2.c Perquisites¶
When your employer offers additional benefits or advantages alongside your basic salary or wage, these are referred to as perquisites in the context of income tax. Perquisites are not to be confused with reimbursements, which are payments made to cover specific expenses incurred by an employee. Instead, perquisites are a component of your pay structure and contribute to the overall Cost to Company (CTC). Depending on the nature of these benefits, perquisites can be either taxable or non-taxable.
What Are Perquisites in Salary?¶
Perquisites in salary refer to the extra privileges or benefits you receive from your employer, beyond your monthly salary. These perks can significantly enhance the overall compensation package and may include a range of benefits such as company-provided accommodation, cars, or fuel reimbursements. The classification of perquisites into taxable and non-taxable categories is crucial for determining the employee's tax liability.
As per Section 17(2) of the Income Tax Act, 1961, perquisites include:¶
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Rent-Free Accommodation: When an employer provides accommodation without charging any rent, the value of such accommodation is considered a perquisite.
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Concession in Rent: If the employer provides accommodation at a concessional rent (below the market rate), the difference between the market value and the actual rent paid is treated as a perquisite.
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Value of Benefits or Amenities: Any benefit or amenity provided free of cost or at a concessional rate by the employer is considered a perquisite. This includes utilities like electricity, water, or gas provided to the employee.
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Employer-Provided Financial Benefits: Employer’s Contribution: Contributions to Provident Fund (PF), National Pension System (NPS), or Superannuation Fund exceeding ₹7.5 lakhs are taxable.
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Annual Accretion: Interest or dividends accruing to the employee's PF, NPS, or Superannuation fund account, attributable to employer contributions, are taxable if they exceed the ₹7.5 lakh threshold.
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Sweat Equity Shares: The value of sweat equity shares allotted or transferred at a concessional rate or free of cost to the employee is treated as a taxable perquisite.
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Obligations Paid by Employer: Any obligation of the employee that is paid by the employer (such as an employee’s personal loan repayment) is also considered a perquisite.
Types of Perquisites in Income Tax¶
Perquisites are categorized based on their taxability, which impacts how they are treated for income tax purposes. The three primary categories are:
1. Tax-Exempted Perquisites¶
These perquisites are fully exempt from tax and do not contribute to the employee’s taxable income. Examples include:
- Company-Provided Laptops and Computers: When an employer provides laptops or computers for official use, these are not taxable.
- Employer-Provided Refreshments: Meals or refreshments provided during office hours are exempt from tax.
- Telephone/Mobile Bills: Reimbursement of telephone or mobile expenses is generally non-taxable.
- Employer Contributions to Provident Fund (up to a limit): Contributions to Provident Funds, NPS, or Superannuation Fund are non-taxable up to ₹7.5 lakhs.
- Free Medical Facilities: Certain medical facilities provided by the employer are exempt from tax.
2. Taxable Perquisites¶
These perquisites are fully taxable and are included in the employee's gross income for the calculation of income tax. Examples include:
- Rent-Free Accommodation: The value of accommodation provided by the employer is taxable.
- Utilities: Benefits such as free or subsidized water, electricity, and gas are taxable.
- Salary of Employee’s Servants: If the employer pays for the salary of an employee’s personal staff, such as domestic servants, this amount is taxable.
- Gifts Exceeding ₹5,000: Gifts provided by the employer that exceed ₹5,000 in value are taxable.
- Free Meals Beyond Specified Limits: Meals provided by the employer that exceed certain prescribed limits are taxable.
- Club or Gym Memberships: Membership fees paid by the employer for gyms, clubs, or similar facilities are taxable.
3. Perquisites Taxable Only for Specified Employees¶
Some perquisites are taxable only for specified employees, which include:
- Director Employees: Employees who hold a directorship position within the company.
- Employees with Substantial Interest: Employees who hold more than 20% of the voting power in the company.
- Employees with High Income: Employees whose gross salary exceeds ₹50,000. For these employees, the value of any benefit or perquisite provided for free or at a concessional rate, which is not covered under the tax-exempt or fully taxable categories, will be taxable.
Treatment of perquisites¶
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