Perquisites – Fringe Benefits or Amenities which shall be Taxable Perquisite in the hands of All Employees

Perquisites-Fringe Benefits or Amenities

The rules for valuation of specified fringe benefits or amenities arc as under:

1.  Interest Free Or Concessional Loans [Rule 3(7)(i)]

The value of the benefit resulting from loans made available to the employee or any member of his household during the relevant previous year by the employer or any person on his behalf shall be determined as the sum equal to the interest computed at the rate charged per annum by the State Batik of India, as on the 1st day of the relevant previous year in respect of loans for the same purpose advanced by it.

The above interest has to be calculated on the maximum outstanding monthly balance as reduced by the interest, if any, actually paid by him or any such member of his household.

However, in the following cases, if such loans are made available to an employee or any member of his household, no value would be charged:

(a) where the amount of loans are petty not exceeding in the aggregate Rs. 20,000; or

(b) where the loan is for medical treatment in respect of diseases specified in rule 3A. However, in this case, the exemption. so provided, shall not apply to so much of the loan as has been reimbursed to the employee under any medical insurance scheme.

1.     “Maximum outstanding monthly balance” means the aggregate outstanding balance for

each loan as on the last day of each month.

2.     “Member of household” shall include

(a) spouse(s);

(b) children and their spouses;

(c) parents.

(d) servants and dependents.

 2.  The value of travelling, touring,  accommodation and any other expenses paid for or borne or reimbursed by the employer for any holiday availed of by the employee or any member of his household [Rule 3(7)(ii)]

The value of the benefit will be as under:—

Circumstances Value of benefit or amenity
(a)       (i) Where such facility is maintained by the employer, and is not available uniformly to all employees,

(ii)       Where such facility is available uniformly to all employees

(i) It will be the value at which such facilities are offered by other agencies to the public.

(ii) Amount actually incurred by the employer

(b) Where the employee is on official tour and the expenses are incurred in respect of any member of his household accompanying him. The amount of expenditure so incurred by the employer in respect of such member of household.
(c) Where any official tour is extended as a vacation, The value will be limited to the expenses incurred by the employer in relation to such extended period of stay or vacation of the employee
(d) In any other case, where such facility is given to the employee or any member of his household. A sum equal to the amount of expenditure incurred by the employer.

However, in the all above cases, the amount determined above shall be reduced by the amount, if any, paid or recovered from the employee for such benefit or amenity.

The above rules shall not be applicable to any leave travel concession or assistance referred to in rule 2B.

3. Value of Free Food and Non-Alcoholic Beverages [Rule 3(7)(iii)]

The value of free food, tea and snacks shall be as under:—

Circumstances Value of benefit
(a) Tea or snacks provided during working hours Nil
(h) Free food and non-alcoholic beverages during working hours provided in a:

(i) remote area; or

(ii) an offshore installation.

Nil
(c) Free food and non-alcoholic beverages provided by the employer during working hours:

(i) at office or business premises; or

(ii) through paid vouchers which are not transferable and usable only at eating joints,

Nil, if the value thereof in either case is upto Rs. 50 per meal. Amount in excess of Rs.50 per meal shall be the value of such taxable perquisite

The exemption provided in respect of free food and non-alcoholic beverage provided by such employer through paid voucher shall not apply to an employee, being an assessec, who has exercised option under section 115BAC(5). [Notification No. 38/2020, dated 26.6.20201

(d) In any other case Actual amount of expenditure incurred by the employer as reduced by the amount if any paid or recovered from the employee for such benefit or amenity.

It may be noted that as per Circular No. 15/2001, dated 12.11.2001 relating to TDS on salary not only tea but similar non-alcoholic beverages and snacks in the form of light refreshment during working hours are not charged as perquisite.

Working hours include overtime, working on holidays, etc.

Further, as regards free meals, expenditure on provision of free meals by the employer in excess of Rs.50 should only be treated as perquisite, as reduced by recoveries made from the employee.

Example-3

R is provided free meals in the office, during office hours, for 300 days during the previous  year. The cost of meals to the employer is ₹65 per meal. 

(a)      Determine the value of perquisite in respect of meals. 

(b)     What shall be the value if the value per meal is ₹50. 

Solution  : 

(a)      If free meal is provided during office hours in the office or business premises, it shall be exempt to the  extent of ₹50 per meal and excess if any shall be taxable perquisite. 

Hence, value of perquisite in case of free meal shall be 300 x 15 = ₹4,500. 

(b)     The value of perquisite in this shall be nil. 

Example-4

R, who is working in a remote area, is provided free meal during office hours for 300 days  during the previous year. The cost to the employer per meal is ₹60. Determine the value of perquisite. 

Solution :

The value in this case shall be nil as it is provided to an employee working in a remote area.

4. Value of any Gift, Voucher or Token [Rule 3(7)(iv)]

The value of any gift, or voucher, or token in lieu of which such gift may be received by the employee or by member of his household on ceremonial occasions or otherwise from the employer, shall be determined as the sum equal to the amount of such gift.

However, where the value of such gift, voucher or token, as the case may be, is below Rs. 50,000 in the aggregate during the previous year, the value of perquisite shall be taken as nil.

Example- 5

On the occassion of silver jubilee of A Ltd., R an employee, is given a gift of watch whose  value is ₹4,500. Is this gift taxable? 

Solution  : 

A gift given in kind or any gift voucher or token in lieu of which such gift may be received shall be tax-free  perquisite if the value of gift in the aggregate is below ₹5,000 during the previous year. 

Example- 6

What shall be the taxable value of perquisite if the value of watch is ₹6,500 instead of  ₹4,500. 

Solution :

The value of such perquisite shall be ₹6,500 – 5,000 = ₹1,500 

Example- 7

What shall be taxable value of perquisite if instead of watch, R is given a cash gift of  ₹4,500. 

Solution :

If gift is given in cash or by way of gift cheque/voucher which can be converted into cash, the entire amount  received shall be taxable even if such gift in aggregate received during the year is below ₹5,000. Hence, ₹4,500  shall be taxable in this case.

5. Expenses on Credit Cards [Rule 3(7)(v)]

 

Circumstances Value of benefit
(a) Where expenses including membership fees and annual fees are incurred by the employee or any member of his household, which is charged to a credit card (including any add-on-card), provided by the employer or otherwise, are paid for or reimbursed by the employer and such expenses are incurred for any purpose other than mentioned under clause (b) below. The amount paid for or reimbursed by the employer.
(b) Where such expenses are incurred wholly and
exclusively for official purposes.
Nil, provided the conditions specified below are fulfilled.

The amount determined in clause (a) above shall be reduced by the amount, if any paid or recovered from the employee for such benefit or amenity.

Specified conditions to be fulfilled to claim that expenses have been incurred wholly and exclusively for official purposes:—

(a)      complete details in respect of such expenditure is maintained by the employer which may, inter alia, include the date of expenditure and the nature of expenditure;

(b)     the employer gives a certificate for such expenditure to the effect that the same was incurred wholly and exclusively for the performance of official duties.

6. Club Membership and Expenses incurred in a Club [Rule 3(7)(vi)]

 

Circumstances Value of benefit
(a) The payment or reimbursement by the employer of any expenditure incurred (including the amount of annual or periodical fee) in a club by the employee or by any member of his household for any purpose other than mentioned in clause (b) below. The actual amount of expenditure incurred or reimbursed by the employer.
(b) Where such expenses are incurred wholly and
exclusively for official purposes.
Nil, provided the conditions specified below are fulfilled,

The amount determined in clause (a) shall be reduced by the amount, if any, paid or recovered from the employee for such benefit or amenity.

Specified conditions to be fulfilled to claim that expenses have been incurred wholly and exclusively for official purposes:—

(a)       complete details in respect of such expenditure is maintained by the employer which may, inter alia, include the date of expenditure, the nature of expenditure and its business expediency;

(b)       the employer gives a certificate for such expenditure to the effect that the same was incurred wholly and exclusively for the performance of official duties.

1.         Where the employer has obtained corporate membership of the club and the facility is enjoyed by the employee or any member of his household, the value of perquisite shall not include the initial fee paid for acquiring such corporate membership.

2.         There shall be no perquisite value for use of health club, sports and similar facilities provided uniformly to all employees by the employer.

3.         Although the conditions given above are similar to conditions applicable for credit cards, but in clause (a) above words business expediency’ have been included which are not there in case of benefit relating to credit card.

 7. Use of Moveable Assets [Rule 3(7)(vii)]

The value of benefit to the employee resulting from the use by the employee or any member of his household of any moveable asset belonging to the employer or hired by him shall be determined as under:

Circumstances Value of benefit
(a) Use of laptops and computers Nil
(b) Moveable assets, other than—

(i) laptops and computers; and

(ii) assets already specified in the rules

(i) 10% per annum of the actual cost of such asset, or

(ii) the amount of rent or charge paid, or payable by the employer, as the case may be.

The amount mentioned in clause (b) shall be reduced by the amount, if any, paid or recovered from the employee for such use.

8. Transfer of any Moveable Assets [Rule 3(7)(viii)]

The value of benefit to the employee arising from the transfer of any moveable asset belonging to the employer directly or indirectly to the employee or any member of his household shall be determined as under:

Asset transferred Value of benefit
(a) Computers and electronic items Actual cost of such asset to the employer as reduced by 50% of the cost to the employer for each completed year during which such asset was put to use by the employer, on the basis of reducing balance method.
(b) Motor cars

 

Actual cost of such asset to the employer as reduced by 20% of the cost to the employer for each completed year during which such asset was put to use by the employer, on the basis of reducing balance method.
(c) Any other asset Actual cost of such asset to the employer as reduced by 10% of the cost to the employer for each completed year during which such asset was put to use by the employer, on the basis of straight line method.

The amount mentioned in clauses (a), (b) and (c) above shall be reduced by the amount, if any, paid or recovered from the employee being the consideration for such transfer.

9.  Treatment of Any Other Benefits Amenity, etc. provided by the Employer [Rule 3(7)(ix)]

Rule 3(7)(ix) is applicable to all employees. As per this rule:

The value of any other benefit or amenity, service, right or privilege provided by the employer shall be determined on the basis of cost to the employer under an arm’s length transaction as reduced by the employee’s contribution, if any.

However, nothing contained in this item shall apply to the expenses on telephones including a mobile phone actually incurred on behalf of the employee by the employer.

Perquisites taxable in the hands of specified employees

See also  [Section 45(3)] : Capital Gain on Transfer of Capital Asset by a Partner/Member to a Firm/AOP/BOI as Capital Contribution
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