Perquisites to employees are actually taxed at the cost incurred by the employer or at concessional values
Company provided perquisites like a house or a car or a club membership can both be taxable or exempted in the hands of the employees depending on the use. Perks are actually 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.
Perks include the value of rent free accommodation provided by the employer, or the value of any concession in rent paid for accommodation, amount paid by the employer for a life insurance cover, value of any specified security or sweat equity shares alloted or transferred directly or indirectly to the employee by the employer. Also, contribution to superannuation fund by the employer to the employee for amount over Rs one lakh and value of any other fringe benefit provided by the employer will be valued as perquisites.
The Central Board of Direct Taxes has issued a notification on December 2, for income-tax deduction from salaries during the financial year 2015-16, under section 192 of the Income-Tax Act, 1961. There is an option where the employer can pay the tax on non-monetary perquisites given to an employee. The employer can make payment of the tax on the perks paid to the employee without making any tax deduction at source (TDS) from the salary of the employee. The responsibility of providing the details of the perks will be on the person responsible for deducting the tax at source. Information relating to the nature and value of the perks will have to be provided by the employer in Form 12 BA in case the salary paid is above Rs 1,50,000 and in other cases will have to be provided by the employer in the Form 16 itself. Any fabricated information or suppression of information will entail penalty of Rs 100 for every day during which the failure continues.
In case the employee is provided with an accommodation on lease by the employer, the valuation of the perquisite will be 15% of the salary or the actual amount of lease rental paid by the employer, whichever is lower. For furnished accommodation in a hotel, the valuation of the perquisite will be 24% of salary paid for the period during which the accommodation is provided or actual charges paid by the employer to the hotel. The amount will not be taxable if the hotel accommodation is provided for a period not exceeding 15 days in a year and such an accommodation is provided on an employee’s transfer from one place to another place. However, the value of accommodation provided to an employee working at a mining site or an onshore oil exploration site or a project execution site, dam site or a power generation site will not be treated as a perquisite.
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.
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 perk in the hands of the employee.
Electricity and utilities
The value of perquisites like gas, electricity, and water for household consumption 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.
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.
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 neighboring institution will be charged.
Interest-free concessional loans
Employers in many companies 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.
* In case the employee is provided with an accommodation on lease by the employer, the valuation of the perquisite will be 15% of the salary or the actual amount of lease rental paid, whichever is lower
* For furnished accommodation in a hotel, the valuation of the perquisite will be 24% of salary paid for the period during which the accommodation is provided or actual charges paid by the employer to the hotel
* 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