Perquisites, Tax free Perquisites

“Perquisite” may be defined as any casual emolument or benefit attached to an office or position in addition to salary or wages.

“Perquisite” is defined in the section 17(2) of the Income tax Act as including:

(i) Value of rent-free/concessional rent accommodation provided by the employer.

(ii) Any sum paid by employer in respect of an obligation which was actually payable by the assessee.

(iii) Value of any benefit/amenity granted free or at concessional rate to specified employees etc.

(iv) The value of any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the employer, or former employer, free of cost or at concessional rate to the assessee.

(v) The amount of any contribution to an approved superannuation fund by the employer in respect of the assessee, to the extent it exceeds one lakh rupees; and

(vi) The value of any other fringe benefit or amenity as may be prescribed.

Fully and Partially Taxable Perquisites

The following perquisites are fully taxable in the hands of all employees receiving such perquisites:

Rent free accommodation:

The rent free accommodation provided to employees by their employer is taxable. Since the employees are provided rent free accommodation, the amount of income accruing to them cannot be determined by them. Accordingly, there is prescribed manner for calculating income chargeable to tax as perquisite. The manner of calculating income chargeable to tax as perquisite for rent free accommodation is as follows:

Category of Employees	Income
	Unfurnished Accommodation	Furnished Accomodation
1) Provided to a Judge of High Court, Supreme Court2) Provided to an Officer of Parliament	In case of Rent free Official Residence: Nil	In case of Rent Free Official Residence: Nil
Provided to Central/ State Government employees	(a) License fees determined by the Central/ State Government	(a) Same as Unfurnished Accommodation(b) 10% p.a. Of the cost of furniture If such furniture is hired, then hire charges payable.
Provided to any other employee
1) Where the accommodation is owned by the employer	(i) 15% of salary in cities having population exceeding 25,00,000(ii) 10% of salary in cities having population between 10,00,000 and 25,00,000(iii) 7.5% of salary in other areas	(a) Same as Unfurnished Accommodation (b) 10% p.a. Of the cost of furniture If such furniture is hired, then hire charges payable.
2) Where the accommodation is taken on rent by the employer	Lower of the following:(i) Rent Payable Or(ii) 15% of salary	(a) Same as Unfurnished Accommodation (b) 10% p.a. Of the cost of furniture If such furniture is hired, then hire charges payable.
Accommodation provided in a hotel	Not Applicable since Hotel is presumed to be furnished.	Lower of the following:(i) 24% of salary Or(ii) Rent (Room Fare/ Charges) Payable

Concession in rent:

Some employers provide the employees with accommodation at rates lower than normal market rates. This reduction in rates is known as concession in rent.

The income chargeable to tax as perquisite as concession shall be determined as:

(i) Amount of Income chargeable to tax as above

(ii) Less: Amount of rent payable/ paid to the employer. 

Payment by the employer in respect of an obligation of employee:

In this case, the amount is liable to be paid by the employee and the employer pays the same.

Example: Self-Assessment Tax of the employee is paid by the Employer.

Note: If the employer pays taxes on behalf of employees on non-monetary perquisites provided to them, then such taxes are exempt in the hands of the employee. 

Sweat Equity allotted or transferred to the assessee:

The Companies in appreciation of its employees or with an aim to achieve a particular objective grants an option to the employees to subscribe equity shares at nil value or at concessional rates than the current market prices to its workforce. If the employee exercises such option and subscribes to such shares at nil or concessional rates, then it forms part of perquisites. 

Valuation of Sweat Equity shall be as follows:

Note: If the shares have been received at a concessional rate then the amount paid to the employer company shall be deducted from the value of perquisite calculated as above. 

Amount of any Contribution to an approved superannuation fund:

Employer’s contribution to superannuation fund is a perquisite.

The tax treatment for approved superannuation fund is as follows:

1. Employer’s Contribution to Superannuation Fund: Upto Rs. 1,50,000/- exempt in the hands of the employee.
2. Employee’s Contribution to Superannuation Fund is allowed as deduction under Chapter VIA. (Subject to the limits specified)
3. Interest accumulated on such fund is exempt from tax.
4. Payment of balance of fund:
5. To the employee on retirement
6. To the employee on disablement
7. To the legal heirs on death of the employee 

Transport Facility and Valuation of Free or Concessional Tickets:

 The Value of any benefit or amenity resulting from the provision by an employer:

(i) Who is engaged in the carriage of passengers or goods,

(ii) To any employee or to any member of his household for personal or private journey free of cost or at concessional fare,

(iii) In any conveyance owned, leased or made available by any other arrangement by such employer for the purpose of transport of passengers or goods

Shall be taken to be the value at which such benefit or amenity is offered by such employer to the public as reduced by the amount, if any, paid by or recovered from the employee for such benefit or amenity.

However, there would be no such perquisite to the employees of an airline or the railways. 

Valuation of benefit of provision of domestic servants

If the employee or any member of his household are provided with domestic servants such as sweeper, gardener, watchman or personal assistant then the benefits so received by the employee are taxable as perquisites in the hands of the employee. 

Utility such as gas, electricity or water supplied by employer

If the employer pays to the utility provider on behalf of the employee or if the employer himself provides such utilities then the benefits so received by the employee are taxable as perquisites in the hands of the employee. 

Free or concessional educational facilities

If the employer provides free or concessional educational facilities from the educational institutions maintained and owned by the employer or if free educational facilities are allowed in any other educational institution then the benefits so received by the employee are taxable as perquisites in the hands of the employee.

However, if the educational institution is maintained and owned by the employer and the employer provides free or concessional education facilities to the employee himself or his children and the benefits so received by the employee does not exceed Rs. 1,000/- per month then such amount shall not be taxable in the hands of the employee as perquisite. 

Interest-free or concessional loan

The value of the benefit to the employee as a result of interest-free loan or concessional loan for any purpose provided to the employee or any member of his household is a taxable perquisite.

However, this perquisite will be not be chargeable to tax in any of the following cases:

1. If such loan is provided for the purpose of treatment of diseases such as cancer, tuberculosis, etc. However, out of the amount of loan provided, if the employee receives reimbursement from any medical insurance scheme, then such amount shall not be exempt.
2. Amount of loans made to an employee does not exceed Rs. 20,000/-. 

  Free or concessional food and non-alcoholic beverages

If the employer provides free or concessional food and/ or beverages such as tea, coffee etc., then the benefits so received by the employee are taxable as perquisites in the hands of the employee. However, if the following are provided by the employer then they are not taxable in the hands of employees as perquisites:

1. Free food and beverages such as tea, coffee etc. provided by the employer to an employee during working hours at office or business premises less than Rs. 50/- per meal.
2. Vouchers provided having value less than Rs. 50/- per meal
3. Tea or Snacks provided during working hours
4. Free food and beverages such as tea, coffee etc. provided during working hours provided in a remote area or an offshore installation. 

 Gifts or Vouchers

Gift or vouchers received by employees or by member of his household on ceremonies or occasions are taxable perquisites in the hands of the employees. However, if the value of such gifts in totality do not exceed Rs. 5,000/- then such gifts are not taxable as perquisite in the hands of the employees. 

Reimbursement of credit card expenses

If the employer reimburses expenses incurred by the employee or any member of his household using a Credit card then the benefits so received by the employee are taxable as perquisites in the hands of the employee.

However, if such expenses are made by the employee exclusively for official purposes and the employer has documented the expenses incurred using the credit card then such reimbursements are not taxable as perquisite in the hands of the employees. 

Club expenditure

If the employer pays or reimburses for the periodic subscription of a club for the employee or any member of his household then the benefits so received by the employee are taxable as perquisites in the hands of the employee.

However, if the following are provided by the employer then they are not taxable in the hands of employees as perquisites:

1. If the use of health club, sports and such facilities are provided uniformly to all employees by the employer.
2. Such expenditure is incurred wholly and exclusively for business purposes and if the expenditure is properly documented by the employer. 

 Use of movable assets

If movable assets such as laptops are provided by the employer to the employee then the benefits so received by the employees are not taxable in the hands of the employee. However, other movable assets such as furniture, car etc are provided by the employer to the employee than the the benefits so received by the employee are taxable as perquisites in the hands of the employee.

Transfer of movable assets

If the employer transfers any movable assets such as computers and electronic items, motor cars etc. in the name of the employee than the the benefits so received by the employee are taxable as perquisites in the hands of the employee. 

Fully Exempt Perquisites

The following perquisites are fully exempt from tax subject to compliance of conditions specified: 

Telephone	Telephone provided by the employer to his employee at his residence.
Transport Facility	Transport Facility provided by an employer engaged in the business of carrying of passengers or goods to his employees either free of charge or at concessional rate
Privilege passes and Privilege ticket	These are provided by Indian railways to its employees.
Perquisites allowed outside India by the Government	Perquisites allowed outside India by the Government to a citizen of India for rendering services outside India
Employer’s Contribution to staff group insurance scheme	Employer takes a single insurance of all the staff and contributes towards the insurance premium.
Recreational Facilities	Subsidized lunch or dinner provided by the employer.
Amount spent on training of employees	This includes amount paid for refresher management course including expenses on boarding and lodging.
Sum payable by employer to a Approved Funds	Funds include Recognised Provident Fund, Approved Superannuation Fund or Deposit-linked insurance fund.
Medical Facilities	The following are exempt:(i) Value of medical treatment in a hospital maintained by the employer to the employee or any of his family members(ii) payment by the employer for treatment in a Government Hospital(iii) payment by the employer for treatment of prescribed diseases in any approved hospital(iv) mediclaim insurance premium paid by the employer for the employee(v) reimbursement upto Rs. 15,000/- of expenditure actually incurred by the employee for self or any of his family members.
Amount paid towards expenditure incurred outside India on medical treatment	This includes the following:(i) medical treatment of the employee or any member of the family of such employee outside India,(ii) travel and stay abroad of the employee or any member of the family of such employee for medical treatment(iii) travel and stay abroad of one attendant who accompanies the patient in connection with such treatment.Conditions:(i) The amount of exemption will be limited to the amount approved by RBI(ii) If the employee’s taxable income before deductions is more than Rs. 2,00,000/- then the expenditure on travelling of the patient and the attendant shall be fully taxable.
Conveyance Facility	Conveyance facility provided to Supreme Court and High Court Judges.
Payment of premium on personal accident insurance policies

Perquisite arising out of supply of gas, electric energy or water:

This shall be determined as the amount paid by the employer to the agency supplying the same. If the supply is from the employer’s own resources, the value of the perquisite would be the manufacturing cost per unit incurred by the employer. However, any payment received from the employee towards the above would be reduced from the amount [Rule 3(4)]