Perquisites in salary - Types, taxability and calculation

Hello, in this post we will discuss the perquisites in Salary.

We will cover the following:

• What are perquisites in salary?
• Difference between allowance and perquisites
• Types of perquisites
• Benefits
• Taxability of perquisites
  • Tax on perquisites
• Tax free perquisites include
• Calculation of perquisites (or tax)
• FAQs

What are 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

Benefits of Perquisites

Several are the benefits such as,

• It helps to attract talented employees to the organisation.
• Helps to gain employee loyalty towards the organisation.
• It helps to improve productivity

Also, helps to increase the employee retention rate.

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 Income tax return 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 option by their employers. The taxability depends on whether the place is owned, rented or lease.

The tax levied is depicted in the table below.

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.

FAQs

How are perquisites treated for income tax purposes?

If any additional benefits are provided to your employees, then it will be subject to taxation by the government. It includes benefits that are deemed to be provided by the employer. 

Is HRA will be perauisites?

It is an allowance which is already added to the employee’s salary. And exempted from tax to a certain extent as per the IT rules. On the other hand, CLA (Company Leased Accommodation) will be considered a benefit which is provided by the employer to the employee. So, the value of CLA will be taxable for the employee and employees are liable to pay tax on the perquisite value.

How Perquisites can be classified?

Based on the taxability, it is classified into these three categories –

• Taxable perquisites (payable in the hands of the employee)
• Tax-free perquisites (amount already recovered from the employee)

What are Perquisites in CTC?

When an employer provides some amenities or benefits at the concessional rate to the employee, it will said perquisites. Basically, it is a portion of an employee’s CTC or pay structure. 

Related:

• Payroll reimbursement
• Ex-Gratia – A complete guide

This ends the post. Let us know your opinion by commenting below.

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