Introduction:
Individuals in employment often work hard achieve their personal financial goals. Salaries or wages are the considerations for the services provided by these employees to their organisation. However, if something more than just salary or wages are offered to employees then they tend to work even more harder and with utmost dedication to achieve organisational objectives.
To give additional benefits to employees, employers provide perquisites apart from the regular salaries or wages. These perks include things like accommodations, cars, medical or insurance benefits or stock options etc.
From taxation perspective, these perks also attract tax liability just like the salary income. The objective is to ensure that employees pay taxes not only on their salary but also on the additional benefits they receive from their employment.
Perquisites of salaries in income tax:
Perquisites are additional benefits or privilege part of salary which an employee gets apart from the monthly salaries or wages. Perquisites received from employers may either be taxable or exempt depending upon their nature. Section 17(2) of Income Tax lists down various perquisites forming part of salary :
- rent-free accommodation provided to employee
- Concessional accommodation i.e. accommodation provided to employee at concessional rates
- Any payment made by employer for employee to which employee was originally liable to pay
- Stock-option perquisite where employee would get shares of the company at privileged rate
- Contributions by employer towards any kind of recognised provident or such other funds
- Interest-free or concessional loans
- Use of vehicles
- Medical facilities
- Concessional education facilities to children of employees
Nature of the perquisite determines whether it will be taxable or tax exempt. Perquisites are valued upon the cost it has incurred to the employer. This means the actual amount of expenditure that has been incurred by employer will be the value of the perquisite in the hands of employees. Section 17(2) has also provided certain valuation methods of perquisites.
Taxability of perquisites:
Perquisites can be monetary as well as non-monetary. For better understanding, let us look at the following classification of perquisites:
- Taxable perquisites
Perks where monetary compensation is provided are taxable. For e.g. DA allowance, medical allowance, insurance allowance, servant allowance, overtime compensation etc.
- Non-taxable perquisites
Certain perks are tax exempt like HRA, Children allowance, transport allowance, Education allowance etc.
- Perquisites paid to certain special employees being non-taxable perks
Many times individuals holding high positions in government or big corporation receive these perks which are tax – free.
Perquisites Tax:
We will now understand how to calculate tax and TDS on perquisites.
For e.g. Mr. Rakesh earns a Salary of Rs.10,00,000.
Value of perquisite received from employer included in the above salary is Rs. 2,00,000.
Tax on Total Income of Rs.10,00,000 as per new tax regimes shall be Rs.54,600(after considering standard deduction of Rs.50,000)
Now we will calculate Average tax rate for calculating perquisites tax.
[(54,600/10,00,000)*100] = 5.46%
Tax on Perquisite of Rs. 2,00,000 will be (2,00,000*5.46%) Rs.10,920.
The amount of TDS to be deposited every month by the employer shall be Rs.910 (Rs.10,920/12)
Conclusion:
Perquisites cover a wide range of benefits, including rent-free or concessional accommodation, use of vehicles, utilities and services, educational facilities, medical benefits, interest-free or concessional loans, and stock options. Perquisites section of salary aims to ensure that employees pay taxes not only on their salary but also on the additional benefits they receive from their employment, thereby ensuring fair taxation and compliance with income tax laws. Having said that it also benefits employees in a lot of ways like it helps to make people with more dedication while receiving optimum reward for the same. It helps organisations to identify the hard working and loyal employees and to reward them. Productivity of the employees are also enhanced if they receive something more than their salaries for the efforts that they put in to prosper the organisation.
About Author:
CA Chinmay Shirish Agate
Chinmay Agate is a Practicing Chartered Accountant having 4+ years of experience and expertise in the field of Direct Taxation and Auditing compliances. In the past, he worked in various CA firms and comes with wide industry experience from services, retail to manufacturing to trading where he has handled various complex assignments. He has keen interest in Forex and Derivative knowledge as well as fundamental analysis.