If one lives in an apartment provided by the company or drives a car given by the employer, and thinks these perks are not taxable, one might have another think coming. These could be taxable in the hands of the employee. Perquisites, or perks as they are commonly called, are defined as casual emoluments or benefits attached to an office or position, in addition to salary or wages. They can be divided as always taxable, exempted, or taxable only in the hands of specified employees.

In fact, perks can be provided directly or indirectly by the employer. They could even be reimbursements such as those for fuel, medical and telephone expenses, or facilities such as car, domestic help and stock options. Perks are taxed at the cost incurred by the employer or at concessional values. Certain perks, such as reimbursement of telephone expenses, are fully exempt from tax. As a general rule, the taxable value of perquisites in the hands of the employees is its cost to the employer.

Car allowances: If an employer provides the employee with a car, the value of the perquisite will be zero provided it is used only for official duties.

The actual expenditure incurred by the employer on running and maintaining the car, including the driver’s remuneration and normal wear and tear at 10% per annum of the actual cost of the car each year, will be considered for tax purposes. However, if the employee owns the car but the running and maintenance charges are met or reimbursed by the employer, the method of valuation of the perquisite will be different.

Personal attendants: The value of free service of all personal attendants, including a sweeper, gardener and a watchman, will be taken at the the employer’s actual cost. If the attendant is provided at the employee’s residence, the full cost is taxed as perquisite in the hands of the employee.
Gas, electricity and water for household: The value of such perquisites will be the amount paid by the employer to the agency supplying the utility.

If the supply is made from the employer’s own resources, the manufacturing cost per unit incurred by the employer will be considered for the valuation of the perquisite.

Free or concessional education: Perquisite on account of free or concessional education for any member of the employee’s household will be determined as the actual expenditure incurred by the employer. However, if the educational institution is maintained and owned by the employer, the value will be similar to what a neighbouring institution will charge.

Interest-free loans: In many companies, especially financial institutions, it is a common practice to provide interest-free or concessional loans to employees. The value of the perquisite arising from such loans will be the excess of interest payable at the prescribed interest rate paid by the employee. The prescribed interest rate will be that charged per annum by State Bank of India as on the first day of the relevant financial year in respect of loans. The perquisite value will be calculated on the basis of the maximum outstanding monthly balance method.

Company-leased accommodation: If the company provides the employee rent-free accommodation, the taxability in the hands of the employee will depend on whether the accommodation is owned by the employer, taken on rent, or leased by the employer. The valuation of rent-free accommodation, if it is owned by the employer, will be 15% of salary in cities where the population is above 25 lakh, 10% of salary in cities where population is between 10 lakh and 25 lakh and 7.5% of salary in other cases. If the accommodation is taken on lease by the employer, the perquisite’s value shall be the actual lease rent paid by the employer or 15% of the salary, whichever is lower.

Club expenditure: Any annual or periodic fee for a club facility and any expenditure in a club by the employee, which is paid or reimbursed by the employer, will not be taxable if the expenditure is incurred wholly for official purposes. The employer will have to give a certificate stating that the expenditure was incurred for official purposes.

Use of assets: In the corporate world, it is a common practice for a movable asset owned by the employer to be used by the employee or a member of his household. The perquisite will be charged at 10% of the original cost of the asset as reduced by any charge recovered from the employee for such use. However, the use of computers and laptops would not give rise to any perquisite.

Transfer of assets: Often, an employee or a member of his household benefits from the transfer of a movable asset at almost no cost. The difference between the original cost of the movable asset and the amount paid by the employee will be taken as the value of the perquisite. For a movable asset which has already been put to use, the original cost will be reduced by a sum of 10% of the original cost for every completed year of the use of the asset.

What the rules say

* If an employer provides the employee with a car, the value of the perk will be zero if it is used only for official duties. The actual expenses on running the car, including the driver’s remuneration and wear and tear, will be considered for tax purposes
* If the company provides rent-free accommodation, taxability will depend on whether the accommodation is owned by the employer, taken on rent, or leased by the employer
* The value of the perquisite arising from interest-free loans will be the excess of interest payable at the prescribed interest rate paid by the employee