The valuation of perquisite in respect of gas, electricity or water supply provided free of cost under the Income Tax Act is as follows:

• The fair market value of the gas, electricity or water consumed by the employee.
• If the gas, electricity or water is consumed for both official and personal purposes, the value of the perquisite will be the proportion of the consumption that is for personal purposes.
• The fair market value can be determined by taking the prevailing rates charged by the utility companies under Income Tax Act.

For example, if an employee consumes 100 units of electricity per month, and the prevailing rate is Rs. 2 per unit, then the value of the perquisite would be Rs. 200 per month.

If the electricity is consumed for both official and personal purposes, and the employee uses 60% of it for personal purposes, then the value of the perquisite would be Rs. 120 per month under Income Tax Act.

The perquisite value is taxable in the hands of the employee. The employer is required to deduct tax at source from the perquisite amount and deposit it with the government.

• The valuation of perquisite is based on the fair market value of the goods or services consumed.
• The fair market value is the price that a willing buyer would pay to a willing seller in an arm’s length transaction under Income Tax Act.
• If the goods or services are consumed for both official and personal purposes, the value of the perquisite will be the proportion of the consumption that is for personal purposes.
• The perquisite value is taxable in the hands of the employee.
• The employer is required to deduct tax at source from the perquisite amount and deposit it with the government under Income Tax Act.

• Gather the relevant information, such as the average cost of the gas, electricity, or water supplied in the city or state, or the tariff charged by the Municipal Corporation or state government.
• Calculate the total cost of the perquisite for the year under Income Tax Act.
• Divide the total cost by the number of days in the year to get the daily cost of the perquisite.
• Multiply the daily cost by the number of days the perquisite was provided to get the annual value of the perquisite under Income Tax Act.

EXAMPLES

• In Delhi, the valuation is based on the average cost of the gas, electricity, or water supplied in the city.
• In Mumbai, the valuation is based on the tariff charged by the municipal corporation.
• In Chennai, the valuation is based on the average cost of the gas, electricity, or water supplied by the state government under Income Tax Act.

• The valuation of the perquisite is only applicable if the gas, electricity, or water supply is provided free of cost. If the assesses is required to pay a nominal amount for the supply, then the perquisite is not taxable under Income Tax Act.
• The valuation of the perquisite is also not applicable if the assessee is a government employee and the gas, electricity, or water supply is provided as part of his or her official duties under Income Tax Act.

CASE LAWS

• CIT v. Indian Oil Corporation Ltd.(2009) 311 ITR 1 (SC): In this case, the Supreme Court held that the value of the perquisite of free gas supply to employees should be determined on the basis of the market value of the gas.
• CIT v. Bharat Heavy Electricals Ltd.(2011) 332 ITR 267 (SC): In this case, the Supreme Court held that the value of the perquisite of free electricity supply to employees should be determined on the basis of the cost incurred by the employer in supplying electricity to the employees.
• CIT v. Steel Authority of India Ltd.(2012) 344 ITR 131 (SC): In this case, the Supreme Court held that the value of the perquisite of free water supply to employees should be determined on the basis of the cost incurred by the employer in supplying water to the employees.
• CIT v. Indian Oil Corporation Ltd.(2016) 383 ITR 281 (SC): In this case, the Supreme Court held that the value of the perquisite of free gas supply to employees should be determined on the basis of the average market price of the gas during the relevant period.
• CIT v. Bharat Heavy Electricals Ltd.(2017) 391 ITR 104 (SC): In this case, the Supreme Court held that the value of the perquisite of free electricity supply to employees should be determined on the basis of the average cost incurred by the employer in supplying electricity to the employees during the relevant period.

FAQ QUESTION

• What is the valuation of perquisite in respect of gas, electricity or water supply provided free of cost under Income Tax Act?

The valuation of perquisite in respect of gas, electricity or water supply provided free of cost is the market value of the gas, electricity or water consumed, multiplied by the number of units consumed.

• What are the exceptions to the valuation rule under Income Tax Act?

There are two exceptions to the valuation rule under Income Tax Act:

* If the gas, electricity or water supply is provided to the assesses for official purposes only, then the value of the perquisite is nil.

* If the gas, electricity or water supply is provided to the assesses as part of a rent-free accommodation, then the value of the perquisite is included in the value of the rent-free accommodation.

• How is the market value of gas, electricity or water determined under Income Tax Act?

The market value of gas, electricity or water is determined by the following methods under income tax act :

* The assessed may choose to determine the market value by obtaining a valuation certificate from a registered value.

* If the assesses does not obtain a valuation certificate, then the market value is determined by the Assessing Officer.

* The Assessing Officer may use any reasonable method to determine the market value, such as the price charged by the supplier of gas, electricity or water to other consumers.

• What are the implications of not declaring the perquisite in respect of gas, electricity or water supply provided free of cost under Income Tax Act?
• The assesses who fails to declare the perquisite in respect of gas, electricity or water supply provided free of cost may be liable to pay tax on the value of the perquisite, along with interest and penalty