Perquisite is a benefit or an advantage that an employee receives from his/her employer over and above the salary. Perquisites are taxable under the head “Income from Salary”. The value of perquisites is determined as per the Income Tax Act, 1961 and the Income Tax Rules, 1962.
The valuation of perquisites depends on the nature of the perquisite. Some of the common perquisites and their valuation methods are as follows:
- Free accommodation: The value of free accommodation is determined as follows:
- If the accommodation is owned by the employer, the value is the annual rent that the employer could have obtained for letting out the accommodation.
- If the accommodation is taken on lease by the employer, the value is the actual amount of lease rent paid by the employer.
- In either case, the value of the perquisite is reduced by the rent, if any, actually paid by the employee.
- Medical facilities: The value of medical facilities is determined as the amount that the employee would have incurred if he/she had availed of the same facilities from a third party.
- Leave travel allowance (LTA): The value of LTA is determined as the amount that the employee actually spends on his/her travel. However, there is a maximum limit on the amount of LTA that is exempt from tax.
- Car allowance: The value of car allowance is determined as the actual amount of car allowance received by the employee. However, there is a maximum limit on the amount of car allowance that is exempt from tax.
- Other perquisites: The value of other perquisites, such as club membership, telephone allowance, etc., is determined as per the rules laid down by the Income Tax Department.
The total value of perquisites is added to the salary income of the employee and taxed accordingly.
Here are some of the perquisites that are exempt from tax:
- Free food and beverages provided to employees during working hours in remote areas or in offshore installations.
- Tea, coffee or non-alcoholic beverages and snacks provided to employees during working hours.
- Travel concession to government employees.
- Medical treatment provided to employees by the employer.
- Leave travel concession (LTA) for journeys undertaken by employees on medical grounds.
FAQ QUESTIONS
- What are perquisites?
Perquisites are benefits received by an employee in addition to his/her salary. They are taxable under the Income Tax Act, 1961.
- How are perquisites valued?
The valuation of perquisites depends on the nature of the perquisite. Some of the common methods of valuation are:
Market value method: This method is used to value perquisites that have a market value, such as the use of a company car or the rent-free accommodation.
Fair rent method: This method is used to value perquisites that do not have a market value, such as the use of a company guest house Salary basis method: This method is used to value perquisites that are not fully taxable, such as the value of free meals.
- What are some common perquisites?
Some of the common perquisites include:
Company car: The value of the car, including the fuel, insurance, and maintenance costs.
Rent-free accommodation: The rent that would be payable if the employee were not living in the accommodation.
Free meals: The cost of the meals, including the food, drinks, and service charges.
Medical allowance: The amount of money that the employer pays towards the employee’s medical expenses.
Leave travel allowance: The amount of money that the employer pays towards the employee’s travel expenses for vacation.
- Are all perquisites taxable?
No, not all perquisites are taxable. Some perquisites are exempt from tax, such as:
Uniform allowance: The amount of money that the employer pays towards the cost of the employee’s uniform.
Conveyance allowance: The amount of money that the employer pays towards the employee’s travel expenses for commuting to and from work.
Leave encashment: The amount of money that the employee is paid for unused leave.
- How do I calculate the taxable value of perquisites?
The taxable value of perquisites is calculated by multiplying the fair market value of the perquisite by the number of days in the year that the employee enjoyed the perquisite.
For example, if the fair market value of a company car is Rs.50,000 per year and the employee used the car for 365 days, then the taxable value of the car would be Rs.142.85 per day.
- Where can I find more information on the valuation of perquisites?
The Income Tax Act, 1961, and the Income Tax Rules, 1962, contain detailed provisions on the valuation of perquisites. You can also find more information on the website of the Income Tax Department.
CASE LAWS
- What are perquisites?
Perquisites are benefits received by an employee in addition to his/her salary. They are taxable under the Income Tax Act, 1961.
- How are perquisites valued?
The valuation of perquisites depends on the nature of the perquisite. Some of the common methods of valuation are:
Market value method: This method is used to value perquisites that have a market value, such as the use of a company car or the rent-free accommodation.
Fair rent method: This method is used to value perquisites that do not have a market value, such as the use of a company guest house.
Salary basis method: This method is used to value perquisites that are not fully taxable, such as the value of free meals.
- What are some common perquisites?
Some of the common perquisites include:
Company car: The value of the car, including the fuel, insurance, and maintenance costs.
Rent-free accommodation: The rent that would be payable if the employee was not living in the accommodation.
Free meals: The cost of the meals, including the food, drinks, and service charges.
Medical allowance: The amount of money that the employer pays towards the employee’s medical expenses.
Leave travel allowance: The amount of money that the employer pays towards the employee’s travel expenses for vacation.
- Are all perquisites taxable?
No, not all perquisites are taxable. Some perquisites are exempt from tax, such as:
Uniform allowance: The amount of money that the employer pays towards the cost of the employee’s uniform.
Conveyance allowance: The amount of money that the employer pays towards the employee’s travel expenses for commuting to and from work.
Leave encashment: The amount of money that the employee is paid for unused leave.
- How do I calculate the taxable value of perquisites?
The taxable value of perquisites is calculated by multiplying the fair market value of the perquisite by the number of days in the year that the employee enjoyed the perquisite.
For example, if the fair market value of a company car is Rs.50,000 per year and the employee used the car for 365 days, then the taxable value of the car would be Rs.142.85 per day.
- Where can I find more information on the valuation of perquisites?
The Income Tax Act, 1961, and the Income Tax Rules, 1962, contain detailed provisions on the valuation of perquisites. You can also find more information on the website of the Income Tax Department.