Hello, in this post we will discuss the perquisites in Salary.
As per the new wage code, the employee’s basic salary will be at least 50% of his/her net monthly CTC. Thus, employees will not be able to get more than 50% of his/her net monthly salary as allowance. The PF and gratuity contribution of the employee will increase and take-home salary will decrease.
We will cover the following:
- What are the perquisites in salary?
- Difference between allowance and perquisites
- Types of perquisites
- Taxability of perquisites
- Tax on perquisites
- Tax free perquisites include
- Calculation of perquisites (or tax)
What are the perquisites in salary?
Perquisites are essentially small benefits offered by employers to the employees in addition to the normal salary at free of cost or at concessional rates. They are taxable in the hands of employees.
Difference between allowance and perquisites
|A fixed amount of money given periodically in addition to the salary||Small benefits offered by the employers in addition to the normal salary at free of cost|
|It is taxable on a due/accrued basis whether it is paid in addition to the salary or in lieu thereon||It is taxable in the hands of employees.|
|For example; Uniform allowance, transportation allowance, telephone allowance||For example; Rent free accommodation, free electricity, and water supply|
Types of perquisites
- Rent-free/concessional rent accommodation provided by the employer.
- Any amount paid by the employer in respect of an obligation that was actually payable by the assessee.
- Value of any benefit/amenity granted free or at a concessional rate to specified employees.
- 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.
- 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 lakh.
- The value of any other fringe benefit or amenity as may be prescribed.
Taxability of perquisites
There are two types of taxability of perquisites:
- Tax on perquisites – Perquisites added to the Head of Salaries while filing an Income tax returns are taxed by the government u/s 17(2) of the Income Tax Act.
- Tax-free perquisites – Some types of perquisites are tax-free in the hands of the employee. For effective tax planning and reduction of tax liability, the employer and employee must be aware of such tax-free perquisites
Tax-free perquisites include:
- Leave travel concession subject to conditions and the only actual amount spent.
- Medical Facilities & Reimbursements
- Computer / Laptop for official / personal use.
- Initial fees paid for corporate membership
- Refreshment provided during working hours in office premises.
- Payment of annual premium on personal accident policy.
- Subscription to periodicals and journals required for the discharge of work.
- Provision of Medical Facilities.
- Gifts not exceeding Rs. 5000 per annum.
- Use of health club and sports facility.
- Child Education Allowance (Rs.100 per month. per child – max. 2 children)
- Hostel Allowance (Rs. 300 per month per child – max. 2 children) is exempt.
- Transport Allowance: Rs. 800 per month – Rs.1,600 per month. (If handicapped)
- Free meal provided during work hours or through paid non-transferable vouchers not exceeding Rs. 50 per meal or free meal provided during work hours in a remote area.
Tax Calculation on perquisites
Accommodation offered by the employer
Many employees are offered leased accommodation options by their employers. The taxability depends on whether the place is owned, rented, or lease.
The tax levied is depicted in the table below.
|Type of Accommodation||City||Tax %|
|Owned||< 25 lakhs||15%|
|Between 10-25 lakhs||10%|
|Below 10 lakhs||7%|
|Leased||Actual rental paid or 15% whichever is lower||7%|
|Accommodation provided in a hotel or guest house for more than 15 days||NA|
|Below 10 lakhs||24%|
Cars provided by the employer
Here, the taxability depends upon two cases. Firstly whether the car is owned or leased. Secondly, whether the car is only for official purposes or partly for personal use and partly for official use.
The below table depicts the corresponding rate of tax in the various cases that may arise.
|Type of car||rate of tax|
|Small cars below 1.6 litres||Rs.1800 p.m|
|Big cars above 1.6 litres||Rs.2400 p.m|
This ends the post. Let us know your opinion by commenting below.