• Rajasthan

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    BJP 73
    RLM 3
    OTH 24
  • Madhya Pradesh

    Cong 114
    BJP 109
    BSP 2
    OTH 5
  • Chhattisgarh

    Cong 67
    BJP 15
    JCC 7
    OTH 0
  • Telangana

    TRS-AIMIM 95
    TDP-Cong 21
    BJP 1
    OTH 2
  • Mizoram

    MNF 26
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* Total Tally Reflects Leads + Wins

At work, creche facilities for employees should be tax free; here is why

Updated: September 8, 2017 1:54 AM

The Maternity Benefit (Amendment) Act, 2017, has significantly enhanced the maternity benefits for women employees. It elevates India to a select group of top tier countries in the world that provide maternity benefits to employees.

Maternity Benefit act, all about Maternity Benefit act, Maternity Benefit act for employees, creche facility, tax on creche facilityFrom a tax perspective, the question is whether the mandatory creche facility provided by the employer, is a taxable benefit in the hands of the employee.

The Maternity Benefit (Amendment) Act, 2017, has significantly enhanced the maternity benefits for women employees. It elevates India to a select group of top tier countries in the world that provide maternity benefits to employees.

Mandatory creche facility

Apart from enhanced leave benefit, the amendment provides for mandatory creche facility by the employer. This would assist women employees in resuming work immediately after their maternity leave. The Act requires every establishment having 50 or more employees to provide creche facility within the establishment premises or within a specified distance. Additionally, women employees would be allowed to visit the facility four times a day.

From a tax perspective, the question is whether the mandatory creche facility provided by the employer, is a taxable benefit in the hands of the employee. In the immediate past, creche facility was extended by employers on a voluntary basis and the same was taxable as perquisite. However, now that the creche facility is made mandatory, questions are being raised on whether it is taxable in the hands of the employee.

Taxability of creche

Under the current tax provisions, given the wider definition of perquisite, any benefit extended by an employer to an employee would be taxable unless the same is specifically exempted. For instance, free meals provided during office hours, medical expense reimbursement, telephone reimbursement, etc., are not taxable up to specified limits. In the absence of a specific exemption, creche facility shall be taxable under the residuary provisions of the perquisite taxation.

The taxable value of the creche facility would be the cost to the employer. Apart from the challenges in determining the cost to the employer there could be challenges in apportioning the cost per employee. Based on specific needs and circumstances, employers could explore different options to provide creche facility to employees. The typical models could be:

– In-house creche facility which is self-administered by the employer

– In-house creche facility with outsourced administration

– Dedicated creche facility outside of office premises

– Tie up with external creche facility allowing employees to use the facility.

Level of complexity

In each of the above models, the level of complexity in ascertaining the cost to the employer would be different and there could be added administrative complexity in tracking and taxing the same. For instance, in case of an in-house facility, the employer would need to consider salary/fee of the vendor/facilitator, actual rent for the leased space, cost of food, refreshments, electricity and all other overheads in relation to such facility. Thus, employers would need to plan ahead and put in processes to ensure the appropriate value is taxed and minimise the related challenges.

From a taxation perspective, since the employer is obligated to provide a mandatory crèche facility, another possible view is that this should not qualify as taxable perquisite in the hands of the employee. This argument may find support from the fact that even under the erstwhile Fringe Benefit Tax regime, creche facility to employees was specifically excluded. However, as no specific exclusion has been notified under the current tax provision, this position could spark litigation.

Provide exemption

It will be a welcome move to provide for an overarching exemption under the tax regulation for employee benefits such as creche facility which are to be mandatorily extended by the employer. At the very least, there could be guidance by the CBDT on the taxability of creche facility and determination of taxable value for employees availing the facility to settle the ambiguity and avoid litigation.

Suresh Kumar
The author is director, Deloitte Haskins & Sells LLP. Inputs from Amaranath Ambati, senior manager, Deloitte Haskins & Sells LLP.

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