'Perquisites'

 PERQUISITES [ SECTION 17(2)]

 Perquisite‖ may be defined as any casual emolument or benefit attached to
an office or position in addition to salary or wages. In essence, these are
usually non-cash benefits given by an employer to employees in addition to
cash salary or wages. However, they may include cases where the employer
reimburses expenses or pays for obligations incurred by the employee.
Perquisites are also referred to as fringe benefits.
 Broadly, ―perquisite‖ is defined in the section 17(2) of the Income-tax Act as
including:
 1. Value of rent-free or concessional rent accommodation provided by the
employer.
 2. Value of any benefit/amenity granted free or at concessional rate to
specified employees etc.
 3. Any sum paid by employer in respect of an obligation, which was
actually payable by the assessee.
 4. Any sum paid by the employer for assurance on life of the employee or
to effect a contract for an annuity.
 5. Value of any other fringe benefit as may be prescribed.
 CLASSIFICATION OF PERQUISITES
 For tax purposes, perquisites specified under Section 17 (2) of the Act may be
classified as follows:
 I. Tax Free Perquisites
 1. Any refreshment provided to the employees during office hours at the place of
work. Refreshments provided to employees by employer outside work place up to Rs.
50 per day will be exempted. (Further free meals provided during working hours in a
remote area or an offshore installation is also exempt from income tax).
 2. Computer, laptops given to employee for personal or official use.
 3. Employer‘s contribution towards Staff Group Insurance Scheme, Medical/accident
or Health insurance premium of employee paid by the employer.
 4. Rent free official residence and conveyance facilities provided to a Judge of a
High Court/Supreme Court are not a taxable perquisite.
 5. Any expenditure incurred by the employer, for providing training to the employees
or fees paid for refreshing management course would not be taxable because this
enables the employees to perform their services more efficiently.
 6. Value of Leave Travel Concession in India
 7. Perquisites given to government employees who is staying abroad
 8. Gifts in kind if the value is less than Rs. 5,000
 9. Family planning expenses
 10. Products at concessional rate to employee sold by employer.
 11. Interest free loan up to 20,000
 12. Facility of free telephone and credit card
 13. Loans to employees: Interest free / concessional loan of an amount not
exceeding Rs.20,000 provided by the employer to his employees is not a
taxable perquisite.
 II. Perquisites taxable in case of Specified Employees only
 A Specified employee — Sec. 17(2)(iii), includes any employee who fulfill any of
these criteria
 1. Director of the company or
 2. Employee having 20% or more voting power in the employer company or
 3. Employee having salary of more than Rs. 50000 per annum.
Nature of perquisite Taxable Value of perquisite
Gas, electricity or water supply for 1. Manufacturing cost per unit
household consumption incurred by the employer., if
provided from resources owned by
the employer;
2. Amount paid by the employer, if
purchased by the employer from
outside agency
Note:
i. Any amount recovered from the
employee shall be deducted from
the taxable value of perquisite.
Services of cook, sweeper, Salary paid or payable by the
gardener, watchman or personal employer for such services less
attendant. any amount recovered from the
employee.
Education facility
Situation I 1. In case of education to Children
Where the education institution is Rs. 1000 per month per child is
itself maintained and owned by the exempted (no restriction on number
employer; or child.)
Where such facility is provided in any 2. In case of education to household
institute by reason of employee‘s member other than children than Cost
employment with the employer of such education incurred

Situation II Amount of expenditure incurred by

In any other case employer
(e.g. reimbursement of education
expenses)
Motor car facility
Where the Ownership of Car is 1. If engine capacity of Car is
Employee <1600cc than
and expense meets by Employer Car: Rs.1,800 p.m. Driver: Rs.900 p.m.
2. If engine capacity of Car is
>1600cc than
Car: Rs.2,400 p.m. Driver: Rs.900 p.m.

Where the Ownership of Car is 1. If engine capacity of Car is

Employer <1600cc than
and expense meets by Employer Car: Rs. 1,800 p.m. Driver: Rs.900
p.m.
2. If engine capacity of Car is
>1600cc than
Car: Rs. 2,400 p.m. Driver: Rs.900
p.m.

Where the Ownership of Car is 1. If engine capacity of Car is

Employer <1600cc than
and expense meets by Employee Car: Rs.600 p.m. Driver: Rs.900 p.m.
2. If engine capacity of Car is
>1600cc than
Car: Rs.900 p.m. Driver: Rs.900 p.m
1. Rent-Free Un-Furnished Accommodation
For the purpose of valuation of the perquisite in respect of unfurnished accommodation,
employees are divided in the following two categories:
CASE-1 : Central and State Government Employees
CASE-2 : Private Sector Employees or Other Employees.
Salary for this purpose[SFTP]

 - Salary Includes ...

 basic salary;
 dearness allowance/pay, if terms of employment so provide;
 bonus;
 commission;
 fees;
 all other taxable allowances (excluding amount not taxable); and
 any monetary payment which is chargeable to tax (by whatever
name called).
 X, an officer of the Government of Madhya Pradesh, draws Rs. 45,000 per month as
basic pay. The Government has provided him a rent-free unfurnished flat whose market
rent is Rs. 9,800 per month, though as per the Government rules licence fee of the flat is
Rs. 1,250 per month. Determine the value of the perquisite in respect of rent-free flat
for the assessment year 2020-21
 Solution : As X is a Government employee, valuation of the perquisite in respect of
rent-free flat would be Rs. 15,000, being the licence fee of the flat as per Government
rules (i.e., Rs. 1,250 x 12). Market rental value of the flat is not taken into account
 X is a Joint Secretary in the Ministry of Home Affairs. During the previous year ending
Mardi 31, 2018, he has been allotted a rent-free unfurnished flat at New Delhi. Though
the licence fee of the flat as per Government rule is Rs. 1,600 per month, its fair market
rent is not less than Rs. 12000 per month. Determine the value of the perquisite in
respect of rent-free unfurnished flat for the assessment year 2020-21 on the assumption
that salary of X is (a) Rs. 96,000 per month, or (b) Rs. 1,12,000 per month.
Rent-Free Furnished
Accommodation
 1. A Furnished Accommodation (not being in a Hotel, Motel,
Service Apartment or Guest House) -
 Value of the perquisite shall be calculated as follows —
 Step 1 - Find out value of the perquisite on the assumption that the
accommodation is unfurnished
 Step 2 - To the value so arrived at, add value of furniture.
 Value of furniture for this purpose is as follows—
 10% per annum of the original cost of furniture, if furniture is owned by the
employer;
 actual hire charges payable (whether paid or payable), if furniture is hired
by the employer.
 Meaning of furniture - “Furniture” here includes radio sets, television sets,
refrigerators, air-conditioners and other household appliances.
 2. A Furnished Accommodation in a Hotel, Motel,
Service Apartment or Guest House -
 The value of the perquisite is determined on the basis of
lower of the following two —
 24% of “salary” paid or payable for the period during which
such accommodation is provided in the previous year.
 Actual charges paid or payable by the employer to such
hotel.
 Exception -
 If an accommodation is provided in a hotel, motel, service
apartment or guest house in the case of relocation of an
employee from one place to another place, nothing is
chargeable to tax for 15 days (in aggregate during the
financial year).
 3. Valuation of Accommodation provided at Concessional Rent
 If an accommodation is provided to an employee at concessional rent,
the valuation should be made as follows (these rules are applicable
whether the accommodation is furnished or unfurnished or it is provided
in a hotel) —
 Step-1 : Find out the value of the perquisite on the assumption that no
rent is charged by the employer
 Step-2 : From the value so arrived at, deduct the rent charged by the
employer from the employee.
 The balance amount (if it is positive) is the taxable value of the
perquisite in respect of concession in rent.
 Mr. Sreenath is employed in Bangalore . His particulars of Income for the
Previous year 2019-2020 are basic salary Rs. 8000 p.m., Dearness
allowance 200 pm (40% forming part of salary ) Bonus
Rs.8000p.aCommission Rs.4500p.a Entertainment allowances Rs.
500p.m fair rental values of rent free houses provided by the employer is
40,000 p.a value of furniture provided Rs. 20000. Compute rent free
accommodation of Mr. Sreenath for the assessment year 2020-2021
 Mr. Chandru is employed in the company in Bengaluru.
 His particulars of income for the previous year 2019-2020 were as follows
: Basic salary 16000p.m. DA 4000 p.m.(40% enters into retirement
benefit ) Bonus 8000p.a commission Rs.4500 p.a. Entertainment
allowance Rs.500p.m fair rental value of house provided by employer
Rs.40,000p.a value of furniture provided Rs.20,000compute the taxable
value of rent free furnished accommodation for the A.Y 2020-2021
 Mr. Syed an employee of PQ ltd in Chennai draws Rs.2,00,000p.a as
salary (basic) and 10,000 as D.A he has been provided with a
accommodation for which employer pays an annual rent of 60,000 and
3000 towards hire charges for furniture provided
 Mr. syed pays Rs.4000p.a as rent for the accommodation . Compute
taxable value of the accomodation
 Value of any benefit or amenity granted or
provided free of cost or at concessional rate to
SPECIFIED EMPLOYEES i.e.
 Motor car Value as per Rule 3(2)
 Sweeper, Gardener, Watchman etc. Value as per Rule 3(3)
 Gas, Electricity & Water Value as per Rule 3(4)
 Free Education Facility Value as per Rule 3(5)
 Free / Concessional Fare Value as per Rule 3(6)
 Leave Travel Concession subject to exemption u/s 10(5)
 But medical facilities provided are taxable as per proviso to
sec. 17(2)
 Concessional or Interest free Loan As per Rule: 3(7)(
i)
 Travelling, touring & accommodation other than LTC As per
Rule: 3(7)(ii)
 Free food & beverages to the employees during office hours As per
Rule: 3(7)(iii)
 Gift to the employees As per
Rule: 3(7)(iv)
 Credit card expenses inc. membership fees & annual fees As per
Rule: 3(7)(v)
 Expenditure on account of club expenses As per
Rule: 3(7)(vi)
 Use of employer’s any movable asset by the employee As per
Rule: 3(7)(vii)
Valuation of Perquisite of Motor Car and
other Modes of Conveyance [Rule 3(2)] for
Computing Salary Income
Rule 3(2): VALUATION OF PERQUISITE IN RESPECT OF
MOTOR CAR

Private and official

Private Purpose Official Purpose
purpose

Car owned by the employee and expenses met by him

Not a perquisite Not a perquisite Not a perquisite

 Private Purpose Official Purpose Private and official purpose

Car owned by the employee and expenses are reimbursed by the

employer

Calculate actual expenditure

on by employer
Actual expenses Less:
of employer • If car engine capacity ≤
Less: Amount 1600cc, perquisite is 1,800
p.m. + 900 p.m. if driver is
recovered from Not a provided
the employee perquisite (See • If car engine capacity >
1600cc, perquisite is 2,400
balance amount Note-1) p.m. + 900 p.m. if driver is
will be perquisites provided OR
in employee's Higher sum as recorded by
logbook by employer
hand • Amount recovered from the
employee (if any)
 Private Purpose Official Purpose Private and official purpose

Car is owned/ hired by the employer and expenses met by the

employer

• If car engine capacity ≤

Actual Expenses by 1600cc, perquisite is
employer 1,800 p.m. + 900 p.m. if
Add: Depreciation driver is provided
(10% of the actual • If car engine capacity >
cost of car) / hire Not a perquisite 1600cc, perquisite is
charges (if car is (See Note-1) 2,400 p.m. + 900 p.m. if
hired) driver is provided
Less: Amount Note: Nothing is
recovered from the deductible in respect of
employee any amount recovered
from employee.
 Private and official
Private Purpose Official Purpose
purpose

Car is owned/ hired by the employer and expenses met by the employee

• If car engine capacity

Sum total of ≤ 1600cc, perquisite is
• Actual Expenditure 600 p.m. + 900 p.m. if
incurred by employer driver is provided
• Depreciation (10 % of • If car engine capacity
the actual cost of the > 1600cc, perquisite is
Not a perquisite (See
car) / hire charges (if 900 p.m. + 900 p.m. if
Note-1)
hired) driver is provided
• Driver’s salary Note: Nothing is
Less: Amount deductible in respect
recovered from the of any amount
employee recovered from
employee.