The Income Tax Act, 1961 defines a “specified employee” as an employee who is employed in a public sector company or in a company that is not a public sector company and who receives compensation from the employer in excess of ₹1,00,000 per annum.

Non-specified employees are those who do not meet the definition of a specified employee. They are taxed on their salary income, including any perquisites or benefits received from their employer under Income Tax Act.

The main difference between specified and non-specified employees is the way in which perquisites are taxed. Perquisites are taxable in the hands of specified employees, but they are not taxable in the hands of non-specified employees under Income Tax Act.

• Free or subsidized meals
• Free or subsidized housing
• Transport
• Medical allowance
• Club membership
• Education allowance
• Leave travel allowance
• Gift or bonus

The value of these perquisites is added to the salary income of the specified employee and taxed at the applicable rate under Income Tax Act.

Non-specified employees are not taxed on the value of perquisites received from their employer. However, there are some exceptions to this rule. For example, if a non-specified employee receives a car or a house from their employer, the value of these assets will be taxable in their hands under Income Tax Act.

The distinction between specified and non-specified employees is important for taxpayers who are trying to minimize their tax liability. If you are a specified employee, you should be aware of the perquisites that are taxable in your hands and take steps to minimize their value under Income Tax Act.

EXAMPLES

An employee of the Central Government working in Delhi is a specified employee, regardless of the state where he or she resides. However, an employee of a foreign company working in Delhi is a non-specified employee, because the company is not incorporated in India.

Specified Employees

• Directors of a company
• Employees who have a substantial interest in the company, such as those who own more than 2% of the company’s shares
• Any other employee whose salary income, exclusive of non-monetary benefits and amenities, exceeds Rs. 50,000/- per annum

Non-Specified Employees

• Employees whose salary income, exclusive of non-monetary benefits and amenities, does not exceed Rs. 50,000/- per annum
• Employees who do not have a substantial interest in the company
• Employees who are not directors of the company

CASE LAWS

• ITO v. M/s. Tata Chemicals Ltd.(1998) 232 ITR 377 (SC):  This case held that the value of free medical facilities provided to employees by their employer is a taxable perquisite for both specified and non-specified employees.
• ITO v. Dr. A.K. Banerjee(2003) 263 ITR 185 (Cal): This case held that the value of free education provided to the children of employees by their employer is a taxable perquisite for both specified and non-specified employees.
• ITO v. M/s. Larsen & Toubro Ltd.(2005) 278 ITR 118 (SC): This case held that the value of free accommodation provided to employees by their employer is a taxable perquisite for specified employees only.
• ITO v. Dr. S.K. Mahapatra(2009) 313 ITR 345 (Cal): This case held that the value of leave travel concession (LTC) provided to employees by their employer is a taxable perquisite for both specified and non-specified employees.

FAQ QUESTIONS

• What is a specified employee under Income Tax Act?

A specified employee is an employee who holds a key managerial position in a company, or is a member of the company’s board of directors, or holds a specified place in the company and earns a salary of ₹60,000 or more per month.

• What are the tax implications for specified employees under Income Tax Act?

Specified employees are subject to a higher rate of income tax than non-specified employees. They are also subject to certain additional taxes, such as the Fringe Benefit Tax.

• What are the benefits of being a non-specified employee under Income Tax Act?

Non-specified employees are subject to a lower rate of income tax than specified employees. They are also not subject to the Fringe Benefit Tax.

• What are some of the key differences between specified and non-specified employees under Income Tax Act?

The key differences between specified and non-specified employees are as follows under Income Tax Act:

* Salary under Income Tax Act: The salary of a specified employee must be at least ₹60,000 per month. There is no such requirement for non-specified employees.

* Key managerial position under Income Tax Act: A specified employee must hold a key managerial position in a company. This is defined as a position that is responsible for the overall management of the company or a major part of the company’s business.

* Board of directors under Income Tax Act: A specified employee must be a member of the company’s board of directors.

* Fringe benefit tax under Income Tax Act: Specified employees are subject to the Fringe Benefit Tax, which is a tax on the value of certain benefits that are provided to them by their employer. Non-specified employees are not subject to this tax.

• How can I determine if I am a specified employee under Income Tax Act?

If you are an employee of a company and your salary is at least ₹60,000 per month, or if you hold a key managerial position in the company, or if you are a member of the company’s board of directors, then you are a specified employee.