Last modified - Dec. 7, 2015

Taxability of Perquisites / Valuation of Perquisites

Perquisite is defined as any casual emolument or benefit attached to an office or position in addition to salary or wages. The value of perquisites provided by the employer directly or indirectly to the assessee (hereinafter referred to as employee) or to any member of his household by reason of his employment shall be determined in the following manner :-

As a general rule, the taxable value of perquisites in the hands of the employees is its cost to the employer. However, specific rules for valuation of certain perquisites are briefly given below :

1. Residential accommodation provided by the employer

  • Union or State Government Employees [ Section 17(2)(i) read with Rule 3(1) ]

    The value of perquisite is the license fee as determined by the Govt. as reduced by the rent actually paid by the employee.

  • Non Government Employees [ Section 17(2)(i)(ii) read with Rule 3(1) ]

    The value of perquisite is an amount equal to

    (i) 15% of salary in cities having population exceeding 25 lakhs as per 2001 census;

    (ii) 10% of salary in cities having population exceeding 10 lakhs but not exceeding 25 lakhs as per 2001 census; and

    (iii) 7.5% of salary in any other place.

    In case the accommodation provided is not owned by the employer, but is taken on lease or rent, then the value of the perquisite would be the actual amount of lease rent paid/payable by the employer or 15% of the salary, whichever is lower.

    In both of above cases, the value of the perquisite would be reduced by the rent, if any, actually paid by / recovered from the employee.

    If employee is transferred and retain property at both the places, the taxable value of perquisites for initial period of 90 days shall be determined with reference to only one accommodation (at the option of the assessee). The other one will be tax free. However after 90 days, taxable value of perquisites shall be charged with reference to both the accommodations.

    Rent free accommodation provided to High Court or Supreme Court Judges, Union Ministers, Leader of Opposition in Parliament, an official in Parliament and Serving Chairman and members of UPSC is tax free perquisite.

    Rent free furnished accommodation:[ Section 17(2)(i) read with Rule 3(1) ]

    The value would be the value of unfurnished accommodation as computed above, increased by 10% per annum of the cost of furniture (including TV/radio/refrigerator/AC/other gadgets). In case such furniture is hired from a third party, the value of unfurnished accommodation would be increased by the hire charges paid/payable by the employer. However, any payment recovered from the employee towards the above would be reduced from this amount.

    Provided that nothing contained in this sub-rule shall apply to any accommodation provided to an employee working at a mining site or an on-shore oil exploration site or a project execution site, or a dam site or a power generation site or an off-shore site-

    • which, being of a temporary nature and having plinth area not exceeding 800 square feet, is located not less than eight kilometers away from the local limits of any municipality or a cantonment board; or
    • which is located in a remote area:

2. Hotel Accommodation[ Section 17(2)(i) read with Rule 3(1) ]

The value of perquisite arising out of the above would be 24% of salary or the actual charges paid or payable to the hotel, whichever is lower. The above would be reduced by any rent actually paid by the employee. It may be noted that no perquisite would arise, if the employee is provided such accommodation on transfer from one place to another for a period of 15 days or less.

An employee, who is provided with accommodation at the new place of posting while retaining the accommodation at the other place, on account of his transfer from one place to another, the value of perquisite shall be determined with reference to only one such accommodation which has the lower value with reference to the Table above for a period not exceeding 90 days and thereafter the value of perquisite shall be charged for both such accommodations in accordance with the above Table.

3. Use of Motor Car[ Section 17(2)(iii) read with Rule 3(3) ]

S. No.CircumstancesEngine Capacity upto 1600 ccEngine Capacity above 1600 cc
1Where the motor car is owned or hired by the employer
(a) is used wholly and exclusively in the performance of his official duties;Fully Exempt.

Provided that specified documents are maintained by the employer.

(b) is used exclusively for the private or personal purposes of the employee or any member of his household and the running and maintenance expenses are met or reimbursed by the employer;Actual amount of expenditure incurred by the employer on the running and maintenance of motor car during the relevant previous year including remuneration, if any, paid by the employer to the chauffeur as increased by the amount representing normal wear and tear* of the motor car and as reduced by any amount charged from the employee for such use.
(c) is used partly in the performance of duties and partly for private or personal purposes of his own or any member of his household and -
(i) the expenses on maintenance and running are met or reimbursed by the employer;Rs. 1,800 (plus Rs. 900, if chauffeur is also provided to run the motor car)Rs. 2,400 (plus Rs. 900, if chauffeur is also provided to run the motor car)
(ii) the expenses on running and maintenance for private or personal use are fully met by the assesseeRs. 600 (plus Rs. 900, if chauffeur is also provided by the employer to run the motor car)Rs. 900 (plus Rs. 900, if chauffeur is also provided to run the motor car)
2Where the employee owns a motor car but the actual running and maintenance charges (including remuneration of the chauffeur, if any) are met or reimbursed to him by the employer
(i) such reimbursement is for the use of the vehicle wholly and exclusively for official purposes;Fully Exempted

Provided that specified documents are maintained by the employer.

(ii) such reimbursement is for the use of the vehicle partly for official purposes and partly for personal or private purposes of the employee or any member of his household. Subject to maintaining specified documents by employer, the actual amount of expenditure incurred by the employer as reduced Rs. 1800 (plus Rs. 900, if chauffeur is also provided by the employer to run the motor car) Subject to maintaining specified documents by employer, the actual amount of expenditure incurred by the employer as reduced by Rs. 2400 (plus Rs. 900, if chauffeur is also provided to run the motor car)
3Where the employee owns any other automotive conveyance but the actual running and maintenance charges are met or reimbursed to him by the employer
(i) such reimbursement is for the use of the vehicle wholly and exclusively for official purposes;Fully Exempt

Provided that specified documents are maintained by the employer.

Not applicable
(ii) such reimbursement is for the use of vehicle partly for official purposes and partly for personal or private purposes of the employee.Subject to maintaining specified documents by employer, the actual amount of expenditure incurred by the employer as reduced by the amount of Rs. 900.
* The normal wear and tear of a motor-car shall be taken at 10 per cent per annum of the actual cost of the motor-car or cars.

4. Services of a sweeper, a gardener, a watchman
or a personal attendant[ Section 17(2)(iii) read with Rule 3(3) ]

Taxable value of perquisite shall be salary paid or payable by the employer for such services less any amount recovered from the employee.

5. Supply of Gas, Electric Energy or Water[ Section 17(2)(iii) read with Rule 3(4) ]

The value of the benefit to the employee resulting from the supply of gas, electric energy or water for his household consumption shall be determined as the sum equal to the amount paid on that account by the employer. Where such supply is made from resources owned by the employer, without purchasing them from any other outside agency, the value of perquisite would be the manufacturing cost per unit incurred by the employer. Where the employee is paying any amount in respect of such services, the amount so paid shall be deducted from the value so arrived at.

Taxable in case of specified employees only [See explanations].

6. Free / Concessional Educational Facility[ Section 17(2)(iii) read with Rule 3(5) ]

Facility extended toValue of perquisite if provided in the school owned by the employerValue of perquisite if provided in any other school
ChildrenCost of such education in similar school less Rs. 1,000 per month per child (irrespective of numbers of children) less amount recovered from employeeAmount incurred less amount recovered from employee (an exemption of Rs. 1,000 per month per child is allowed)
Other family memberCost of such education in similar school less amount recovered from employeeCost of such education incurred

Other Educational Facilities

Reimbursement of school fees of children or family member of employees - Fully Taxable

Free educational facilities/ training of employees - Fully exempt

7. Transport facilities provided by the employer
engaged in carriage of passenger or goods (except Airlines or Railways)[ Section 17(2)(iv) read with Rule 3(8) ]

Value at which services are offered by the employer to the public less amount recovered from the employee shall be a taxable perquisite.

8. Amount payable by the employer to effect an insurance on life of employee
or to effect a contract for an annuity [ Section 17(2)(iv) ]

Fully Taxable.

9. ESOP/ Sweat Equity Shares[ Section 17(2)(vi) read with Rule 3(8) ]

Fair Market value of shares or securities on the date of exercise of option by the assessee less amount recovered from the employee in respect of such shares shall be the taxable value of perquisites.

Fair Market Value shall be determined as follows:

  1. In case of listed Shares: Average of opening and closing price as on date of exercise of option (Subject to certain conditions and circumstances)
  2. In case of unlisted shares/ security other than equity shares: Value determined by a Merchant Banker as on date of exercise of option or an earlier date, not being a date which is more than 180 days earlier than the date of exercise of the option.

10. Employer's contribution towards superannuation fund[ Section 17(2)(vii) ]

Taxable in the hands of employee to the extent such contribution exceeds Rs.1,00,000/-

11. Interest free or Concessional Loan Facility[ Section 17(2)(viii) read with Rule 3(7)(i) ]

Interest free loan or loan at concessional rate of interest given by an employer to the employee (or any member of his household) is a perquisite chargeable to tax in the hands of all employees on following basis:

  1. Find out the 'maximum outstanding monthly balance' (i.e. the aggregate outstanding balance for each loan as on the last day of each month);
  2. Find out rate of interest charged by the SBI as on the first day of relevant previous year in respect of loan for the same purpose advanced by it;
  3. Calculate interest for each month of the previous year on the outstanding amount (mentioned in Step 1 at the rate of interest given in Step 2
  4. From the total interest calculated for the entire previous year (step 3), deduct interest actually recovered, if any, from employee
  5. The balance amount (Step 3-Step 4) is taxable value of perquisite
Nothing is taxable if:
  1. Loan in aggregate does not exceed Rs. 20,000; or
  2. Loan is provided for treatment of specified diseases (Rule 3A) like neurological diseases, Cancer, AIDS, Chronic renal failure, Hemophilia (specified diseases). However, exemption is not applicable to so much of the loan amount as has been reimbursed to the employee under any medical insurance scheme.

12. Travelling, Touring Accommodation etc.[ Section 17(2)(viii) read with Rule 3(7)(ii) ]

  1. Taxable value of perquisite shall be expenditure incurred by the employer less amount recovered from employee.
  2. Where such facility is maintained by the employer, and is not available uniformly to all employees, the value of benefit shall be taken to be the value at which such facilities are offered by other agencies to the public.

13. Free Food and Non-alcoholic beverages[ Section 17(2)(viii) read with Rule 3(7)(iii) ]

1. Fully Taxable: Free meals in excess of Rs. 50 per meal less amount paid by the employee shall be a taxable perquisite

2. Exempt from tax: Following free meals shall be exempt from tax:

  1. Food and non-alcoholic beverages provided during working hours in remote area or in an offshore installation;
  2. Tea, Coffee or Non-Alcoholic beverages and Snacks during working hours are tax free perquisites;
  3. Food in office premises or through non-transferable paid vouchers usable only at eating joints provided by an employer is not taxable, if cost to the employer is Rs. 50(or less) per meal.

14. Any Gift or Voucher or Token[ Section 17(2)(viii) read with Rule 3(7)(iv) ]

  1. Gifts in cash or convertible into money (like gift cheque) are fully taxable
  2. Gift in kind up to Rs.5,000 in aggregate per annum would be exempt, beyond which it would be taxable.

15. Membership Fees, Annual Fees for Credit Card[ Section 17(2)(viii) read with Rule 3(7)(v) ]

a. Expenditure incurred by the employer in respect of credit card used by the employee or any member of his household less amount recovered from the employee is a taxable perquisite.

b. Expenses incurred for official purposes shall not be a taxable perquisite provided complete details in respect of such expenditure are maintained by the employer.

16. Membership of Clubs[ Section 17(2)(viii) read with Rule 3(7)(vi) ]

  1. Expenditure incurred by the employer towards annual or periodical fee etc. (excluding initial fee to acquire corporate membership) less amount recovered from the employee is a taxable perquisite
  2. Expenses incurred on club facilities for the official purposes are exempt from tax.
  3. Use of health club, sports and similar facilities provided uniformly to all employees shall be exempt from tax.

17. Use of Movable Assets[ Section 17(2)(viii) read with Rule 3(7)(vii) ]

Taxable value of perquisites shall be
  • For use of Laptops and Computers: Nil
  • For movable asset other than Laptops, computers and Motor Car*: 10% of original cost of the asset (if asset is owned by the employer) or actual higher charges incurred by the employer (if asset is taken on rent) less amount recovered from employee.

18. Transfer of Movable Assets[ Section 17(2)(viii) read with Rule 3(7)(viii) ]

Taxable value of perquisites
  1. Computers, Laptop and Electronics items: Actual cost of asset less depreciation at 50% (using reducing balance method) for each completed year of usage by employer less amount recovered from the employee
  2. Motor Car: Actual cost of asset less depreciation at 20% (using reducing balance method) for each completed year of usage by employer less amount recovered from the employee
  3. Other movable assets: Actual cost of asset less depreciation at 10% (on SLM basis) for each completed year of usage by employer less amount recovered from the employee.

19. Any Other Benefit or Amenity, Service, Right or Privilege[ Section 17(2)(viii) read with Rule 3(7)(ix) ]

Taxable value of perquisite shall be computed on the basis of cost to the employer (under an arm's length transaction) less amount recovered from the employee.

However, expenses on telephones including a mobile phone incurred by the employer on behalf of employee shall not be treated as taxable perquisite.

20. Medical facilities in India[ Proviso to section 17(2) ]

a. Expense incurred or reimbursed by the employer for the medical treatment of the employee or his family (spouse and children, dependent - parents, brothers and sisters) in any of the following hospital is not chargeable to tax in the hands of the employee:

  1. Hospital maintained by the employer.
  2. Hospital maintained by the Government or Local Authority or any other hospital approved by Central Government
  3. Hospital approved by the Chief Commissioner having regard to the prescribed guidelines for treatment of the prescribed diseases.

b. Medical insurance premium paid or reimbursed by the employer is not chargeable to tax.

c. Any other expenditure incurred or reimbursed by the employer for providing medical facility in India is not chargeable to tax up to Rs. 15,000 in aggregate per assessment year.

21. Medical facilities outside India[ Proviso to section 17(2) ]

Any expenditure incurred or reimbursed by the employer for medical treatment of the employee or his family member outside India is exempt to the extent of following (subject to certain condition):

  1. Expenses on medical treatment - exempt to the extent permitted by RBI.
  2. Expenses on stay abroad for patient and one attendant - exempt to the extent permitted by RBI.
  3. Expenditure incurred on travelling of patient and one attendant- exempt, if Gross Total Income (before including the travel expenditure) of the employee, does not exceed Rs. 2,00,000.

Leave Travel Concession (LTC/LTA)[ Proviso to section 17(2) ]

The exemption shall be limited to fare for going anywhere in India along with family twice in a block of four years:

  • Where journey is performed by Air - Exemption up to Air fare of economy class in the National Carrier by the shortest route
  • Where journey is performed by Rail - Exemption up to air-conditioned first class rail fare by the shortest route
  • If places of origin of journey and destination are connected by rail but the journey is performed by any other mode of transport - Exemption up to air-conditioned first class rail fare by the shortest route.
  • Where the places of origin of journey and destination are not connected by rail:
    • Where a recognized public transport system exists - Exemption up to first Class or deluxe class fare by the shortest route
    • Where no recognized public transport system exists - Exemption up to air conditioned first class rail fare by shortest route.
Notes:
  1. Two journeys in a block of 4 calendar years is exempt
  2. Taxable only in case of Specified Employees [See Explanations]

Explanations:

For the purposes of this rule-
  • accommodation includes a house, flat, farm house or part thereof, or accommodation in a hotel, motel, service apartment, guest house, caravan, mobile home, ship or other floating structure;
  • entertainment includes hospitality of any kind and also, expenditure on business gifts other than free samples of the employers own product with the aim of advertising to the general public;
  • hotel includes licensed accommodation in the nature of motel, service apartment or guest house;
  • member of household shall include-
    • spouse(s),
    • children and their spouses,
    • parents, and
    • servants and dependants;
  • remote area, for purposes of proviso to this sub-rule means an area that is located at least 40 kilometers away from a town having a population not exceeding 20,000 based on latest published all-India census;
  • salary includes the pay, allowances, bonus or commission payable monthly or otherwise or any monetary payment, by whatever name called from one or more employers, as the case may be, but does not include the following, namely:-
    • dearness allowance or dearness pay unless it enters into the computation of superannuation or retirement benefits of the employee concerned;
    • employers contribution to the provident fund account of the employee;
    • allowances which are exempted from payment of tax;
    • the value of perquisites specified in clause (2) of section 17 of the Income-tax Act;
    • any payment or expenditure specifically excluded under proviso to sub-clause (iii) of clause (2) or proviso to clause (2) of section 17;
    • lump-sum payments received at the time of termination of service or superannuation or voluntary retirement, like gratuity, severance pay, leave encashment, voluntary retrenchment benefits, commutation of pension and similar payments;
  • maximum outstanding monthly balance means the aggregate outstanding balance for each loan as on the last day of each month.
  • Specified Employee

    The following employees are deemed as specified employees:

    1. A director-employee
    2. An employee who has substantial interest (i.e. beneficial owner of equity shares carrying 20% or more voting power) in the employer-company
    3. An employee whose monetary income* under the salary exceeds Rs.50,000.
    *Monetary Income means Income chargeable under the salary but excluding perquisite value of all non-monetary perquisites.

Disclaimer:

All efforts are made to keep the content of this site correct and up-to-date. But, this site does not make any claim regarding the information provided on its pages as correct and up-to-date. The contents of this site cannot be treated or interpreted as a statement of law. In case, any loss or damage is caused to any person due to his/her treating or interpreting the contents of this site or any part thereof as correct, complete and up-to-date statement of law out of ignorance or otherwise, this site will not be liable in any manner whatsoever for such loss or damage.

The visitors may visit the web site of Income Tax Department for resolving their doubts or for clarifications.

Popular Content