Perquisites In Indian Tax System

A perquisite is any casual emolument, fee or profit attached to an office or position in addition to the
salary or wages. In other words, perquisites are the benefits in addition to normal salary to which the
employee has a right by virtue of his employment.
Definition of perquisite as per Section 17(2) of the Income-tax Act.
• Section 17(2) of the Income-tax Act, 1961 gives an inclusive definition of perquisite. As per
this Section perquisite includes.
• The value of rent-free accommodation provided to the assessee by his employer.
• The value of any concession in the matter of rent respecting any accommodation provided to
the assessee by his employer.
• The value of any benefit or amenity granted or provided free of cost or at concessional rate in
any of the following cases.
• By a company to an employee, who is a director thereof.
• By a company to an employee being a person who has a substantial interest in the company.
• By any employer to an employee whose income under the head 'Salaries' exceeds Rs.24000
excluding the value of non monetary benefits or amenities.
• Any sum paid by the employer in respect of any obligation which, but for such payment, would
have been payable by the assessee.
• Any sum payable by the employer whether directly or through a fund, other than a recognised
provident fund or EPF, to effect an assurance on the life of the assessee or to effect a
contract for an annuity.
Note that benefits under sections 10(13A), 10(5), 10(14), 17 etc., continue to be exempt. It is only rule
3 has been amended.
Following are details of the large-scale amendments:
• Tax Free Perquisites.
• Medical Facilities.
• Leave Travel Concession.
• Perquisites on account of accommodation provided by the employer.
• Perquisite value on account of motorcars or other vehicles provided by the
employer.
• Perquisite value for household servants provided by the employer.
• Facility of holiday home for employees.
Tax Free Perquisites In Indian Tax System
• Medical facility: Any medical facility provided by the employer to the employee and his family
members in a hospital, dispensary or a nursing home maintained by the employer.
• Medical reimbursement: Any medical expenses reimbursed by the employer for the treatment
of his employee and his family members in an approved Hospital subject to maximum of
Rs.10,000 per annum upto assessment year 1998-99. The limit of Rs.10,000 has been raised
to Rs.15,000 per annum w.e.f. assessment year 1999-2000.
• Refreshments: Any refreshment provided to the employees during office hours at the place of
work.
• Subsidised lunch or dinner provided by the employer: When lunch or dinner is provided at
subsidised rates i.e. the employer charges some amount for the lunch or dinner then only it is
tax-free perquisite.
• Recreational facilities: Any recreational facility provided to a group of employees by the
employer is not taxable. These should not be resricted to only a few employees.
 • Telephone Bills: Telephone bills of the telephone installed at the residence of the employee
for offiicial purposes , if paid/reimbursed by the employer, is not a taxable perquisite even if
such telephone is used for official as well as personal benefit of the employee.
• Goods sold by the employer at a concessional rate to his employees: When the employer
sells the goods being manufactured by him to his employees at concessional rates, it is not a
taxable perquisite e.g. a company, manufacturing fans, sells the fans to its employees at
concessional rates, the concession given to the employees shall not be taxable. However, if
the employer sells other goods to the employees at a value lower than the market value of the
goods, the benefit given to the employee is taxable.
• Insurance: Any portion of the premia paid by an employer to effect or to keep in force an
insurance on the health of the employee under an approved scheme. This covers
reimbursement of the expense incurred by the employee for schemes approved under section
80D also.
• Loans to employees: If the employer gives a loan to an employee either without interest or at
a concessional rate of interest for construction or purchase of a house or for a conveyance,
then the benefit of interest availed of by the employee would not be taxable.
• Transportation facilities: If an employer, engaged in the business of transport, provides
transport facilities to its employees and his family members either free of cost or at
concessional rate then it would not be a taxable perquisite. For example, free passes
provided by the Indian Railways to its employees are not taxable in the hands of the
employees.
• Perquisites provided outside India: Perquisites provided by the Government to its employees,
who are citizen of India for rendering services outside India, are not taxable.
• Training of employees: Any expenditure incurred by the employer, for providing training to the
employees or by way of payment of fees of refresher management courses attended by the
employee, would not be taxable because these enable the employees to perform their
services more efficiently.
• Rent free House: Rent free official residence and conveyance facilities provided to a Judge of
a High Court/Supreme Court is not a taxable perquisite.
• Residence to officials of Parliament etc.: Rent free furnished residence (including
maintenance thereof) provided to an officer of the Parliament, a Union Minister or Leader of
Opposition in Parliament, is not a taxable perquisite.
• Employers contribution: Employers contribution to pension, deferred annuity scheme and staff
group insurance scheme of employees, is not a taxable perquisite in the hands of employees.
Medical Facilities For Employees In India [Provison to Section 17(2)]
Expenditure on medical treatment in India
• In certain cases medical facilities are treated as tax free. When an employee is granted
medical facilities or his family members are granted medical facilities in any hospital,
dispensary or nursing home maintained by the employer ,in such a situation medical
perquisites are treated as tax-free perquisites.
• In case of reimbursement by the employer of an amount actually spent by the employee for
obtaining medical treatment for himself or his family members is a tax free perquisites up to a
ceiling of Rs. 10,000/- p.a. This ceiling has been raised to Rs.15,000/- from the assessment
year 1999-2000. However in the following cases medical treatment of the employee and his
family members shall be fully tax free even if the amount paid or reimbursed exceeds these
specified limit of Rs.15,000/- as mentioned above :
○ Actual expenditure incurred by employee on himself or his family's medical treatment
in a Government Hospital or in a hospital approved by the Government for its
employees.
○ Expenditure incurred by the employee on himself or his family member's medical
treatment in respect of prescribed diseases in a hospital approved by the Chief
Commissioner of Income Tax. To avail the benefit under this Section the employees
has to attach, alongwith his return of income, a certificate from the hospital specifying
the disease for which medical treatment was required and the receipt for the amount
paid to the hospital.
 • Any insurance premium for insurance of the health of the employees under a scheme
approved by the Central Government. Any reimbursement by the employer of any insurance
premium paid by the employee for insurance of his health or her spouse or dependent
parents or dependent children under a scheme approved by the Central Government is also a
tax-free perquisite.
Expenditure on medical treatment outside India
• In certain situations expenditure incurred by the employer on treatment of the employee or his
family members outside India is treated to be a tax free perquisite.
• Expenses on medical treatment of the employee or any member of his family incurred outside
India shall be tax free perquisite to the extent permitted by Reserve Bank of India.
• Expenses incurred on the attendant who accompanies the patient in connection with the
treatment of the employee shall also be tax-free perquisite to the extent admitted by Reserve
Bank of India.
• Expenses relating to traveling of the patient and one attendant who accompanies the patient
shall be tax-free perquisite in the case where the gross total income of the patient does not
exceed Rs. 2,00,000/- (Rs. Two Hundred Thousands). In other words, if the gross total
income exceeds Rs. 2,00,000/- the traveling expenses of the patient as well as the attendant
shall become a taxable perquisite.
Leave Travel Concession
Reimbursement of expenses incurred by employee and his family for travelling while on leave are
exempt up to stipulated limits. Accordingly--
• Many employers grant the facility to the employees and their families of travelling to their
home town or any other place in India in a block of two or four years. This perquisite on
account of Leave Travel Concession if actually availed by the employee is exempt from
Income Tax subject to the limits of expenses prescribed. However, in case the Leave Travel
Concession is encashed by the employee without performing the actual journey the entire
amount received by the employee would be taxable in the relevant previous year.
• LTC given to an employee and his family in connection with his proceeding to any place in
India after retirement from service or after the termination of his service is exempt subject to
conditions laid down as in the case of Central Government employees.
• Where the journy is by air, an amount not exceeding the air economy fair of the national
carrier by the shortest route to the place of destination.
• Where the origin of journy and destination or part thereof are not connected by rail, the
exemption shall not exceed
i. Where a recognised public transport system exists, the first class or deluxe class fare
by the shortest route, and
ii. Where such system does not exist, air-conditioned first class rail fare applicable to
the distance.
Perquisites On Account Of Accommodation Provided By The Employer
Value of rent free unfurnished accommodation
• For calculating the perquisite for rent free accommodation the employees have been divided
into three categories viz. government employees, semi-government employees( which cover
the employees of Reserve Bank of India, statutory corporation) and other employees.
• The factors which determine the value of rent free accommodation are the category of
employees, the location of the accommodation, the fair rental value of the accommodation
and the salary of the employee.
• Fair rental value is the rent which a similar accommodation would realise in the same locality
or the municipal valuation whichever is higher [Explanation 2 to Rule 3(a)]. If the
accommodation is owned by the employer, then the maintenance expenses of the garden,
salary of the gardener and the maintenance expenses of the swimming pool are included in
the FRV.
• Salary for the calculating the value of the rent free accommodation includes basic salary,
bonus, fees and commission, dearness allowance, taxable allowances, income tax and
professional tax of the employee, if paid by the employer.
 • In the case of government employees, the value of perquisite of a rent free unfurnished
accommodation is as per the rules framed by the government.
• In the case of semi-government employees in respect of properties located anywhere in India,
the value of perquisite is 10% of salary or Fair Rental Value of accommodation, whichever is
less.
• In the case of other employees, in respect of properties located at Delhi, Mumbai, Calcutta,
and Chennai.
• If the fair rent is less than 10% of the salary, fair rent is taken as the taxable value of the
perquisite.
• If the fair rent is 10% of salary or more but not more than 60% of salary, 10% of salary is
taxable value of the perquisite.
• If the fair rent exceeds 60% of salary, fair rent minus 50% of salary is taxable.
Value of rent free furnished accommodation:
In case the employee has been provided rent free furnished accommodation, the valuation of the
perquisite is determined by presuming that the accommodation is unfurnished. The value of the
perquisite is determined as shown in the paragraph for calculating value of rent free unfurnished
accommodation. After calculating the value in this fashion, 10% of the original cost of furniture is
added if the furniture is owned by the employer or if the furniture is hired by the employer, actual hire
charges payable are added to the value of rent free unfurnished accommodation.
Value of accommodation provided at concessional rate
• Where an accommodation has been provided by the employer to his employee and the
employer charges a concessional rent from him, then it is an accommodation provided at a
concessional rate and the value of the concession shall be the taxable perquisite. The value
of this perquisite shall be determined in the following manner.
• Assume that the accommodation provided is a rent free accommodation (which may be
furnished or unfurnished) and value the same as per the provisions discussed above.
• From the value determined under step-1, deduct the rent charged from the employee. The
balance amount, if any, shall be the value of the accommodation provided at concessional
rate.
Perquisite Value On Account Of Motorcars Or Other Vehicles Provided By The Employer
When an employee provided motor car by his employer, the value of the benefit is taxable as
perquisite in the hands of the employee. The rules for valuation of motorcar or other vehicles are
explained as under . The value is determined on the basis of many factors namely if the car is owned
by the employee or the car is owned by the employer.
• When the car is owned by the employee and the maintenance and running expenses are
reimbursed by the employer.
• When the car is used wholly for official purposes, the value of the benefit is not a taxable
perquisite.
• When the car is used for private purposes the actual expenditure reimbursed by the employer
is a taxable perrquisite.
• When the car is used partly for official and partlly for private purposes the Assessing Officer
can reasonably apportion the amount and determine the taxable perquisite.
• When the car is owned or hired by the employer and the maintenance and running expenses
are reimbursed by the employer.
• When the car is used wholly for official purposes, the value of the benefit is not a taxable
perquisite.
• When the car is used for private purposes only, then the actual expenditure incurred by the
employer on the running and maintenance , normal depreciation and the salary of the driver if
any and hire charges of the car are taxable as a perquisite.
• When the car is used partly for official purposes and partly for private purposes, the
reasonable proportion of the sum spent by the employer.
 • If it is difficult to work out such proportion and if the Horse Power does not exceed 16 and the
engines capacity is 1.88 litres, then Rs. 600/- per month is the taxable perquisite and if the
driver is provided Rs. 300/- is the additional sum of the perquisite for the driver.
• When the Horse Power rating exceeds 16, the value of the perquisite is Rs. 800/- per month
and if the driver is provided Rs. 300/- is the additional sum of the perquisite for the driver.
• When maintenance and running expenses are met by the employee.
• If the car is used for private purposes then the normal running and maintenance expenses are
taxable perquisites.
• When the car is used for partly for official and partly for personal purposes and if it is difficult
to work out the proportion.
• Then Rs. 200 per month for a car upto 16 Horse Power and enginge capacity 1.88 Litres is
the taxable perquisite. If a driver is provided additional sum of Rs. 300 per month is the
taxable perquisite.
• If the Horse Power rating does exceed 16 and engine capacity exceeding 1.88 litres then Rs.
300 per month is the taxable perquiste. If a driver is provided additional sum of Rs. 300 per
month is the taxable perquisite.
Perquisite Value For Household Servants Provided By The Employer
The perk value of services, for sweeper gardener, watchman or personla attendant the residence of
employee irrespective of the degree of personal service rendered, shall be the actual cost to the
employer
• When the employer provides gardner, sweeper ,watchman and domestic servant to the
employee the perquisite value is determined as under:-
• When employer pays or reimburse wages of the gardner, sweeper, watchman and domestic
servant to the employee 100% of the wages paid are taxable as a perquiste.
• In a situation where an accommodation owned by an employer is provided to the employee
and the services of the gardner are also provided with the accommodation his services are
not a perquisite in the hands of the employee. But the salary of the gardner is to be taken into
account in determining the fair rental value of the accommodation.
• Servant allowance given by the employer to the employee to meet the expenses on account
of the salary of the servant is fully taxable.
• Circular 122 dated 19.10.73 clarified that if the employer employs a gardner for building
belonging to the employer, it would not be treared as perk. This principle continues to be
applicable even now with the possibility of it being extrapolated to other servants.
• A helper engaged for performance of the duties of an office or employment of profit is not
considered as perk under rule 2BB, read with Section 10(14). Many employees, paricularly at
the top level, carry out part of the work at their residence. I will go to the extent of sharing that
the employee can directly engage the service of a helper and claim reimbursement from the
employer without it being considered as perk.
Facility Of Holiday Home For Employees
• Where an employer provides to his employees the facility of a holiday home maintained by
the employer then the value of the facility is taxable perquisite. The value shall be the market
value of the facility availed. In case the employee is reimbursed the expenses on account of
holiday home for his stay in a hotel the valuation of the perquisite shall be the actual amount
spent by the employer.