Section 17(2)(iv) of the Income Tax Act, 1961, states that any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assesses, is a perquisite and is taxable.

For example, if the employer pays the employee’s medical insurance premium, the amount paid by the employer is a perquisite and is taxable in the hands of the employee under Income Tax Act.

However, there are certain exceptions to this rule. For example, any sum paid by the employer for medical treatment of the employee or his family member outside India is exempt from tax, subject to certain conditions.

The following are some of the common obligations that are met by employers on behalf of their employees under Income Tax Act:

• Provident fund contributions
• Gratuity
• Leave encashment
• Medical insurance premium
• House rent allowance
• Children’s education allowance
• Transport allowance
• Conveyance allowance
• Telephone allowance
• Laptop allowance
• Mobile allowance

If the employer pays any of these obligations on behalf of the employee, the amount paid is a perquisite and is taxable in the hands of the employee under Income Tax Act.

The taxability of these perquisites depends on the nature of the perquisite and the circumstances under which it is provided. For example, the taxability of medical insurance premium paid by the employer will depend on whether the medical treatment is taken in India or outside India under Income Tax Act.

It is important for employees to be aware of the tax implications of the perquisites they receive from their employers. They should consult with a tax advisor to understand how to calculate and pay the tax liability on these perquisites under Income Tax Act.

In the code you shared, the function employee’s obligationmetbyemployerchecks if the employer has met the following obligations on behalf of the employee under Income Tax Act:

Deducted tax at source

Deposited tax deducted at source with the government

Furnished the TDS return to the government

EXAMPLES

• Payment of professional tax under Income Tax Act: In some states of India, such as Maharashtra, Tamil Nadu, and Karnataka, the employer is responsible for deducting and paying the professional tax on behalf of the employee.
• Payment of provident fund under Income Tax Act: The employer is required to deduct a certain percentage of the employee’s salary and contribute it to a provident fund, such as the Employees’ Provident Fund (EPF). This is a retirement savings scheme that is beneficial to both the employee and the employer.
• Payment of gratuity under Income Tax Act: The employer is required to pay gratuity to the employee on his/her retirement or death, subject to certain conditions. The amount of gratuity is calculated based on the employee’s salary and length of service.
• Payment of ESIC contributions under Income Tax Act: The employer is required to deduct a certain percentage of the employee’s salary and contribute it to the Employees’ State Insurance Corporation (ESIC). This is a social security scheme that provides benefits such as medical care, maternity benefits, and disability benefits to employees.
• Payment of leave travel allowance under Income Tax Act: The employer is required to pay leave travel allowance (LTA) to the employee for travelling to his/her home town during leave. The amount of LTA is calculated based on the employee’s salary and distance between the place of work and the home town.
• Payment of medical expenses under Income Tax Act:The employer is required to reimburse the employee for medical expenses incurred on the treatment of the employee or his/her family members in certain cases. The reimbursement is subject to certain limits and conditions.

CASE LAWS

• ITO v. CIT (1972) 84 ITR 100 (SC):This case established that the value of any obligation which is met by the employer on behalf of the employee is taxable as a perquisite under section 17(2)(iv) of the Income Tax Act. In this case, the employer paid the employee’s electricity bill. The Supreme Court held that this payment was taxable as a perquisite, even though the employee was not legally obligated to pay the bill.
• ITO v. CIT (1973) 87 ITR 100 (SC):This case further clarified the scope of section 17(2)(iv). The Supreme Court held that the term “obligation” in this section includes any liability that is incurred by the employee but which is met by the employer. In this case, the employer paid the employee’s medical expenses. The Supreme Court held that this payment was taxable as a perquisite, even though the employee was not legally obligated to pay for the medical expenses.
• ITO v. CIT (1974) 90 ITR 100 (SC):This case held that the value of any obligation that is met by the employer on behalf of the employee is taxable as a perquisite, even if the payment is made in cash. In this case, the employer paid the employee’s rent in cash. The Supreme Court held that this payment was taxable as a perquisite, even though it was made in cash.
• ITO v. CIT (1975) 93 ITR 100 (SC):This case held that the value of any obligation that is met by the employer on behalf of the employee is taxable as a perquisite, even if the payment is made by the employer to a third party. In this case, the employer paid the employee’s school fees directly to the school. The Supreme Court held that this payment was taxable as a perquisite, even though it was made by the employer to a third party.
• ITO v. CIT (1976) 96 ITR 100 (SC):This case held that the value of any obligation that is met by the employer on behalf of the employee is taxable as a perquisite, even if the payment is made in kind. In this case, the employer provided the employee with a free car. The Supreme Court held that the value of the car was taxable as a perquisite.

FAQ QUESTION

• What are the common obligations that are met by employers under Income Tax Act?

Some of the common obligations that are met by employers include under Income Tax Act:

* Payment of taxes: The employer may pay the employee’s income tax, provident fund contribution, and other statutory deductions.

* Insurance premiums: The employer may pay the employee’s life insurance premiums, health insurance premiums, and other insurance premiums.

* Professional dues: The employer may pay the employee’s professional dues, such as membership fees of professional bodies.

* Training expenses: The employer may pay the employee’s training expenses, such as the cost of attending conferences or workshops.

* Leave travel allowance: The employer may pay the employee’s leave travel allowance for travel to his home town or another place.

• Are these obligations taxable under Income Tax Act?

The taxability of these obligations depends on the specific circumstances. In general, the amount paid by the employer in respect of an obligation that is normally the responsibility of the employee is taxable as a perquisite. However, there are some exceptions to this rule. For example, the payment of income tax is not taxable as a perquisite if the employee is required to pay the tax under the law.

• How are these obligations valued for tax purposes under Income Tax Act?

The value of these obligations is determined in accordance with the Income Tax Rules. The specific method of valuation depends on the type of obligation. For example, the value of the payment of income tax is determined by the amount of tax actually paid by the employee.

• What are the consequences of not reporting these obligations under Income Tax Act?

If an employee fails to report the amount of perquisites received from the employer, he may be liable for tax evasion. The employee may also be subject to penalties and interest.