Income tax returns: How perks can add to your tax burden

By: | Published: February 24, 2017 3:24 AM

MANY companies offer perks to their employees in addition to salary. Housing allowance, vehicle, personal attendants, club memberships and employee stock options are some of the perquisites offered by companies.

On employee stock options, difference between the fair market value and selling price of the share is the net capital gain in the hands of the employees and is taxable.

MANY companies offer perks to their employees in addition to salary. Housing allowance, vehicle, personal attendants, club memberships and employee stock options are some of the perquisites offered by companies. As per income tax rules, some perks are taxable, some are exempt, and a few are taxed separately from the employer’s account.

Perks could be reimbursements of expenses such as for fuel, medicines and treatment, telephone, entertainment, books and journals. These are fully exempt from tax. Reimbursements on medical expenses can be up to R15,000 per year. While there is no cap on the maximum amount that can be claimed for telephone expenses, companies put an internal cap. For children’s education allowance, an employee can get a monthly tax break of R100 per child and Rs 300 per child for hostel expenses, both restricted to two children only.

On employee stock options, difference between the fair market value and selling price of the share is the net capital gain in the hands of the employees and is taxable. Many firms grant interest-free loans or loans at a concessional rate to employees. Such loans are chargeable to tax as a perquisite.

Company-leased house

If the company provides a house on lease to the employee, the value of the perk will be 15% of the salary or the actual amount of lease rental paid by the employer, whichever is lower. In case of a furnished accommodation in a hotel or a studio apartment, value of the perk will be 24% of salary paid to the employee for the period during which the accommodation is provided or actual charges paid by the employer to the hotel or studio apartment. However, the amount will not be taxable if the hotel accommodation is provided for less than 15 days in a year and if the employee is transferred.

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. Transport allowance for commuting between office and home is exempt from tax for up to Rs 1,600 per month.

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Concessional education

Free or concessional education provided for any family member of the employee 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 be charged.

Personal attendants

The value of free service by 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.

Use of assets

If an employee uses the movable asset owned by the employer, then the perquisite will be charged at 10% of the original cost of the asset. However, the use of computers and laptops does not give rise to any perquisite.

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