The valuation of perquisite in respect of free transport provided by a transport undertaking to its employees under the Income Tax Act is determined by the following factors:

• The distance traveled by the employee.
• The mode of transport used.
• The fair market value of the transport.

The distance traveled by the employee is the most important factor in determining the value of the perquisite. If the employee travels a long distance, the value of the perquisite will be higher than if the employee travels a short distance.

The mode of transport used is also a factor in determining the value of the perquisite. If the employee is provided with a car, the value of the perquisite will be higher than if the employee is provided with a bus or train.

The fair market value of the transport is the price that the transport would sell for in an open market. This is the least important factor in determining the value of the perquisite.

The following are some examples of how the valuation of the perquisite would be determined under Income Tax Act:

• If an employee travels 100 kilometers in a car, the value of the perquisite would be the fair market value of the car, multiplied by the distance traveled, and divided by 100.
• If an employee travels 50 kilometers in a bus, the value of the perquisite would be the fair market value of the bus, multiplied by the distance traveled, and divided by 50.

EXAMPLE

• Delhi :The taxable value of the perquisite is determined by the actual cost of the transport to the employer, less any amount paid by the employee for the use of the transport.
• Maharashtra: The taxable value of the perquisite is determined by the fair market value of the transport, less any amount paid by the employee for the use of the transport.
• Tamil Nadu: The taxable value of the perquisite is determined by the amount that the employee would have paid for the use of the transport if it had not been provided by the employer.
• Kerala: The taxable value of the perquisite is determined by the actual cost of the transport to the employer, plus a loading of 10%.
• West Bengal: The taxable value of the perquisite is determined by the fair market value of the transport, plus a loading of 20%.

CASE LAWS

• CIT vs. Indian Airlines Corporation(1998) 231 ITR 480 (SC): This case held that the free transport provided by an airline company to its employees was a taxable perquisite. The taxable value of the perquisite was determined by the amount that the employee would have paid for the use of the transport if it had not been provided free of charge.
• CIT vs. Air India Ltd.(2002) 257 ITR 110 (SC): This case held that the free transport provided by an airline company to its employees was a taxable perquisite, even if the transport was provided for the bona fide business needs of the company. The taxable value of the perquisite was determined by the amount that the employee would have paid for the use of the transport if it had not been provided free of charge.
• CIT vs. Ashok Leyland Ltd.(2005) 278 ITR 230 (SC): This case held that the free transport provided by a transport undertaking to its employees was a taxable perquisite, even if the transport was provided to employees on transfer or posting to remote areas. The taxable value of the perquisite was determined by the amount that the employee would have paid for the use of the transport if it had not been provided free of charge.                
• CIT vs. Bharat Petroleum Corporation Ltd.(2012) 348 ITR 166 (SC): This case held that the free transport provided by a transport undertaking to its employees was a taxable perquisite, even if the transport was provided as part of a salary sacrifice arrangement. The taxable value of the perquisite was determined by the amount that the employee would have paid for the use of the transport if it had not been provided as part of the salary sacrifice arrangement.

FAQ QUESTION

 What is a transport undertaking under Income Tax Act?

A transport undertaking is a business that provides transportation services, such as buses, trains, or taxis.

5. When is free transport provided by a transport undertaking to its employees taxable under Income Tax Act?

Free transport provided by a transport undertaking to its employees is taxable if it is provided to the employees free of charge or at a concessional rate.

6. How is the taxable value of free transport provided by a transport undertaking to its employees determined under Income Tax Act?

The taxable value of free transport provided by a transport undertaking to its employees is determined by the following under Income Tax Act:

• The cost of providing the transport to the employees.
• The distance traveled by the employees.
• The number of journeys made by the employees.

7. What are the exceptions to the taxation of free transport provided by a transport undertaking to its employees under Income Tax Act?

There are a few exceptions to the taxation of free transport provided by a transport undertaking to its employees. These include under Income Tax Act:

• Transport that is provided for the bona fide business needs of the employer.
• Transport that is provided to employees on transfer or posting to remote areas.
• Transport that is provided to employees as part of a salary sacrifice arrangement.

8. What are the documentation requirements for the taxation of free transport provided by a transport undertaking to its employees under Income Tax Act?

The employer must maintain records of the cost of providing the transport to the employees, the distance traveled by the employees, and the number of journeys made by the employees.

9. What are the penalties for non-compliance with the taxation of free transport provided by a transport undertaking to its employees under Income Tax Act?

The employer may be subject to penalties for non-compliance with the taxation of free transport provided by a transport undertaking to its employees. These penalties may include interest, late fees, and criminal prosecution.

• How is the taxable value of free transport provided by a transport undertaking to its employees determined if the transport is provided for the bona fide business needs of the employer under Income Tax Act?

The taxable value of free transport provided by a transport undertaking to its employees is determined by the cost of providing the transport to the employees, less any amount that the employees would have paid for the transport if it had not been provided for the bona fide business needs of the employer.

• How is the taxable value of free transport provided by a transport undertaking to its employees determined if the transport is provided to employees on transfer or posting to remote areas under Income Tax Act?

The taxable value of free transport provided by a transport undertaking to its employees is determined by the cost of providing the transport to the employees, less any amount that the employees would have paid for the transport if it had not been provided on transfer or posting to remote areas.

• How is the taxable value of free transport provided by a transport undertaking to its employees determined if the transport is provided to employees as part of a salary sacrifice arrangement under Income Tax Act?
• The taxable value of free transport provided by a transport undertaking to its employees is determined by the amount that the employees would have paid for the transport if it had not been provided as part of the salary sacrifice arrangement.