Valuation of PERQUISITES- for Calculating Taxable Salary Income – Direct and Indirect Taxes with Tax Ready Reckoner

Table of Contents

1. Perquisites [(Section 17(2)]- Income under the head Salaries

Section 17(2) of the Income-tax Act, 1961 gives an inclusive definition of ‘perquisite’. As per this section ‘perquisite’ includes:

(i) the value of rent-free accommodation provided to the assessee by his employer;

(ii) the value of any concession in the matter of rent respecting any accommodation provided to the assessee by his employer;

(iii) the value of any benefit or amenity granted or provided free of cost or at concessional rate in any of the following cases:

(a) by a company to an employee, who is a director thereof;

(b) by a company to an employee being a person who has a substantial interest in the company;

(c) by any employer (including a company) to an employee to whom the provisions of clauses (a) and (b) do not apply and whose income under the head Salaries (whether due from, or paid or allowed by, one or more employers), exclusive of the value of all benefits or amenities not provided for by way of monetary payment, exceeds Rs. 50,000.

These employees are also known as “specified employees”

(iv) any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assessee;

(v) any sum payable by the employer whether directly or through a fund, other than a recognised provident fund or an approved superannuation fund or deposit-linked insurance fund, to effect an assurance on the life of the assessee or to effect a contract for an annuity;

(vi) The value of any specified security or sweat equity shares allowed or transferred directly or indirectly by the employer or former employer free of cost or at concessional rate to the assessee;

(vii) The amount or the aggregate of amounts of any contribution made to the account of the assessee by the employer—

(a) in a recognised provident fund;

(b) in the scheme referred to in section 80CCD(1); and

(c) in an approved superannuation fund,

to the extent it exceeds Rs. 7,50,000 in a previous year;

Thus, a combined upper limit of exemption of Rs. 7,50,000 in respect of employer’s contribution in a year to NPS, superannuation fund and recognised provident fund has been provided and any excess contribution shall be taxable as perquisite.

(viia) The annual accretion by way of interest, dividend or any other amount of similar nature during the previous year to the balance at the credit of the fund or scheme referred to in section 1 7(2)(vii) above to the extent the above contribution by the employer was included as perquisite in the hands of the employee.

Thus, any annual accretion by way of interest, dividend or any other amount of similar nature during the previous year to the balance at the credit of the fund or scheme may be treated as perquisite to the extent it relates to the employer’s contribution which is included in total income.

(viii) The value of any other Fringe Benefit or Amenity as may be prescribed.

1.1. Perquisites which are Taxable in the hands of all categories of employees

The following perquisites are taxable in the hands of all employees:

(i) Rent free accommodation provided by the employer to the employee. Such accommodation may be furnished or unfurnished.

(ii) Any concession in the matter of rent in respect of the accommodation provided or granted by the employer to the employee.

(iii) Any sum paid by the employer in discharging the monetary obligation of the employee which otherwise would have been payable by the employee e.g. the school fees of the children of the employee paid by the employer or the Income-tax of the employee paid by the employer.

(iv) Any sum payable by the employer whether directly or through a fund (other than recognized provident fund (RPF), Approved Superannuation Fund or Deposit Linked Insurance Fund) to effect an assurance on the life of the assessee or to effect a contract for an annuity.

(v) The value of specific security or sweat equity share allotted or transferred by the employer or former employer free of cost or at concessional rate to the assessee.

(vi) The amount or the aggregate of amounts of any contribution made to the account of the assessee by the employer—

(a) in a recognised provident fund;

(b) in the scheme referred to in section 80CCD(1) ; and

(c) in an approved superannuation fund,

to the extent it exceeds Rs. 7,50,000 in a previous year;

(vii) The annual accretion by way of interest, dividend or any other amount of similar nature during the previous year to the balance at the credit of the fund or scheme referred to in section 1 7(2)(vii) above to the extent the above contribution by the employer was included as perquisite in the hands of the employee.

(viii) The value of any other fringe benefit or amenity as may be prescribed.

Certain clarifications on definition of ‘perquisite’

It may be observed from the above definition that:

(a) The definition of ‘perquisite’ is an inclusive definition.

(b) In the case of ‘perquisites’ mentioned in clause (i), (ii) and (iii) above, the Act has used the word ‘provided’, in clause (iv) the word used is ‘paid’ whereas in clause (v) the word used is ‘payable’. In clause (vi) the words used are “value of any specified security or sweat equity share allotted or transferred by the employer. Clause (vii) relates to contribution by the employer to approved superannuation fund in excess of ₹1,50,000 and in clause (viii) the words used are the value of any other fringe benefit or amenity as may be prescribed.

The word ‘provided’ is used only with reference to a facility provided by the employer to the employee. In the first two clauses, the facilities provided are specifically mentioned, which are: (a) rent free accommodation and (b) accommodation provided at concessional rates. These facilities are taxable in the hands of all employees.

Whereas, as per clause (iii) the value of any other benefit or amenity granted or provided whether free of cost or at concessional rate will be taxable only in hands of three kinds of employees specified in that clause (i.e. specified employees).

The above three perquisites will be taxable in the previous year in which these were ‘provided’ by the employer to the employee. Once such facility is provided by the employer to the employee, it will be taxable and it will be immaterial whether the employee actually uses this facility or not unless he has foregone or waived his rights thereto. [CIT v Bawa Singh Chauhan (1984) 150 ITR 8 (Del)].

In the case of perquisites covered under clause (iv), the same shall be taxable in the previous year in which it is actually paid by the employer. The payment may be in the form of reimbursement to the employee or may be paid on his behalf for discharging the monetary obligation of the employee. These perquisites shall be taxable in case of all employees.

Perquisites covered under clause (v) shall be taxable in the previous year, even though these were payable by the employer at the end of the year. These perquisites shall be taxable even on due basis provided the employer has undertaken the obligation to discharge such liability e.g. where the employee had undertaken to pay Life Insurance Premium of the employee, any premium which was due in March, 2019 but was paid by the employer in April, 2019, shall be treated as perquisite in the hands of employee of the previous year 2018-19, although the same was paid in the previous year 2019-20. This will not be a perquisite for previous year 2019-20.

Perquisite mentioned in clause (vi) relates to specified security or sweat equity shares allotted or transferred by the employer to the assessee. The value of such specified security or sweat equity shares allotted shall be added to the gross salary of the employee.

Perquisite mentioned in clause (vii) relates to contribution by the employer to the approved superannuation fund in excess of ₹1,50,000 per year per employee.

Perquisites taxable under clause (viii) are those fringe benefits or amenities which are prescribed. The value of such prescribed perquisites shall be taxable in case of all employees (specified or non-specified).

In case of a non-specified employee perquisites mentioned in clauses (i), (ii), (iv), (v) and (viii) above only will be taxable while if he is a specified employee, i.e. employee belongs to specified group besides (i), (ii), (iv), (v) and (viii) perquisites covered under clause (iii) will also be taxable.

Clauses (vi) and (vii) are applicable only when the conditions mentioned therein are satisfied.

Taxability of Perquisites :

For income tax purpose, perquisites may be divided into five categories :

Perquisites which are taxable in the hands of all categories of employees.
Perquisites which are taxable only when the employee belongs to a specified group i.e. he is a specified employee.
Specified Security or Sweat Equity Shares allotted or transferred by the employer to the assessee.
Contribution by the employer to the approved superannuation fund in respect of assessee to the extent it exceeds Rs. 1,50,000.
Tax-Free Perquisites

1.2. Perquisites which are taxable only in the case of Specified Employees

All monetary obligations of the employee discharged by the employer are perquisites which are taxable in the hands of all employees. But sometimes the employer, instead of making the payment in respect of such monetary obligations or reimbursing such amount to the employee, provides the perquisite in the form of a facility to the employee. Such facility will be a perquisite only for specified employees mentioned in section 1 7(2)(iii). For example, if a watchman/sweeper is engaged by the employee and his wages are reimbursed/paid by the employer, it is a perquisite for all employees because it is the duty of the employee to pay the salary of his watchman/sweeper. On the other hand, if the watchman/sweeper is engaged by the employer and facility of his services is provided to the employee, it will be a perquisite only for specified employees. Similarly, if a motor car is provided by the employer to the employee for his personal use it shall be taxable perquisite in case of a specified employee only. Whereas if the car belongs to employee but expenses relating to personal use of such car are paid or reimbursed by the employer, it shall be a taxable perquisites in the hands of all employees, whether specified or not.

Any benefit/amenity in the form of a facility (other than rent free accommodation, concession in the matter of rent or fringe benefits or amenities as may be prescribed) provided by the employer, which is not tax-free, shall be taxable only in the hands of specified employees. Some of these are:

(i) services of a sweeper, gardener, watchman or personal attendant,

(ii) free or concessional use of gas, electric energy and water for household consumption,

(iii) free or concessional educational facilities,

(iv) use of motor car,

(v) personal or private journey provided free of cost or at concessional rate to an employee or member of his household,

(vi) the value of any other benefit or amenity, service, right or privilege provided by the employer.

If the above perquisites are provided in ‘Money’ (monetary terms) whether by way of reimbursement of expenses incurred by the employee for such facilities or by way of payment on behalf of employee, these perquisites shall be taxable in case of all employees e.g. if the school fees of the children of the employee is reimbursed to him or paid on his behalf to the school, such amount shall be perquisite in case of all employees. On the other hand, if the children of the employee are studying in a school maintained by the employer, the education facility provided is not in money but in kind and it shall be perquisite only for specified employees. Similarly, if the personal gas bills of the employee are in the name of employee and the employer reimburses the amount of such gas bills to him or pays on his behalf to the gas agency, it is in monetary terms and taxable in case of all employees; on the other hand, if such bills are in the name of employer, it will be perquisite in case of specified employee only.

Besides the above two kinds of perquisites the following shall also be taxable in the case of an assessee.

1. The value of specific security or sweat equity share allotted or transferred by the employer or former employer free of cost or at concessional rate to the assessee. AND

2. The amount of any contribution to an approved superannuation fund by the employer in respect of the assessee to the extent it exceeds Rs. 1,50,000.

Who is a Specified Employee [Section 17(2)(iii] —

An employee shall be a specified employee, if he falls under any of the following three categories:

(i) he is a Director of a company; or

(ii) he, i.e. the employee, has a substantial interest in the company. As per section 2(32), person who has a substantial interest in the company, in relation to a company means a person who is the beneficial owner of shares, not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits, carrying not less than 20% of the voting power; Here the words “beneficial-owner” are significant. It means that even if a person is not a registered holder of shares in a company but has beneficial interest in such shares, he shall be covered by this definition and conversely, even if a person is a registered holder of shares but has no beneficial interest in such shares, he shall not be covered by this definition. Thus, the beneficial ownership is the criterion under this definition.

(iii) his income under the head ‘Salaries’ (whether due from, or paid or allowed by, one or more employers), exclusive of the value of all benefits or amenities not provided for by way of monetary payment, exceeds Rs. 50,000. Income, for this purpose, shall include all taxable monetary payments like basic salary, dearness allowance, bonus, commission, taxable allowances/perquisites but shall not include the value of any non-monetary benefits/perquisites. The following are to be deducted from salary for this purpose:

(a) standard deduction to the maximum extent of Rs. 50,000 [Section 16(ia)]

(b) entertainment allowance [to the extent deductible under section 16(ii)];

(c) tax on employment [Section 16(iii)].

Example :

R is employed on part time basis with two companies i.e. X Company Ltd. and Y Company Ltd. The particulars of his income for the previous year 2022-23 are as under:

Particulars	Company X	Company Y
	₹	₹
Basic Salary	62,000	33,000
Education allowance for one child	–	1,800
Reimbursement of electricity bills	2,000	–
Medical allowance	–	2,400
Employer’s contribution to recognised provident fund	1,800	1,500
Value of rent free accommodation taken by the employer on rent	3,000	–

R is neither a Director nor a substantial shareholder of either X Ltd. or Y Ltd. Is he a specified employee?

Compute his net monetary income

Solution:

Particulars	₹	₹
Basic salary		95,000
Education allowance	1,800
Less: Exempt	1,200	600
Reimbursement of electricity bills		2,000
Medical allowance		2,400
		1,00,000
Less: Standard deduction		50,000
Net monetary income		50,000

As the monetary income of X does not exceed ₹50,000, he is not a specified employee. For this purpose, value of rent free accommodation has not been included in the gross salary for determining whether he is a specified employee or not as it is a non-monetary perquisite although it shall be fully taxable while computing his gross salary.

Important note.—Any allowance or perquisites paid or allowed as such outside India by the Government of India to a citizen of India, for rendering service outside India, is exempt from tax. [Section 10(7)]

1.3. Tax-free Perquisites (for all employees)

(1) Medical facility: The value of any medical treatment provided to an employee or any member of his family in a hospital, dispensary or a nursing home maintained by the employer shall be a tax-free perquisite.

(2) Recreational Facilities: Any recreational facility provided to a group of employees (not being restricted to a select few employees) by the employer is not taxable.

(3) Training of employees: Any expenditure incurred by the employer, for providing training to the employees or by way of payment of fees of refresher courses attended by the employees.

(4) Use of health club, sports and similar facilities provided uniformly to all employees by the employer.

(5) Expenses on telephone, including a mobile phone, actually incurred on behalf of the employee by the employer.

(6) Contribution made by the employer in a recognised provident fund, in the scheme referred to in section 80CCD(1); and in an approved superannuation fund upto Rs. 7,50,000.

(7) The premium paid by the employer on an accident policy taken out by it in respect of the employee would not be a perquisite.

(8) Amount given by employer of assessee to assessee’s child as scholarship is exempt under section 10(16).

(9) Food and beverages provided to employees: The following shall be a tax free perquisite in the hands of the employees—

(i) free food and non-alcoholic beverages provided by the employer to his employees during working hours:

(a) at office or business premises or

(b) through paid vouchers which are not transferable and usable only at eating joints. (Not allowed if opted for section 11SBAC)

Provided the value of such meal is upto Rs. 50 per meal.

(ii) Any tea or snacks provided during working hours.

(iii) Free food and non-alcoholic beverages during working hours provided in a remote area or on offshore installation.

(10) Loans to employees: In the following cases the value of benefit to the assessee resulting from the provision of interest free or concessional loan shall be nil:

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

(b) loans made available for medical treatment in respect of diseases specified in rule 3A of the Income-tax Rules. However, 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.

(11) Perquisites provided outside India: Perquisites provided by the Government to its employees, who are citizens of India for rendering services outside India, are not taxable. [Section 10(7)]

(12) Rent free House/Conveyance facility: Rent free official residence and conveyance facilities provided to a Judge of the Supreme Court of High Court is not a taxable perquisite.

(13) Residence to officials of Parliament, etc.: Rent free furnished residence (including maintenance thereof) provided to an officer of the Parliament, a Union Minister or Leader of Opposition in Parliament, is not a taxable perquisite.

(14) Accommodation in a remote area: The accommodation provided by the employer shall be a tax free perquisite if the accommodation is provided to an employee working at mining site or an onshore oil exploration site or a project execution site, or a dam site or a power generation site or an offshore site which—

(a) being of a temporary nature and having plinth area not exceeding 800 square feet, is located not less than eight kilometers away from the local limits of any municipality or a cantonment board; or

(b) is located in a remote area.

(15) Educational facility for children of the employee: Where the educational institution itself is maintained and owned by the employer and free educational facilities arc provided to the children of the employee or where such free educational facilities are provided in any institution by reason of his being in employment of that employer, there shall be no perquisite value if the cost of such education or the value of such benefit per child does not exceed Rs. 1,000 p.m.

(16) Use by the employee or any member of his household of laptops and computers belonging to the employer or hired by him.

(17) Leave Travel Concession

(18) Tax paid by the employer on non-monetary perquisites: Tax paid by the employer on non- monetary perquisites of the employee shall be exempt in the hands of the employee. [Section 10(10CC)]

2. Perquisites- Rent Free Accommodation or Accommodation provided at Concessional Rate

Accommodation provided to the employee may be—

(i) unfurnished

(ii) furnished

Further, such accommodation may be provided:

(a) rent free; or

(h) at concessional rate.

As per amended rule 3(1), the valuation of accommodation should be done as under:

(A) Accommodation provided by the Government to its employees

Where the accommodation is provided by central or State Government to their employees either holding office or post in connection with the affairs of Union or such State, the value shall be determined as under:

(i) Where the accommodation is unfurnished:

(a) If the accommodation is provided rent free: The value shall be the license fee determined by Union or State Government in respect of accommodation in accordance with the rules framed by that government for allotment of houses to its officers.

(b) Where the accommodation is provided at concessional rate: We shall first assume as if it is provided rent free and the valuation shall be the license fee. For valuation of concession, such license fee shall be reduced by the rent actually paid by the employee.

(ii) Where the accommodation is furnished:

The value of perquisite shall be determined as if it is an unfurnished accommodation which may be provided rent free or at concessional rate (i.e., value determined as per clause (i) above). Such value shall be increased by 10% p.a. of the cost of furniture (including television sets, radio sets, refrigerators, other household appliances, air conditioning plant or equipment) or if such furniture is hired from a third party, the actual hire charges paid or payable for the same. The valuation of furniture shall be reduced by any charges paid or payable for such furniture by the employee during the previous year.

1. Rent free official residence provided to a judge of a High Court or to a judge of the Supreme Court is exempt from tax.

2. Similarly rent free accommodation given to an official of Parliament, a Union Minister and a Leader of Opposition in Parliament is exempt from tax.

(B) Where the Accommodation is provided by Any Other Employer

Accommodation provided as rent free or at concessional rate may be owned by the employer or taken on lease or rent by the employer.

(i) Where the accommodation is Un-furnished:

Nature of Accommodation	Accommodation provided in a city having population exceeding 25 lakhs as per 2001 census	Accommodation provided in a city having population exceeding 10 lakhs but not exceeding 25 lakhs as per 2001 census	Accommodation provided in any other city having population not exceeding 10 Lakhs
(a) Where the accommodation is owned by the employer	15% of salary in respect of the period during which the said accommodation was occupied by the employee during the previous year.	10% of salary in respect of the period during which the said accommodation was occupied by the employee during the previous year.	7.5% of salary in respect of the period during which the said accommodation was occupied by the employee during the previous year.
(b) Where the accommodation is taken on lease or rent by the employer	Actual amount of lease or rent paid or payable by the employer, or 15% of salary, whichever is lower,	Actual amount of lease or rent paid or payable by the employer, or 15% of salary, whichever is lower,	Actual amount of lease or rent paid or payable by the employer, or 15% of salary, whichever is lower.
1. In case the house is provided at concessional rate, first it will be assumed as if the house has been provided rent free and the value determined as per (a) or (h) above shall be reduced by the rent, if any, actually paid by the employee. 2. Where the accommodation is provided by the Central Government or any State Government to an employee who is serving on deputation with any body or undertaking under the control of such Government,— (i) the employer of such an employee shall be deemed to be that body or undertaking where the employee is serving on deputation; and (ii) the value of perquisite of such an accommodation shall be the amount calculated as if the accommodation is owned by the employer.

(ii) Where the accommodation is Furnished:

The value of perquisite shall be determined as if it is an unfurnished accommodation (i.e. value determined as per chart given above. Such value shall be increased by 10% p.a. of the cost of furniture (including television sets, radio sets, refrigerators, other household appliances, air conditioning plant or equipment or other similar appliances or gadgets) or if such furniture is hired from a third party, the actual hire charges payable for the same. Such valuation of furniture shall be as reduced by any charges paid or payable for such furniture by the employee during the previous year.

In case the furnished house is provided at concessional rent, it will be first assumed as if it has been provided as rent free furnished accommodation and shall be valued as above. Thereafter, any amount recovered from the employee as rent shall be deducted from such valuation.

(C) Where the accommodation is provided by the employer (Government or other employer) in a hotel

The value of the accommodation shall be—

(i) 24% of salary paid or payable for the previous year, or;

(ii) the actual charges paid or payable to such hotel;

whichever is lower, for the period during which such accommodation is provided

However, if the employee pays any rent, the value so determined shall be reduced by the rent, actually paid or payable by the employee.

Thus in the above case we shall first take 24% of the salary of the whole year and then such value so determined shall be reduced proportionately for the period during which such accommodation is provided.

No Perquisite value even if accommodation provided in a hotel.—

There will be no perquisite value if the accommodation is provided in a hotel if the following two conditions are fulfilled:

(a) Such accommodation is provided for a period not exceeding 15 days; and

(b) it has been provided on the transfer of the employee from one place to another.

Meaning of ‘Salary’ for Rent Free Accommodation

‘Salary’ includes the pay, allowances, bonus or commission payable monthly or otherwise or any monetary payment, by whatever name called from one or more employers, as the case may be, but does not include the following, namely:—

(a) dearness allowance or dearness pay unless it enters into the computation of superannuation or retirement benefits of the employee concerned;

(b) employer’s contribution to the provident fund account of the employee;

(c) allowances which are exempted from payment of tax;

(ci) the value of perquisites specified in section 17(2) of the Income-tax Act;

(e) any payment or expenditure specifically excluded under proviso to sub-clause (iii) of clause (2) (relating to Employees, Stock Option Plan or Scheme) or proviso to clause (2) of section 17 (relating to medical facility or reimbursement of medical expenses);

(f) Any lump sum payment like gratuity, leave encashment, commuted pension, etc. received at time of termination of service or at the time of voluntary retirement or superannuation.

Thus, dearness allowance/dearness pay shall be included in the meaning of salary for rent free accommodation to the extent it is part of retirement benefits. It will also include all other allowances to the extent these are taxable (i.e. excluding amount not taxable).

2. “Accommodation” includes a house, flat, farm house or part thereof, or accommodation in a hotel, motel, service apartment, guest house, caravan, mobile home, ship or other floating structure;

3. “Hotel” includes licensed accommodation in the nature of motel, service apartment or guest house;

4. Salary is to be computed on ‘due’ basis for the period for which the rent free accommodation has been provided to the employee e.g. if the rent-free accommodation is provided for the period 1 .1.2021 to 31.3.2021 then only the salary due for the months of January, February and March shall only be taken. Advance salary or arrear of salary shall not be included for this purpose;

5. If the employee receives salary from more than one employer, the aggregate of the salary received from both the employers, for the period for which the accommodation is provided, has to be taken into account for valuation of rent-free accommodation even though the accommodation has been provided only by one employer.

The above rules shall not apply in certain cases

(A) Accommodation provided at certain site or in a remote area [Proviso 1 to rule 3(1)]

The accommodation provided by the employer shall be a tax free perquisite if the accommodation is provided to an employee working at mining site or an onshore oil exploration site or a project execution site, or a dam site or a power generation site or an offshore site which

(a) being of a temporary nature and having plinth area not exceeding 800 square feet. is located not less than eight kilometres away from the local limits of any municipality or a cantonment board; or

(b) is located in a remote area.

“Remote area”, means an area that is located at least 40 kilometers away from a town having a population not exceeding Rs. 20,000 based on latest published all India census.

(B) Accommodation provided at new place of posting on transfer while retaining the accommodation at the other place [Proviso 2 to rule 3(1)]:

Where on account of his transfer from one place to another, the employee is provided with accommodation at the new place of posting while retaining the accommodation at the other place, the value of perquisite shall be determined with reference to only one such accommodation which has the lower value (as determined according to the above provisions) for a period not exceeding 90 days and thereafter the value of perquisite shall be charged for both such accommodations.

Example -1

R, furnishes the following particulars of his remuneration for the previous year 2021-22:

	₹
(i) Basic salary	24,000 p.m.
(ii) Dearness allowance (40% of which forms part of salary for retirement benefits)	2,000 p.m.
(iii) Lunch Allowance	400 p.m.
(iv) Medical Allowance	1,000 p.m.
(v) City Compensatory Allowance	600 p.m.
(vi) Children Education Allowance (per child for 2 children)	360 p.m.

He is provided with a rent-free accommodation in Delhi. The cost of the furniture provided is ₹2,00,000 and two air-conditioners, which have been taken on hire by the company, have also been provided in the accommodation. The hire charges of each air conditioner is ₹4,000 p.a. Compute the value of the rent-free accommodation if the accommodation is provided by:

(i) the Government and the value of the accommodation as per Government rules is ₹1,000 p.m.

(ii) Reserve Bank of India and the accommodation has been taken on rent by RBI at ₹10,000 p.m.

(iii) XYZ Ltd. and the accommodation has been taken on rent by the company at ₹10,000 p.m.

Solution :

Accommodation provided by Government to its employee:

The perquisite value shall be the value of the accommodation as per Government rules which in this case is ₹1,000 p.m. Therefore, the value of the furnished accommodation shall be:

	₹	₹
Value of unfurnished accommodation (₹1,000 x 12)		12,000
10% of the cost of furniture	20,000
Hire charges of two ACs	8,000	28,000
		40,000

Accommodation provided by RBI or XYZ Ltd.:

In this case, the perquisite value shall be 15% of the salary or rent paid by RBI/the company, whichever is less. Salary for this purpose shall include the following:

	₹
Basic Salary	24,000
Dearness allowance (only that portion which is taken into account for retirement benefits)	800
Lunch Allowance	400
Medical Allowance	1,000
City Compensatory Allowance	600
Children Education Allowance (₹720 – 200)	520
	27,320

The perquisite value of unfurnished accommodation shall be ₹4,098 or ₹10,000 whichever is less.

Therefore, the perquisite value of the furnished accommodation shall be as under:

	₹
Perquisite value of unfurnished accommodation (₹4,098 x 12)	49,176
Perquisite value of furniture (as calculated in the case of government employees)	28,000
	77,176

Since the rent-free accommodation has been given for full year, we can calculate 15% of yearly salary also.

Yearly salary shall be ₹2,88,000 + 9,600 + 4,800 + 12,000 + 7,200 + 6,240 = ₹3,27,840.

	₹
15% of salary shall be	49,176
+ Perquisite value of furniture	28,000
	77,176

Example -2 :

A is working as a General Manager of P Company Ltd. Particulars of his salary for the financial year 2021-22 are as under:

	₹
(i) Salary	20,000 p.m.
(ii) Bonus	38,400
(iii) Conveyance Allowance (70% spent on official duties)	4,000 p.m.
(iv) Medical Allowance	1,000 p.m.
(v) Employer’s contribution to recognised provident fund	20% of Salary

He has been provided with a rent-free accommodation in Gurgaon whose population in 20 lakhs.

Compute the value of the rent-free accommodation to be included in the salary income of A for the assessment year 2022-23, if:

(a) the accommodation is owned by the company;

(b) the accommodation has been taken on rent by the company at ₹14,000 p.m.

Solution :

Calculation of salary for valuation of rent free accommodation

	₹	₹
Basic salary	2,40,000
Bonus	38,400
Taxable conveyance allowance (48,000 – 33,600)	14,400
Medical allowance	12,000	3,04,800
10% of salary		30,480
Rent paid by the company		1,68,000

(a) The value of unfurnished accommodation in this case shall be 10% of the salary, i.e., ₹30,480.

(b) The value of unfurnished accommodation in this case shall be 15% of the salary, i.e., ₹45,720 or the rent paid by the company, i.e., ₹1,68,000, whichever is less.

The perquisite value shall therefore, be ₹45,720.

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

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

(i) 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.

(ii) 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.

(iii) 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.

(iv) 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.

(v) 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.

(vi) 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.

(vii) 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.

(viii) 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.

(ix) 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

4. Perquisites – Valuation of Motor Car / Other Vehicles [Rule 3(2)]

As already discussed, motor car/other vehicles, provided by the employer, is a perquisite only for specified employees because it is a facility provided by the employer to the employees. On the other hand, if the car belongs to the employee and the expenses of running and maintenance of that car are met by the employer, it becomes a perquisite taxable in the hands of all employees as it is an obligation of the employee to maintain his car but such obligation is being met by the employer.

Value of Perquisite per calendar month (Only completed calendar months to be taken)

Sl. No.	*circumstances*	*Where cubic capacity of engine does not exceed 1.6 litres*	*Where cubic capacity of engine exceeds 1.6 litres*
1.	Where the motor car is owned or hired by the employer and the running and maintenance expenses are met or reimbursed by the employer,—
	(a) is used wholly and exclusively in the performance of his official duties;	No value provided that the documents specified below this table are maintained by the employer,	No value provided that the documents specified below this table are maintained by the employer.
	(b) is used exclusively for the private or personal purposes of the employee or any member of his household;	Actual amount of expenditure incurred by the employer on the running and maintenance of motor car during the relevant previous year including remuneration, if any, paid by the employer to the chauffeur as increased by the amount representing normal wear and tear of the motor car (which will be 10% p.a. of the cost of motor car or cars) and as reduced by any amount charged from the employee for such use.	Actual amount of expenditure incurred by the employer on the running and maintenance of motor car during the relevant previous year including remuneration, if any, paid by the employer to the chauffeur as increased by the amount representing normal wear and tear of the motor car (which will be 10% p.a. of the cost of motor car or cars) and as reduced by any amount charged from the employee for such use.
	*(c)* is used partly in the performance of duties and partly for private or personal purposes of his own or any member of his household and,—
	(i) the expenses on maintenance and running are met or reimbursed by the employer.	1,800 p.m. (plus Rs. 900 p.m., if chauffeur (driver) is also provided to run the motor car)	Rs. 2,400 p.m. (plus Rs. 900 p.m., if chauffeur (driver) is also provided to run the motor car)
	(ii) the expenses on running and maintenance for such private or personal use are fully met by the employee. Note: When motor car is provided by employer and expenses of running and maintenance expenses for official use is met by employer but for private use is met by employee, it will be covered by this clause (ii).	Rs. 600 p.m. (plus Rs.900 p.m., if chauffeur is provided by the employer to run the motor car) Note: In this case it is not mentioned in the rule that amount charged from the employee should be reduced from the above value.	Rs. 900 p.m. (plus Rs.900 p.m., if chauffeur is also provided to run the motor car) Note: In this case it is not mentioned in the rule that amount charged from the employee should be reduced from the above value.
2.	Where the employee owns a motor car but the actual running and maintenance charges (including remuneration of the chauffeur, if any) are met or reimbursed to him by the employer and,—		.
	(i) such reimbursement is for the use of the vehicle wholly and exclusively for official purposes,	No value provided that the documents specified below this table are maintained by the employer.	No value provided that the documents specified below this table are maintained by the employer
	(ii) such reimbursement is for the use of private or personal purposes of the employee or member of his household	Actual amount incurred by the employer on running and maintenance of motor car including driver’s salary as reduced by the amount charged from the employee for such use.	Actual amount incurred by the employer on running and maintenance of motor car including driver’s salary as reduced by the amount charged from the employee for such use.
	*(iii)* such reimbursement is for the use of the vehicle partly for official purposes and partly for personal or private purposes of the employee or any member of his household.	The actual amount of expenditure incurred by the employer as reduced by Rs. 1,800 p.m. (plus Rs. 900 p.m. if chauffeur is also provided) However, in this case, if actual expenses on running and maintenance for official purpose is more than Rs. 1,800/ 2,700 p.m., as the case may be, he can claim such actual amount of expenditure as deduction by maintaining the documents specified below the table. If any amount is recovered from employee the amount so recovered shall be deducted from the above valuation.	The actual amount of expenditure incurred by the employer as reduced by Rs. 2,400 p.m. (plus Rs. 900 p.m. if chauffeur is also provided) However, in this case also, if actual expenses on running and maintenance for official purpose is more than Rs. 2,400/3,300 p.m., as the case may be, he can claim such actual amount of expenditure as deduction by maintaining the documents specified below the table. If any amount is recovered from employee the amount so recovered shall be deducted from the above valuation.
3.	Where the employee owns any other auto-motive conveyance but the actual running and maintenance charges are met or reimbursed to him by the employer and,—
	(i) such reimbursement is for the use of the vehicle wholly and exclusively for official purposes,	No value provided that the documents specified below this table are maintained by the employer.	Not applicable
	(ii) such reimbursement is for the use of the vehicle partly for official purposes and partly for personal or private purposes of the employee. If any amount is recovered from employee the amount so recovered shall be deducted from the above valuation,	The actual amount of expenditure incurred by the employer as reduced by an amount of Rs. 900 p.m. However, in this case, if actual expenses on running and maintenance for official purpose is more than Rs. 900 p.m., he can claim such actual amount of expenditure as deduction by maintaining the documents specified below the table. If any amount is recovered from employee the amount so recovered shall be deducted from the above valuation.

Vehicle provided by the employer for commuting from residence to office and back [Explanation to section 17(2)(iii)]:

The use of any vehicle provided by a company or an employer for journey by the assessee from his residence to his office or other place of work, or from such office or place to his residence, shall not be regarded as a benefit or amenity granted or provided to him free of cost or at concessional rate. In other words, such use shall not be treated as private or personal use of the employee.

Conveyance facility provided to the High Court Judges and Supreme Court Judges is not taxable.

Where more than one Motor Car is provided

Where one or more motor cars are owned or hired by the employer and the employee or any member of his household are allowed the use of such motor car or all or any of such motor cars (otherwise than wholly and exclusively in the performance of his duties), the value of perquisite shall be the amount calculated in respect of one car in accordance with item (1)(c)(i) of the above table as if the employee had been provided one motor car for use partly in the performance of his duties and partly for his private or personal purposes and the amount calculated in respect of the other car or cars in accordance with item (1)(b) of the above table as if he had been provided with such car or cars exclusively for his private or personal purposes.

Specific documents to be maintained for S. No. (1)(a) or S. Nos. (2) and (3) of the above table

(i) the employer has maintained complete details of journey undertaken for official purpose which may include date of journey, destination, mileage, and the amount of expenditure incurred thereon;

(ii) the employer gives a certificate that the expenditure was incurred wholly and exclusively for the performance of his official duty.

EXAMPLE :

Compute the perquisite value of the car for the assessment year 2023-24 in the following situation if the taxable monetary emoluments of X are Rs.1,50,000:

(i) The car is owned by X but the running and maintenance expenses amounting to Rs. 40,000 during the previous year are met by the employer. The car is used

(a) for personal benefit of X

(b) only for official duties

(ii) The employer provides a car of 1.5 ltr. engine cubic capacity costing Rs. 5,00,000 exclusively for the personal benefit of X. The expenses incurred on the car are Rs. 52,000

(iii) The employer provides a car (below 1.6 lt.) along with a driver to X partly for official and partly for personal purpose. The expenses incurred by the company are:

(a)	running and maintenance expenses	32,000
(b)	driver’s salary	36,000

(iv) In case (iii) the employer maintains a log book and it is established than 30% of the total mileage of the car is for personal use of X and 70% for official duties.

(v) The employer provides a car (above 1.6 lt.) to X which is used for official work and is also used by X for commuting from his residence to office and back.

(vi) X is provided with 2 cars to be used for official and personal work and the following information is available from the company’s records:

	Car 1 exceeding 1.6 lt.	Car 2 below 1.6 lt.
	Rs.	Rs.
Cost of the car	6,00,000	4,00,000
Running and maintenance	60,800	48,000
Salary of driver	44,000	44,000

SOLUTION :

The solution in each case shall be as under:

(i)

(a) The entire amount of expenditure of Rs.40,000 met by the employer shall be a taxable perquisite. This is an obligation of the employee being discharged by the employer and is therefore, a perquisite taxable in the hands of all employees.

(b) Not a perquisite, if the specified documents are maintained.

(c) In this case, the proportion of official and private use is not known. The perquisite value shall be the amount of expenditure incurred by the employer as reduced by Rs.1,800/2,400 as the case may be, unless the specified documents are maintained to claim deduction higher than Rs.1,800/2,400 p.m.

Therefore, Rs.40,000 – 21,600 = 18,400 will be a perquisite.

(ii) The entire running and maintenance expenses and 10% of cost being the normal wear and tear of car will be a perquisite, i.e., Rs.52,000 + 50,000 = Rs.1,02,000 will be taxable.

(iii) The perquisite value shall be:

	Rs.
For Car: (1,800 x 12)	21,600
For Driver: (900 x 12)	10,800
	32,400

(iv) Same as calculated under (iii) above.

(v) In this case, there is no perquisite because the car is not used for the personal benefit of X. Conveyance facility for commuting from residence to office and back is not considered as a perquisite. However, the specified documents shall have to be maintained.

(vi) In this case, for one car the perquisite value shall be as if it is used for official and personal benefit. The other car will be valued as if it is used exclusively for the personal purposes of X.

The perquisite value shall be calculated as under:

Step 1:

Assume car 1 is used for personal and official use and car 2 is exclusively for X. The value shall be as under:

	Rs.
Car 1 (2400 x 12) + (900 x 12)	39,600
Car 2 Running and maintenance expenses	48,000
10% of the cost for normal wear and tear	40,000
Salary of driver	44, 000
	1,32,000

Therefore total value of perquisite = Rs.39,600 + Rs.1,32,000 = Rs. 1,71,600

Step 2:

Assume car 2 is used for personal and official use and car 1 is exclusively for X. The value shall be as under:

	Rs.
Car 2 (1800 × 12) + (900 × 12)	32,400
Car 1 Running and maintenance expenses	60,800
10% of the cost for wear and tear	60,000
Salary of driver	44,000
	1,64,800

Therefore total value of perquisite = Rs. 32,400 + Rs. 1,64,800 = Rs.1,97,200

In this case, he should treat car 1 to be used partly for performance of duties and partly for personal use. Thus, the perquisite value of the cars shall be Rs. 1,71,600.

5. Valuation of Various Perquisites – for Calculating Salary Income

1. Provision by the employer of services of a Sweeper, a Gardener, a Watchman or Personal Attendant [Rule 3(3)]

The value shall be the actual cost to the employer i.e. the total amount of salary paid or payable by the employer or any other person on his behalf for such services as reduced by any amount paid by the employee for such services.

If the above servants are engaged by the employer and the facility of such servants are given to the employees it will be a perquisite for specified employees only. On the other hand, if these servants are employed by the employee and wages of such servants arc paid or reimbursed by the employer, it will be a perquisite for all categories of employees. However, in both the cases the valuation of perquisites shall be done in the same manner as discussed above.

2. Value of benefit to the employee resulting from the supply of gas, electric energy or water for household consumption [Rule 3(4)]

The valuation is explained in the following chart:

	*Circumstances*	*Value of benefit*
(a)	Where such supply is made from resources owned by the employer without purchasing from the outside agency	It shall be the manufacturing cost per unit incurred by the employer
(b)	In any other case	Amount paid on this account by the employer to the agency supplying the gas, electric energy or water

However, in both the above cases, if employee is paying any amount in respect of such services, the amount, so paid, shall be deducted from the value so arrived at.

If the gas. electricity/water connections are in the name of the employees and the expenses on the supplies are met by the employer, it is an obligation of the employee being discharged by the employer and therefore this perquisite is taxable in the hands of all employees.

3. Valuation in respect of Free or Concessional Educational Facilities to any member of employees’ household [Rule 3(5)]

*Circumstances*	*Value of benefit*
(a) Where the educational institution is itself maintained and owned by the employer	The cost of education in a similar institution in or near the locality. However, if educational facilities are provided to the children of the employee (any other member of the household not covered here), the value of this perquisite shall be nil if the cost of such education or the value of benefit per child does not exceed Rs. 1,000 p.m.
(b) Where free education facilities for such members of employees’ household are allowed in any other educational institution by reason of his being in employment of that employer	The cost of education in a similar institution in or near the locality. However, if educational facilities are provided to the children of the employee (any other member of the household not covered here), the value of this perquisite shall be nil if the cost of such education or the value of benefit per child does not exceed Rs. 1,000 p.m.

However, in all the above cases, if any amount is paid or recovered from the employee on this account, the value of benefit computed above shall be reduced by the amount so paid or recovered.

Where cost of education exceeds Rs. 1,000 p.m. per child, the whole amount shall be taxable in the hands of the employee and no deduction of Rs. 1,000 p.m. shall be allowed.

1. Payment of fee by the employer directly to educational institution for the education of members of household including children or reimbursement of such fee to the employee shall be taxable in the hands of all employees.

2. Amount incurred by the employer for providing free education facility or training to an employee is not taxable.

4. Free or Concessional Journey given to the Transport Employees and their Family Members [Rule 3(6)]

*Particulars*	*Value of* *Perquisites*
Provision of transport to the employee or to a member of his household by the employer who is engaged in the carriage of passengers or goods—
(a) in the case of employee of an airline or the railways	Nil
(b) in the case of any other employee:
(i) if provided free of cost	Value at which such benefit or amenity is offered by such employer to the public
(ii) if provided at concessional rate	Reduce from the above value, the amount paid by or recovered from the employee for such benefit or amenity.

5. Value of any Specified Security or Sweat Equity Shares allotted or transferred by the Employer to the Assessee.

The value of any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the employer, or former employer, free of cost or at concessional rate to the assessee shall be a taxable perquisite in the hands of the assessee.

Further, the value of such specified security or sweat equity shares shall be the fair market value of the specified security or sweat equity shares, as the case may be, on the date on which the option is exercised by the assessee as reduced by the amount actually paid by, or recovered from the assessee in respect of such security or shares.

(1) “Specified security” means the securities as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 and, where employees’ stock option has been granted under any plan or scheme therefor, includes the securities offered under such plan or scheme;

(2) “Sweat equity shares” means equity shares issued by a company to its employees or directors at a discount or for consideration other than cash for providing know-how or making available rights in the nature of intellectual properly rights or value additions, by whatever name called;

(3) “Fair market value” means the value determined in accordance with the method as may be prescribed;

(4) “Option” means a right but not an obligation granted to an employee to apply for the specified security or sweat equity shares at a predetermined price.

6. Valuation of specified security or sweat equity share being a share in the company [Rule 3(8)]

(A) Valuation of shares

(1) Fair market value where the shares are listed on a recognized stock exchange:

In a case where, on the date of the exercising of the option, the share in the company is listed on a recognized stock exchange, the fair market value shall be the average of the opening price and closing price of the share on that date on the said stock exchange.

Fair market value where the shares are listed on more than one recognized stock exchange:

Where, on the date of exercising of the option, the share is listed on more than one recognized stock exchanges, the fair market value shall be the average of opening price and closing price of the share on the recognized stock exchange which records the highest volume of trading in the share.

Fair market value where there is no trading in the shares on any recognized stock exchange:

Where, on the date of exercising of the option, there is no trading in the share on any recognized stock exchange, the fair market value shall be—

(a) the closing price of the share on any recognised stock exchange on a date closest to the date of exercising of the option and immediately preceding such date; or

(b) the closing price of the share on a recognised stock exchange, which records the highest volume of trading in such share, if the closing price, as on the date closest to the date of exercising of the option and immediately preceding such date, is recorded on more than one recognized stock exchange.

(2) Fair market value where the shares are not listed on any recognized stock exchange:

In a case where, on the date of exercising of the option, the share in the company is not listed on a recognized stock exchange, the fair market value shall be such value of the share in the company as determined by a merchant banker on the specified date.

1. “Closing price” of a share on a recognised stock exchange on a date shall be the price of the last settlement on such date on such stock exchange:

Provided that where the stock exchange quotes both “buy” and “sell” prices, the closing price shall be the “sell” price of the last settlement.

2. “Opening price” of a share on a recognized stock exchange on a date shall be the price of the first settlement on such date on such stock exchange:

Provided that where the stock exchange quotes both “buy” and “sell” prices, the opening price shall be the “sell” price of the first settlement.

3. “Merchant banker” means category-I merchant banker registered with Securities and Exchange Board of India;

4. “Specified date” means,—

(i) the date of exercising of the option; or

(ii) any date earlier than the date of the exercising of the option, not being a date which is more than 180 days earlier than the date of the exercising.

(B) Valuation of specified security not being an equity share in the company [Rule 3(9)]

The fair market value of any specified security, not being an equity share in a company, on the date on which the option is exercised by the employee, shall be such value as determined by a merchant banker on the specified date. For meaning of “merchant banker” and “specified date” see box above.

7. Contribution made by the employer in a Recognised Provident Fund (RPF), in the scheme referred to in section 80CCD(1); and in an Approved Superannuation Fund exceeding Rs. 7,50,000 [Section 17(2)(vii)]

The amount or the aggregate of amounts of any contribution made to the account of the assessee by the employer—

(a) in a recognised provident fund;

(b) in the scheme referred to in section 80CCD(l); and

(c) in an approved superannuation fund,

to the extent it exceeds Rs. 7,50,000 in a previous year shall be treated as perquisite.

Further as per section 17(2)(viia) inserted w.e.f. A.Y. 2021-22, the annual accretion by way of interest, dividend or any other amount of similar nature during the previous year to the balance at the credit of the fund or scheme referred to in section 17(2)(vii) to the extent it relates to the contribution referred to in the said sub-clause which is included in total income under the said sub-clause in any previous year computed in such manner as may be prescribed shall also be treated as perquisite.

8. Treatment of Medical Facilities [Proviso to section 17(2)]

In the following cases, medical facility is not a perquisite and thus not taxable in the hands of the employees.

(A) Medical Facility in a Hospital, etc. maintained by the Employer:

The value of medical treatment provided to an employee or to any member of his family in any hospital, dispensary or a clinic or a nursing home maintained by an employer shall not be a perquisite.

(B) Medical Treatment in India

The following expenditure incurred by employer shall not be a perquisite:

(a) Any sum paid by employer in respect of:

(i) actual expenditure incurred by employee on his or his family member’s medical treatment in any hospital maintained by the Government or any local authority or in a hospital approved by the Government for medical treatment for its employees;

(ii) expenditure actually incurred by employee on his or his family member’s medical treatment in respect of prescribed diseases or ailments as prescribed in rule 3A of the Income-tax Rules, in any hospital approved by the Principal Chief Commissioner or Chief Commissioner of Income-tax, having regard to the prescribed guidelines. However, in this case, the employee has to attach along with his return of income, a certificate from the hospital specifying the disease or ailment for which medical treatment was required and the receipt for the amount paid to the hospital.

(b) any portion of insurance premium paid by the employer for insurance of the health of the employees under a scheme approved by the Central Government or the Insurance Regulatory and Development Authority.

(c) any reimbursement by the employer of any insurance premium paid by the employee, for an insurance for his health or the health of any member of his family a scheme approved by the Central Government or the Insurance Regulatory and Development Authority is also a tax-free perquisite.

(C) Medical Treatment outside India

The following expenditure incurred by employer on treatment of the employee or his family members outside India is also a tax-free perquisite:

Expenses on medical treatment of the employee or any member of his family outside India. However, such expenses shall be tax free perquisite to the extent permitted by Reserve Bank of India.
Expenses on stay abroad of the employee or any member of his family for medical treatment with one attendant who accompanies the patient in connection with such treatment. These expenses shall also be tax free perquisites to the extent permitted by Reserve Bank of India.
Travel expenses of the patient (employee or his family member) and one attendant who accompanies the patient in connection with such treatment. It shall be tax-free in the case of those employees whose gross total income (before including therein the such travel expenditure as perquisite) does not exceed Rs. 2,00,000. In other words, if the gross total income of the employee before including the taxable medical perquisite on account of travel expenditure exceeds Rs. 2,00,000, the expenses on travel of the patient as well as of the attendant shall become taxable.

(1) Any medical allowance given by the employer is fully taxable irrespective of the actual expenses which might have been incurred by the employee on medical treatment.

(2) Reimbursement of any amount actually incurred by the employee for obtaining his or his family member’s medical treatment either in any hospital, nursing home, clinic or otherwise shall also be treated as perquisite.

(3) ‘Family’ for the purpose of valuation of medical facilities means:

(i) the spouse and children of the employee. Children may be dependent or independent, married or unmarried.

(ii) parents, brothers and sisters of the employee, who are wholly or mainly dependent on such employee.

(4) ‘Hospital’ includes a dispensary, a clinic, a nursing home.

(5) As per Circular No. 603 dated 6.6.1991, the expenditure on medical treatment by the employer may be by way of payment or reimbursement.

EXAMPLE:

Compute the taxable value of the perquisite in respect of medical facilities availed of by X from his employer in the following situations:

(a) the employer reimburses the following medical expenses:

(i) treatment of X by his family physician Rs. 4,200

(ii) treatment of Mrs. X in a private nursing home Rs.3,600

(iii) treatment of X’s mother (dependent upon him) Rs.1,200 by a private doctor

(iv) treatment of X’s brother (not dependent upon him) Rs.400

(v) treatment of X’s grandfather (dependent upon him) Rs.1,500

(b) The employer pays an insurance premium of Rs.3,000 under a health insurance scheme on the health of X.

(c) The employer maintains a hospital for the employees where they and their family members are provided free treatment. The expenses on treatment of X and his family members during the previous year 2022-23 were as under:

	Rs.
(i) treatment of X’s major son (dependent upon him)	2,200
(ii) treatment of X	5,200
(iii) treatment of X’s uncle	4,600
(iv) treatment of Mrs. X	8,000
(v) treatment of X’s widowed sister (dependent upon him)	4,100
(vi) treatment of X’s handicapped nephew	2,500

(d) Expenses on cancer treatment of married daughter of X at Tata Memorial Hospital, Mumbai (an approved hospital for this purpose) paid by the employer Rs.50,000 and reimbursement of expenses for medical treatment of himself amounting to Rs.20,000.

(e) The following expenses on treatment of X’s major son outside India were paid by the employer.

		Actual expenses	Expenses permitted by RBI
		Rs.	Rs.
(i)	Actual medical expenses	75,000	60,000
(ii)	Expenses on stay abroad of X’s son and brother who accompanied the patient	65,000	45,000
(iii)	Travelling expenses of X’s son and X’s brother	1,20,000	–

Assume that the other income of X is (a) Rs.1,50,000 (b) Rs.1,80,000.

SOLUTIONS :

(a)

		Expenses Taxable
		Rs.
(I)	Treatment of X	4,200
(ii)	Treatment of Mrs. X	3,600
(iii)	Treatment of X’s mother	1,200
(iv)	Treatment of X’s brother	400
(v)	Treatment of X’s grandfather	1,500
		10,900

The entire Rs.10,900 shall be taxable perquisite.

(b) Payment of insurance premium on the health of the employee is a tax-free perquisite. Hence nothing is taxable.

(c) The expenses of medical treatment of the employee and his family members in a hospital maintained by the employer are tax-free. Therefore, expenses on treatment of X, X’s major son, X’s widowed sister and Mrs. X are not taxable. Only the following expenses are taxable:

		Rs.
(i)	Treatment of X’s uncle	4,600
(ii)	Treatment of X’s handicapped nephew	2,500
	*Taxable perquisite*	*7,100*

(d) Expenses on medical treatment of the employee/family members in respect of prescribed diseases, in any hospital approved by the Chief Commissioner of Income-tax, are tax-free. In this case, as cancer is a prescribed disease and Tata Memorial Hospital, Bombay is approved by Chief Commissioner of Income tax, there is no taxable perquisite. Reimbursement of Rs.20,000 for his medical treatment shall be a taxable perquisite.

(e) In respect of medical treatment outside India, the expenses on actual treatment and on stay abroad (of the patient and one attendant) are exempt from tax to the extent permitted by the RBI., i.e., up to Rs.60,000 and Rs.45,000, respectively. Therefore, balance Rs.15,000 and Rs.20,000 shall be taxable perquisites. Expenses of travel are exempt only if the gross total income of the employee is up to Rs.2,00,000. In case of (a), the gross total income shall be Rs.1,85,000 (1,50,000 + 15,000 + 20,000); hence, the entire expenditure on travel is tax-free perquisite. In case of (b), his gross total income shall be Rs.2,15,000 (1,80,000 + 15,000 + 20,000); hence the entire expenditure on travel amounting to Rs.1,20,000 shall be taxable perquisite.

Rs. 15,000 + Rs. 20,000 included above are on account of taxable amount of medical perquisites as these are in excess of amount permitted by the RBI.

9. Treatment of Leave Travel Concession or Assistance (LTC/LTA) [Section 10(5)]

[Exemption will not be available if the employee opts to be taxed under section 115BAC]

The employee is entitled to exemption under section 10(5) in respect of the value of travel concession or assistance received by or due to him from his employer or former employer for himself and his family, in connection with his proceeding—

(a) on leave to any place in India.

(b) to any place in India after retirement from service or after the termination of his service.

The exemption shall be allowed subject to the following:

(i) where journey is performed by air — Maximum exemption shall be an amount not exceeding the air economy fare of the National Carrier by the shortest route to the place of destination;

(ii) where places of origin of journey and destination are connected by rail and the journey is performed by any mode of transport other than by air — Maximum exemption shall be an amount not exceeding the air-conditioned first class rail fare by the shortest route to the place of destination; and

(iii) where the places of origin of journey and destination or part thereof are not connected by rail and the journey is performed between such places — The amount eligible for exemption shall be:

(A) where a recognised public transport system exists, an amount not exceeding the 1 St class or deluxe class fare, as the case may be, on such transport by the shortest route to the place of destination; and

(B) where no recognised public transport system exists, an amount equivalent to the air- conditioned first class rail fare, for the distance of the journey by the shortest route, as if the journey had been performed by rail.

Exemption will, however, in no case exceed, actual expenditure incurred on the performance of journey.

HOW MANY TIMES CAN EXEMPTION BE CLAIMED?

The assessee can claim exemption in respect of any two journeys in a block of 4 years. For this purpose, the first block of 4 years was calendar years 1986-89, second block was 1990- 93, third block was 1994-97, fourth block was 1998-2001, fifth block was 2002-05, sixth block was 2006-09, seventh block was 2010 to 2013, eighth block was 2014-17, the ninth block is 2018-2021 and tenth block will be 2022-2025.
If the assessee has not availed of the exemption of LTC in a particular block, whether for both the journeys or for one journey, he can claim the exemption of first journey in the calendar year immediately succeeding the end of the block of four calendar years. In other words, maximum one journey can be carried forward and that too only for the first journey in the following calendar year unless the period is otherwise extended. Such journey undertaken during the extended period will not be taken into account for determining the tax exemption of two journeys for the succeeding block.

Exemption available only in respect of two children

The exemption relating to LTC shall not be available to more than two surviving children of an individual after 1.10.1998.

Exception: The above rule will not apply in respect of children born before 1.10.1998 and also in case of multiple birth after one child.

IMPORTANT NOTES :

1. In case the LTC is encashed without performing the journey, the entire amount received by the employee would be taxable.

2. Family for this purpose includes:

(a) the spouse and children of the employee;

(b) parents, brothers & sisters of the employee, who are wholly or mainly dependent upon him.

3. The exemption can be availed for the journey undertaken while on leave during the tenure of service or even after retirement/termination from service.

4. The exemption is allowed only in respect of fare. Expenses incurred on porterage, conveyance from residence to the railway station/airport/bus stand and back, boarding and lodging or expenses during the journey will not qualify for exemption.

5. Exemption is available in respect of shortest route. Where the journey is performed from the place of origin to different places in a circular form or in any other manner, the exemption for that journey will be limited to what is admissible for the journey from the place or origin to the farthest point reached, by the shortest route.

1. Perquisites [(Section 17(2)]- Income under the head Salaries

1.1. Perquisites which are Taxable in the hands of all categories of employees

Certain clarifications on definition of ‘perquisite’

Taxability of Perquisites :

1.2. Perquisites which are taxable only in the case of Specified Employees

Who is a Specified Employee [Section 17(2)(iii] —

1.3. Tax-free Perquisites (for all employees)

2. Perquisites- Rent Free Accommodation or Accommodation provided at Concessional Rate

(A) Accommodation provided by the Government to its employees

(i) Where the accommodation is unfurnished:

(ii) Where the accommodation is furnished:

(B) Where the Accommodation is provided by Any Other Employer

(i) Where the accommodation is Un-furnished:

(ii) Where the accommodation is Furnished:

(C) Where the accommodation is provided by the employer (Government or other employer) in a hotel

No Perquisite value even if accommodation provided in a hotel.—

The above rules shall not apply in certain cases

(A) Accommodation provided at certain site or in a remote area [Proviso 1 to rule 3(1)]

(B) Accommodation provided at new place of posting on transfer while retaining the accommodation at the other place [Proviso 2 to rule 3(1)]:

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

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

(ii) 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)]

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

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

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

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

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

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

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

4. Perquisites – Valuation of Motor Car / Other Vehicles [Rule 3(2)]

Vehicle provided by the employer for commuting from residence to office and back [Explanation to section 17(2)(iii)]:

Where more than one Motor Car is provided

Specific documents to be maintained for S. No. (1)(a) or S. Nos. (2) and (3) of the above table

5. Valuation of Various Perquisites – for Calculating Salary Income

1. Provision by the employer of services of a Sweeper, a Gardener, a Watchman or Personal Attendant [Rule 3(3)]

2. Value of benefit to the employee resulting from the supply of gas, electric energy or water for household consumption [Rule 3(4)]

3. Valuation in respect of Free or Concessional Educational Facilities to any member of employees’ household [Rule 3(5)]

4. Free or Concessional Journey given to the Transport Employees and their Family Members [Rule 3(6)]

5. Value of any Specified Security or Sweat Equity Shares allotted or transferred by the Employer to the Assessee.

6. Valuation of specified security or sweat equity share being a share in the company [Rule 3(8)]

(A) Valuation of shares

(B) Valuation of specified security not being an equity share in the company [Rule 3(9)]

7. Contribution made by the employer in a Recognised Provident Fund (RPF), in the scheme referred to in section 80CCD(1); and in an Approved Superannuation Fund exceeding Rs. 7,50,000 [Section 17(2)(vii)]

8. Treatment of Medical Facilities [Proviso to section 17(2)]

(A) Medical Facility in a Hospital, etc. maintained by the Employer:

(B) Medical Treatment in India

(C) Medical Treatment outside India

9. Treatment of Leave Travel Concession or Assistance (LTC/LTA) [Section 10(5)]

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