Income from Salaries

Perquisites are benefits given to employees. Though the same are paid in kind, the facilities are nonetheless taxable in the hands of the employee. The basis of valuation of these perquisites are given below for ready reference.

Valuation of Perquisites / Fringe Benefits Basis

Rent-free Accommodation/ Concessional Rent The valuation of this perquisite is based various factors namely a) whether the assessee is a government employee or not b) where the accommodation is situate c) whether the accommodation is ownership or leased In case of Government (whether Union or State Government) employees, the value is the licence fee determined by Union or State Government in respect of accommodation in accordance with the rules framed by that government as reduced by the rent actually paid by the employee. If the accommodation is furnished, then 10% p.a. of the cost of such furniture and household appliances or actual hire charges, less amount, if any, paid by the employee, will be added to the value of accommodation. In case of Non-Government Employees: Where the accommodation is owned by the employer: 15% of salary where the population > 25 lakhs as per 2001 census 10% of salary where the population >10 lakhs but upto 25 lakhs 7.5% of salary in other areas Where the accommodation is leased by the employer Actual amount of lease rental or 15% of salary, whichever is less Where rent or part thereof is recovered from the employee, the valuation would be reduced to that extent.

Definition of Salary for the purpose of valuation of perquisite as above: Salary includes

a) basic salary; b) dearness allowance; c) bonus d) commission; e) fees; f) all other taxable allowances (excluding the portion not taxable); g) any monetary payment (by whatever name called), but does not include (i) dearness allowance (not forming part of salary for the purpose of calulating employment benefits like grautuity, provident fund etc.,); (ii) employers contribution to employees provident fund account; (iii) all allowance which are exempt from tax and (iv) value of perquisites u/s 17(2).

Electricity, Gas, Water Household Consumption

The perquisite is valued as follows: a) Where the utilities are procured by employer from external agencies - Amount paid by the employer b) Where the utilities are supplied by employer from own sources - Manufacturing cost for the Employer

In both cases, the value of the perk will be reduced by any amount, if any, recovered from the employee Free Domestic Servants, viz., Sweeper, Gardener, Watchman Where the employee is provided with a domestic servant, the value of such perquisite will be the total amount of salary paid by the employer to such servants as reduced by any amount, if any, recovered from the employee.

Vehicles provided Valuation of perquisite in respect of motor car: Private purpose Official Purpose Private and official purpose

Car owned by the employee and expenses met by employee Not a perquisite Not a perquisite Not a perquisite

Car owned by the employee and expenses are reimbursed by the employer Perquisite Value is the actual expenses incurred by the employer as reduced by the amount recovered from the employee Not a perquisite(see Note1) Perquisite value is the actual expenditure incurred by the employer as reduced by (i) Rs. 1,800 per month, if car hp < 16, or Rs. 2,400 p.m., if hp>16, as the case may be plus Rs.900 p.m. tpwards chauffeurs salary. (ii) amount recovered from the employee (if any)

Car is owned/ hired by the employer and expenses met by the employer Perquisite value is the actual expenditure incurred by the employer as increased by the depreciation (10% of the original cost of car)/ hire charges(if car is hired), as the case may be and reduced by the amount recovered from the employee, if any. Not a perquisite(see note1) Perquisite value is Rs. 1800 per month, if the car hp < 16, or Rs. 2400 per month, if car hp > 16, as the case may be, plus Rs. 900 per month, if chauffeur is provided towards his salary.

Car is owned/ hired by the employer and expenses met by the employee 1.Not a perquisite Not a perquisite(see note1) Perquisite value is Rs. 600 per month, if the car hp < 16, or Rs. 900 per month, if car hp > 16, as the case may be, plus Rs. 900 per month, if chauffeur is provided towards his salary.

Any other automotive conveyance owned by employee but expenses met by employer Actual expenses incurred by the employer Not a perquisite Actual expenses incurred as reduced by Rs.900 or such higher amount as per log book

Note 1. Conditions to be satisfied if the Car is used for official purpose : The employer has maintained complete details of journey undertaken for offcial purpose which may include date of journey, destination, mileage, and the amount of exepnditure incurred thereon. The employer gives a certificate to the effect that the expenditure was incurred wholly and exclusively for the performance of official duties Content of log book - complete details of the journey such as date of journey destination, mileage and amount of the expenditure incurred. The priciple of Arms length price will apply while cars taken from related parties. Note:2: where more than one car is being provided for use for employee or member of his family then valuation will be as under The only car will be valued as if it is partly used for official purpose and partly for private purpose other car will be valued as if it is fully used for private purpose. Note:3-Car facility between residence to office Car facility between office to residence and back is not chargeable to tax at all. Note-4: if in any case given above the amount is negative after recovery from the employee then valuation of perquisites will be treated as nil

Other Perks/Fringe Benefits

The following fringe benefits are also included for valuation of perquisites. Free meals (details given below) Gift Voucher or token Income from Machinery, Plant or Furniture let on hire Club membership Use of movable assets Transfer of any movable asset Any other benefit which can be determined in terms of its cost to the employer.

Free Meals : The perquisite value of the meal, is the expenditure incurred on this account by the employer, as reduced by any amount paid by/recovered from the employee for the said facility. However, any free meals of value upto Rs.50 provided in the office premises or through non-transferable paid vouchers usable at eateries is exempted. Tea/Snacks provided during office hours, free meals provided during working 0ours in a `remote area* / off-shore installation are also exempted. *Remote Area Location means a place which is minimum 400km away from the place of work and with a population, not more than 20,000 as per latest census. Gifts on Special Occasions Where gifts are given to the employees, the same will be treated as taxable perquisite and the valuation would be the amount given as gift in excess of Rs. 5,000/-. If the Value of Gift (for the whole year) is less than Rs.5,000, it is not considered as perquisite. Education Allowance Education allowance is valued as follows: The value of Training of employee as perquisite Nil Fixed Education Allowance for children is treated as perquisite to the extent as follows For cost of education Rs. 100/- p.m. per child (for a maximum of two children) For hostel expenses - Rs. 300/- p.m. per child (for a maximum of two children) Re-imbursement or Payment of school fees will be fully taxable as a perquisite in all cases. Education facility in employers institution - If cost of education facility is Rs.1,000/- or less, the value of perquisite is Nil. - In other cases the perk value = cost of similar education facility in the same locality. Scholarship is not taxable as a perquiste.

Leave Travel Allowance:

Valuation of leave travel concession in India [Sec.10(5))]- The exemption in respect of value of leave travel concession and passage money is available to Indian as well as foreign citizens. The valuation is as shown below Journey may be performed while in service or after retirement The amount exempt under section 10(5) is the value of any travel concession or assistance received or due to the assessee: a. from his employer for himself and his family in connection with his proceeding on leave to any place in India; b. from his employer or former employer for himself and his family in connection with his proceeding to any place in India after retirement from service or after termination of his service. Exemption cannot be more than expenditure Family - Meaning of For the purpose of section 10(5) family in relation to an individual meansa. the spouse and children of the individual; b. the parents, brothers and sisters of the individual who are wholly or mainly dependent on him. Different Situations Where journey is performed by air Amount of exemption if journey is performed on or after 1/10/97 Amount of air economy fare of the National carrier by the shortest route or the amount spent, whichever is less. Amount of air-conditioned 1st class Rail fare by the shortest route or amount spent, whichever is less.

Where journey is performed by Rail

Where the places of origin or Amt. of AC 1st class rail fare by journey and destination are the shortest route or the connected by rail and journey is amount spent, which is less. performed by any other mode or transport

Where the places of origin of Journey and destination (or part thereof) are not connected by rail: Where a recognised public transport exists Where no recognised public transport exists

First class or deluxe class fare by shortest route or the amount spent, whichever is less. AC first class rail fare by the shortest route (as if the journey had been performed by rail) or the amount actually spent, whichever is less.

Other conditions Only two journeys in a block of 4 years is exempt Carry over concession If an assessee has not availed travel concession or assistance during any of the specified four-year block periods on one of the two permitted occasions (or on both occasion), exemption can be claimed in the first calendar year of the next block (but in respect of only one journey). Exemption is available in respect of shortest route. Fare of more than 2 children Not eligible for exemption.

MEDICAL FACILITIES Valuation of medical facilities perquisite: The following shall not be treated as taxable

1. Medical facility in employers hospital Medical facility provided in a hospital, clinic dispensary or nursing home, maintained by the employer. 2. Medical facility in Governments hospital Reimbursement, by the employer, of expenditure incurred by the employee on his medical treatment or treatment of any member of his family in any hospital (including dispensary / clinic/ nursing home), maintained by Government, local authority, or in a hospital approved by the Government for its employees. 3. Treatment of prescribed in an approved hospital Payments made by the employer directly (or reimbursement of expenditure to the employee) to a hospital (including dispensary / clinic/ nursing home) which is approved by the Chief Commissioner having regard to member of his family for treatment of prescribed diseases or ailments subject to the condition that the employee attaches with the return of income a certificate from the approved hospital specifying the prescribed disease or ailment for which hospitalisation was required as well as a receipt for the amount paid. 4. Mediclaim insurance Group medical insurance (i.e, Mediclaim) obtained by the employer for his employees or reimbursement of Mediclaim insurance premium to an employee in respect of Mediclaim Insurance Policy on his own life or life of members of his family. 5. Medical facility in private clinic Reimbursement by employer of amounts spent by the employee in obtaining medical treatment for himself or any member of his family from any doctor, not exceeding in the aggregate, Rs.15,000 in year. 6. Medical facility outside India Any expenditure incurred by the employer (or reimbursement of expenditure incurred by the employee) on medical treatment of the employee or any member of the family of such employee outside India subject to the conditions given belowPerquisite not chargeable to tax Condition to be satisfied

Expenditure shall be excluded from perquisite only to the extent permitted by the Reserve Bank of India. *Cost on travel of the employee/any Expenditure shall be excluded member of his family/ one attendant from perquisite only in the who accompanies the patient in case of an employee whose connection with treatment outside Gross total income, as India. Computed before including therein the said expenditure, does not exceed Rs.2,00,000. *Cost of stay abroad of employee or any member of the family for medical treatment and cost of stay of one attendant who accompanies the patient in connection with such treatment. Expenditure shall be excluded from the perquisite only to the extent permitted by Reserve Bank of India.

*Medical treatment of employee or any member of family of such employee outside India

Valuation of perquisite in respect of interest-free loan or loan at concessional rate of interest if not treated as fringe benefit taxed in the hands of the employer. The perquisite is taxable in the hands of all employees (Whether specified or not) on the following basis
1.

The value of the benefit to the assessee resulting from the provision of interest free or concessional loan made available to the employee (or any person on his behalf) shall be determined as the sum equal to the simple interest computed at the rate of charged per annum by the State Bank of India, as on the 1 st day of the relevant previous year in respect of various loans advanced by it. Interest is 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).

2. In the following cases, the perquisite is not chargeable to taxa. If such loan is made available for medical treatment in respect of diseases specified in rule 3A (the exemption is, however, not applicable to so much if the loan as has been reimbursed to the employee under any medical insurance scheme); or b. Where the amount loans are petty not exceeding in the aggregate Rs.20,000.

Govt widens tax net for perks, applicable right away for entire year

Your tax burden has just gone up, with the government today issuing the new guidelines f perquisities. In fact, it could be a double whammy, as you have to pay the additional tax l whole of this financial year over the next three months. Employees who were not paying of perks such as company-provided cars, employee stock options, interest-free loans a

gardeners and watchmen for the past five years now face an additional liability. For ins employee provided with a chauffeur-driven Honda Accord for official as well as perso additional taxable income would be Rs 3,300 a month. So, the tax liability may be just ab month. But, if the car is only for personal use, then the tax liability would go up. Assumin month is spent on fuel and maintenance and another Rs 5,000 is paid to the driver, 12,000 would be added to the employees income and taxed at the applicable rate. So, for the top tax bracket of 30 per cent, the liability could be around Rs 44,000 annually or a l 3,600 a month. This (differentiation) is primarily because it is difficult to ascertain wheth is being used for official purpose or for personal purpose, said Deloitte Tax Partner, Hom the Fringe Benefit Tax regime, introduced by P Chidambaram during the UPA governmen coming to an end in March 2009, employees getting stock options could be in for some h During the days of FBT, the burden had been transferred to employers. But now, the lia again on the employees. According to the guidelines issued by the revenue departme difference between the fair market value on the date of exercising the option and the gran be added to income. So, if the grant price is Rs 100 and the fair market value on the da price is Rs 500, Rs 400 would be added to the employees income. In the case of food vou the rise in prices, the earlier tax-free limit of Rs 50 per meal remains unchanged. In case paid vacations, the entire expenses would be added to an employees income and applicable rate. Ditto for gifts worth over Rs 5,000. Employees working for firms which d FBT will see a significant dip in their take-home salaries, said Ernst & Young Tax Pa Grover. With most employers not deducting tax on perquisites so far, your pay cheque three months could be lighter. This will lead to a huge deduction at source and may leave the employees to take home. As a result, the employer might have to pay advances or employees, which again carries a notional interest on it, added Grover. Industry sources of interest on such loans to employees is 11.5 per cent. Some tax advisors said many em already seen deductions. We had advised our clients to deduct tax based on norms that e FBT was introduced. So, the impact will not be much, said KPMG Executive Director Vik however, added that in case of employees who had left the organisation, the employer w bear the burden. Next year onwards, many companies are also expected to re compensation package. Now, compensation may need to be redesigned to incorpor exemptions or concessions that are being provided under the new prerequisites valuation r