Section 10(10CC) provides a unique tax benefit where certain perquisites paid by employers are exempt from tax in the hands of employees, while the employer bears the tax liability. This provision was introduced to encourage companies to offer tax-efficient benefits to employees.
Key Features of Section 10(10CC)
- Applies to Perquisites Only:
- Covers benefits like rent-free accommodation, car facilities, club memberships, etc.
- Does notcover cash allowances (like HRA) or retirement benefits.
- Employer Pays the Tax:
- The employerpays tax on the perquisite value (under Fringe Benefit Tax principles).
- The employeedoes not include it in taxable income.
- Exemption is Optional:
- Employer must optto pay tax on behalf of employee.
- If employer doesn’t opt, perquisite becomes taxable for employee.
- Common Exempt Perquisites:
- Rent-free accommodation (non-monetary)
- Company car for personal use
- Club memberships
- Stock options (in some cases)
- Education facilities for employee’s children
Examples of Tax Treatment Under Section 10(10CC)
Example 1: Rent-Free Accommodation (Employer Pays Tax)
Scenario:
Mr. A gets a company flat (fair rental value: ₹30,000/month). Employer chooses to pay tax on the perquisite.
Tax Impact:
- For Employee (Mr. A):
- ₹0 taxable income(exempt under Section 10(10CC)).
- For Employer:
- Must pay tax on ₹3.6 lakh (₹30,000 × 12) as a fringe benefit.
Example 2: Company Car for Personal Use (Employer Does Not Pay Tax)
Scenario:
Ms. B gets a company car (value: ₹10,000/month). Employer does not opt for Section 10(10CC).
Tax Impact:
- For Employee (Ms. B):
- ₹1.2 lakh (₹10,000 × 12) added to taxable salary.
- For Employer:
- No additional tax liability.
Example 3: Club Membership (Employer Pays Tax)
Scenario:
Mr. C gets a golf club membership (annual fee: ₹50,000). Employer pays tax on it.
Tax Impact:
- For Employee (Mr. C):
- ₹0 taxable income(exempt).
- For Employer:
- Must pay tax on ₹50,000 as a fringe benefit.
Example 4: Stock Options (Under Specified Conditions)
Scenario:
Ms. D gets ESOPs (fair market value at exercise: ₹5 lakh). Employer pays tax on the perquisite.
Tax Impact:
- For Employee (Ms. D):
- ₹0 taxable income(exempt).
- For Employer:
- Must pay tax on ₹5 lakh as a fringe benefit.
Comparison with Other Perquisite Tax Rules
| PROVISION | SECTION 10(10CC) (EMPLOYER PAYS TAX) | NORMAL PERQUISITE TAXATION (EMPLOYEE PAYS TAX) |
| Tax Liability | Employer pays tax | Employee pays tax |
| Impact on Employee’s Income | Not taxable | Added to salary income |
| Common Perquisites Covered | Rent-free housing, cars, club fees, ESOPs (sometimes) | All monetary & non-monetary benefits |
| Employer’s Compliance | Must report & pay FBT-equivalent tax | Only TDS on salary required |
Key Takeaways
✅ Employee saves tax if employer opts to pay perquisite tax.
💰 Employer bears the cost (tax is treated as a business expense).
⚠️ Not all perquisites qualify (cash allowances like HRA are excluded).
📝 Must be formally declared in Form 16 (employer must show tax paid on behalf).
