Perquisites

Casual emolument or benefit attached to an office or position in addition to salary or wages

Something that benefits a man by going into his own pocket

Need not be only in kind. It can be in cash.

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Conditions To become perquisites

Allowed by Employer to Employee

Allowed during Continuance Of employment

Directly Depend upon service

Personal advantage To the employee

Derived by Virtue of Employer’s authority

Other conditions

Employer and employee relationship should exist at any point of time- need not be an employee now.

Legal origin is important- Un authorized advantage taken by employee without employer’s authority will not become perquisites.

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Perquisites Includes

1. Rent free Accommodation Provided By employer (Accommodation Related perquisites (1-3) including sweeper, gardener, watchman, gas, electricity, etc)

2. Concessional Accommodation Provided By employer

3. Value of Benefits provided like furniture in the accommodation 4. Personal Obligations of Employee Met by employer

5. Funds paid by employer other than RPF/Insurance fund

6. Fringe Benefits Allowed To employees of organisation other Than companies

Perquisites Taxable in the hands of employee

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In the hands of employee

Category-A Category –B1. Rent free or concessional rent

accommodation

2. Sweeper in the house, gardener, watchman, personal attendant

3. Free/concessional gas, electricity, water etc

4. Educational facility to employee’s family members including servants and dependent, parents, spouse and children(need not be dependent)

5. Leave travel concession beyond 2 travels in a block period

Short form (RSGEL)

1.Car given by employer

2. Transport facility given by transport undertakings except Railway and airlines.

( only to Specified Employee)

1 to 5 taxable only to Specified Employee

Special items in computation of

perquisites

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Rent Free accommodation(RFA)

Company’s House given at free of cost or rented by company given to employee at free/concessional rent.

Includes: house, flat, farm house, carvan, mobile home, ship, floating structure-like boat.

Step1. Unfurnished Accommodation

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Central or State Government

employeesPrivate employees

1.Central or state government employee-RFA

License fee of flat determined by central government is perquisites in the hands of employee.

Fair market value of rent is not important

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RFA-Government employee

Exercise:- Mr. X is working in Central government service given rent free accommodation in an government apartment at free of cost. The license fee prescribed by government is Rs.3000 but fair rental value of the house is Rs. 10,000. How much is taxable?

Answer:- Fair rent is not considered. The license fee Rs. 3,000 is taxable in the hands of Specified employee.

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2. Private Employees(RFA)Value of perquisites depends on

Population of the city where accommodation provided.

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Exceeding population25 lakhs

Population beyond 10 lakhs-Up to25 lakhs

Population Up to10 lakhs

OwnedBy

employer15% salary

or amount paid By companyTo outsiderWhich ever

Is less

RentedBy

company

OwnedBy

employer

RentedOwned

By employer Rented

By company

15% of salary10% ofsalary

7.5% ofSalary

Population as per 2001 census

Explanation to the diagram

If house property is owned by employer depends on the population of the city percentage differs. Big city it is 15% of salary, medium city it is 10% and small city it is 7.5% of salary for accommodation with out any facility like furniture.

If house is rented by employer given to employee it is 15% of salary or rent paid by employer whichever is less taxable for specified employees irrespective of the type of city.

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If Furniture provided by employer

If rented

Actual hire charges

payable

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If owned

10% of original Cost of furniture

Meaning of salary for RFA

All Cash salary received or receivable in hand (including taxable allowances) by the employee himself.

Excludes all *perquisites and *DA which will not come under retirement purpose

If any allowance is exempted (like HRA(partly), children educational allowance up to Rs.100 Per month or transport allowance up to Rs. 800 per month etc.), to the extent exempted is not included in the meaning of salary but balance is included in the meaning of salary.

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Car (when non-taxable perquisite)

Re-imbursement of expenses in respect of car (which is owned by employee and used for personal and official purpose) (amount not taxable is up to Rs. 1,200 per month for car having engine capacity of not more than 1600cc, Rs. 1,600 per month for car of above 1600cc and Rs. 600 per month for driver).

Conveyance facility provided to High Court Judges and Supreme Court Judges.

Conveyance facility provided to an employee to cover the journey between office and residence.

Others…. (non-taxable)Interest-Free Loan Interest-free / concessional loan of an amount

not exceeding Rs.20,000

Gift-in-kind up to Rs.5,000 in a year.

Employer's contribution to staff group insurance scheme.

Exercise-RFA Value of rent free accommodation : Preetham is sales manager of a private

company and for previous year 2007-08,he received the following emoluments(amts in Rs)

Basic Salary 248000 Bonus 16000 Dearness allowance(50% forming part of salary) 60000 Project allowance 15000 Commission on sales 16000 City compensatory allowance 25000 Medical allowance 12000 Employer contribution to recognized provision fund

20000 Salary pertaining the year 2008-09 has been received in advance

20000   (1) He has been provided with a rent free accommodation in Bangalore

owned by the employer. The population of Bangalore may be assumed to be 50 lakhs as per 2001 census

Q. Determine the taxable value of the perquisite in respect of rent free accommodation.

 

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(2) He has been provided with a rent free accommodation in jaipur owned by the employer. The population of jaipur may be assumed to be 15lakhs as per 2001 census

Determine : a) Meaning of salary for RFA b)the taxable value of the perquisite in respect of rent free

accommodation. 1. Meaning of salary:-All Cash salary received or receivable in hand

including taxable allowances by the employee himself.Excludes all *perquisites and *DA which will not come

under retirement purpose

Any allowance is not taxed( like HRA(partly), children educational allowance up to Rs.100 Per month or transport allowance up to Rs. 800 per month etc.) are not included in the meaning of salary.

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Meaning of salary- Exercise

• The valuation of rent free accommodation shall be 15% of the salary i.e. 15% of (248000+ 16000+30000+15000+16000+25000+12000)=Rs 54,300

• Note: Salary shall be taken on basis for the period for which accommodation has been provided. Hence advance salary for 2008-09 shall not be taken in account.

• Employer’s contribution does not come to the assessee in cash as it is paid directly to the department. That is why I have mentioned the meaning of salary is cash salary received by the assessee himself. 

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Exercise Value of free rent accommodation : sri Mohan is purchase manager

of a private company and for previous year 2007-08 he received the following emoluments-

  Basic Salary 120000 Bonus 16000 Dearness allowance(50% forming part of salary)

60000 Project allowance 15000 Commission on purchase 16000 City compensatory allowance

25000 Medical allowance 12000 Employer contribution to recognized provision fund

20000 Salary pertaining the year 2008-09 has been received in advance

20000   He is also in part employment with B ltd and is receiving salary of Rs

80000 P.A. he has been provided with a rent free accommodation in Mysore owned by the employer. The population of Mysore may be assumed to be 15 lakhs as per 2001 census. Determine taxable salary 20

solution Computation of taxable salary of Sri Mohan for assessment Year 2008-09   Basic Salary 120000 Bonus 16000 Dearness allowance(50% forming part of salary)

60000 Project allowance 15000 Commission on purchase 16000 City compensatory allowance 25000 Medical allowance 12000 Employer contribution to RPF in excess of 12% of salary

2000 [20000- 12% of (120000+ 50% of 60000)] Salary from B ltd 80000 Advance of salary 20000 Value of housing facility[10% of (120000+16000+30000+

31400 15000+16000+25000+12000+80000)]   Taxable Salary

397400

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Exercise Value of concessional accommodation: Sri Basant is purchase

manager of a private company and for the previous 2007-08 he received the following emoluments-

Basic Salary 240000 Bonus 32000 Dearness allowance(50% forming part of salary)

120000 Project allowance 30000 Commission on purchase 32000 City compensatory allowance

50000 Medical allowance 24000 Employer contribution to recognized provision fund

40000 2 months salary for year 2008-09 has been received in advance

20000   What would be the value of accommodation if the employer charges

rent of Rs 2000 p.m. in the following independent cases: (a)    The accommodation is provided in Hyderabad where popln as

per 2001 census exceeds 25 lakh (b)    The accommodation is provided in Alwar where popln as per

2001 census exceeds 18 lakh (c)   The accommodation is provided at Tumkore (popln less than 10

lakhs)22

SolutionSoln: The valuation of accommodation provided at

concessional rent shall be as under- Place of accommodation Value of perquisite Hyderabad 15% of salary less rent recovered = Rs

70200-24000=Rs46200 Alwar 10% of salary less rent recovered = Rs 46800-

24000=Rs22800 Tumkore 7.5% of salary less rent recovered =Rs

35100-24000=Rs11100  Salary =

240000+32000+60000+32000+30000+50000+24000 = Rs 468000

 

Any rent collected by employer from employee, such amount is deductible from taxable perquisite. 23

Furnished accommodation in hotel24% of salary paid or payable only for the

period accommodation provided OrActual charges paid or payable by the

employer to such hotel Whichever is lowerExceptions:-1.The above rule is not

applicable if such employee stays less than 15 days in the previous year and

2.Accommodation given only he is transferred to such new place

Both the conditions should be fulfilledNote:-Any amount collected from employee

is deductible from such calculations24

Perquisites –Domestic servants, free supply of gas, electricity etcSweeper, gardener watchman personal

assistant paid by employer is perquisites to the extent of cost to the employer.

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Monthly Fixed Education allowanceTraining of employees is not perquisitesFixed educational allowance

Rs.100 per child per month is exempted per child. Maximum two children. Beyond is taxable

Hostel Rs.300 per month per child exempted. Maximum two children. Beyond it is taxable to the employee

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Payment of school fees and re-imbursement of school fees

Taxable as perquisites fully

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Education facility to children(own) in their own school or any other school/collegeIf less than Rs. 1000 per month exemptedIf exceeds Rs. 1000 per month cost of education in similar

institution in the near locality (minus )Rs. 1000(minus) amount recovered.

Example:- Employer pays Rs. 1500 per month to the school selected by employee for three children and one grand children. How much is taxable perquisites?

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Education facility to relative’s childrenCost to the employer in such similar

institution minus amount recovered Important Note: Only for own children

exemption of Rs. 1000 allowed. But for the relative’s children such deduction is not allowed.

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