1997
  • Where journey is performed by AIR
  1. Amount of air economy class fare of the National Carrier by the shortest route; or
  2. the amount spent,

whichever is less

  • Where journey is performed by RAIL
  1. Amount of air-conditioned first class rail fare by the shortest route; or
  2. the amount spent,

whichever is less

  • Where the places of origin of journey and destination are connected by Rail and journey is performed by any other mode of Transport
  1. Amount of air-conditioned first class rail fare by the shortest route; or
  2. the amount spent

whichever is less

  • Where the places of origin of journey and destination (or part thereof) are not connected by RAIL
 
    • Where a recognised public transport system exists
  1. First class or deluxe class fare by the shortest route; or
  2. the amount spent,

whichever is less.

    • Where No recognised public transport system exists
  1. Air-conditioned first class rail fare by the shortest route (as if the journey had been performed by rail); or
  2. the amount actually spent,

whichever is less.

One should also keep in view the following Points— 

1. Meaning of “Family” –

  • For this purpose, “family” includes spouse and children of the employee. It also includes parents, brothers and sisters of the employee, who are wholly or mainly dependent upon the employee.

  • However, family does not include more than two surviving children of an individual born on or after October 1, 1998

2. Only 2 journeys in a Block of 4 years is Exempt –

Exemption on the aforesaid basis is available in respect of 2 journeys performed in a block of four calendar years commencing from 1986.

3.  “Carry-over” Concession –

If an assessee has not availed travel concession or assistance during any of the specified four-year block periods , exemption can be claimed in the first calendar year of the next block (but in respect of only one journey). This is known as “carry over concession”.

4. Exemption is based upon Actual Expenditure –

The quantum of exemption is limited to the actual expenses incurred on the journey. In other words, without performing any journey and incurring expenses thereon, no exemption can be claimed. 

5. Exemption is available in respect of Fare –

The exemption is strictly limited to expenses on air fare, rail fare, bus fare only. No other expenses, like scooter or taxi charges at both ends, porterage expenses during the journey and lodging/boarding expenses will qualify for exemption. 

6. Exemption is available in respect of Shortest Route –

Where the journey is performed by a circuitous route, the exemption is limited to what is admissible by the shortest route. 

7. Fixed allowance is not subject to Exemption –

Fixed sum paid to employees by way of leave travel allowance on basis of self-declaration made by employees would not be exempt under section 10(5)—

8. Family Member Travelling Separately –

Exemption shall not be available if the family members are travelling separately without the employee who is not on leave.