Valuation of Various Perquisites – for Calculating Salary Income

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.

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.

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:

  1. 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.
  2. 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.
  3. 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.

See also  Income under the Head “Salaries” [Sections 15 to 17]
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