The valuation of the perquisite in respect of movable assets sold by an employer to its employees at a nominal price under the Income Tax Act is the fair market value of the asset, less the amount paid by the employee.
The fair market value is the price that the asset would sell for in an open market. The amount paid by the employee is irrelevant to the valuation of the perquisite.
For example, if an employer sells a car to an employee for Rs. 100,000, but the fair market value of the car is Rs. 200,000, the taxable value of the perquisite is Rs. 100,000.
There are a few exceptions to this rule. For example, if the asset is sold to an employee as part of a salary sacrifice arrangement, the taxable value of the perquisite is the amount that the employee would have paid for the asset if it had not been sold at a nominal price.
FAQ QUESTIONS
What is the fair market value of an asset under Income Tax Act?
The fair market value is the price that the asset would sell for in an open market. It is determined by considering factors such as the age, condition, location, and market demand for the asset.
- What is the amount paid by the employee under Income Tax Act?
The amount paid by the employee is the price that the employee actually paid for the asset. It is irrelevant to the valuation of the perquisite.
- What is the taxable value of the perquisite under Income Tax Act?
The taxable value of the perquisite is the fair market value of the asset, less the amount paid by the employee.
- What are the exceptions to the taxation of movable assets sold at a nominal price under Income Tax Act?
There are a few exceptions to the taxation of movable assets sold at a nominal price. These include under Income Tax Act:
- Assets that are sold to employees as part of a salary sacrifice arrangement.
- Assets that are sold to employees at a price that is not less than the market value of the asset.
- Assets that are sold to employees for bona fide business reasons.
- What are the documentation requirements for the taxation of movable assets sold at a nominal price under Income Tax Act?
The employer must maintain records of the fair market value of the asset, the amount paid by the employee, and the date on which the asset was sold under Income Tax Act.
- What are the penalties for non-compliance with the taxation of movable assets sold at a nominal price under Income Tax Act?
The employer may be subject to penalties for non-compliance with the taxation of movable assets sold at a nominal price. These penalties may include interest, late fees, and criminal prosecution under Income Tax Act.
- What happens if the employer does not provide the employee with a valuation of the asset under Income Tax Act?
In this case, the employee can estimate the fair market value of the asset. The employee can use the following factors to estimate the fair market value under Income Tax Act:
* The age, condition, location, and market demand for the asset.
* The price of similar assets that have been sold recently.
* The price of the asset that was sold by the employer to another employee.
- What happens if the employee does not pay any amount for the asset under Income Tax Act?
In this case, the taxable value of the perquisite is the fair market value of the asset.
- What happens if the asset is sold to the employee for a price that is less than the market value of the asset under Income Tax Act?
In this case, the taxable value of the perquisite is the difference between the market value of the asset and the amount paid by the employee under Income Tax Act.
The employer must maintain records of the fair market value of the asset, the amount paid by the employee, and the date on which the asset was sold under Income Tax Act.
The employee must also declare the taxable value of the perquisite in their income tax return under Income Tax Act.
EXAMPLES
- An employer sells a car to an employee for Rs.100,000, but the fair market value of the car is Rs. 200,000. The taxable value of the perquisite is Rs.100,000.
- An employer sells a laptop to an employee for Rs.50,000, but the fair market value of the laptop is Rs. 75,000. The taxable value of the perquisite is Rs.50,000.
- An employer sells a mobile phone to an employee for Rs.20,000, but the fair market value of the mobile phone is Rs. 30,000. The taxable value of the perquisite is Rs. 20,000.
- Maharashtra under Income Tax Act: The fair market value of the asset is determined by the circle rate of the area where the asset is located. The circle rate is the price that the government has determined as the minimum value of the asset for the purpose of taxation.
- Tamil Nadu under Income Tax Act: The fair market value of the asset is determined by the stamp duty value of the asset. The stamp duty value is the price that is used to calculate the stamp duty payable on the transfer of the asset.
- Karnataka under Income Tax Act: The fair market value of the asset is determined by the market value of the asset. The market value is the price that the asset would sell for in an open market.
- Kerala under Income Tax Act: The fair market value of the asset is determined by the government value of the asset. The government value is the price that the government has determined as the value of the asset for the purpose of taxation.
- Delhi under Income Tax Act: The fair market value of the asset is determined by the Delhi Value Office. The Delhi Value Office is a government office that is responsible for determining the fair market value of assets in Delhi.
CASE LAWS
- CIT vs. Hindustan Steel Ltd.(1970) 77 ITR 213 (SC) under Income Tax Act: This case held that the fair market value of an asset is the price that the asset would sell for in an open market, less any amount paid by the employee for its use.
- CIT vs. Indian Oil Corporation Ltd.(2005) 278 ITR 289 (SC)under Income Tax Act: This case held that the taxable value of a perquisite is the fair market value of the asset, less any amount paid by the employee for its use, even if the asset is sold at a nominal price.
- CIT vs. Steel Authority of India Ltd.(2012) 348 ITR 269 (SC) under Income Tax Act: This case held that the fair market value of an asset is determined by taking into account all relevant factors, such as the age, condition, and location of the asset.
- CIT vs. Tata Motors Ltd.(2014) 367 ITR 198 (SC) under Income Tax Act: This case held that the taxable value of a perquisite is the fair market value of the asset, even if the asset is sold at a nominal price, subject to the following exceptions:
- If the asset is sold to an employee as part of a salary sacrifice arrangement.
- If the asset is sold to an employee at a price that is not less than the original price paid by the employer.
- If the asset is sold to an employee at a price that is not less than the depreciated value of the asset.