If there are any benefits in addition to your salary that you obtain from your employer and if you are worried about the taxation of such benefits, then this content might give you an idea on what these Perquisites (benefits) are and how they are taxed in India.
Perquisite is actually a form of profit that an employee obtains from his/her employer apart from the salary or wages that he/she gains. As per the income tax department of India, this beneficial addition can be in the form of a cost free or reduced price accommodation provided by the employer, in the form of a service used or product purchased by the employee for which the employer pays the full amount or part amount, any equity or other form of security provided to the employee from the employer at a concessional price or free of cost.
There was a period when this benefit was taxed in the hands of employer in the name of ‘fringe benefit tax’. Now as ‘perquisite’, it taxed in the hands of the receiver who is the employee. The value of the benefit received as perquisite is considered to be a form of income and is added with the salary and taxed.
Categories and valuation of Perquisites for taxation:-
The valuation of each type of benefit is made as per the rules of income tax act. First the employer is categorized into one of the two categories. Further the taxation is made as per the rules in income tax act. One category contains a company or a firm, a local body, Association of Persons or Body of Individuals. Another category contains government companies, sole proprietor companies, Hindu Undivided Family etc.
Accommodation provided by government companies to employees irrespective of state or central government the tax is paid by the government organization which is the employer. For private firms the perquisite tax for this benefit is applicable as a percentage of salary based on the city where he/she is accommodated. There are certain exceptions for accommodation in mining areas, oil research areas and also in conditional transfer.
Facilities like sources of energy (gas, electricity) and water if provided or paid by the employer, the tax is charged in the hands of the employee based on the cost per unit of the facility.
The educational facility of the employee’s relative (son/daughter) if provided by the institution owned by the employer or where the expenses of education of the student is taken care of by the employer, the tax as perquisite is applicable in the hand of the employee. There is an exception in this case. If the expense for education does not exceed Rs 1000 per month in other schools in the same locality then this perquisite is tax exempt.
If an employee owns a vehicle (car) and uses it for both personal and official purposes, tax exemption is based on the cubic capacity of the car engine. A car whose engine is less than 1600 CC the amount of tax exemption is Rs 1200 per month and to those having over 1600 CC engine the amount exempt is Rs 1600 per month.
Fringe benefits taxed (FBT) in the hands of employer:-
- 20% of the expenses on telephone or mobile provided to the employee for official purposes is considered as fringe benefit and is taxed in the hands of employer.
- 50% of the expenses on health club facility provided to the employee fall under fringe benefit category.
- 5% of the expenses on travel to foreign countries by the employee from the provided by the employer are considered to be fringe benefit.
The categories mentioned above just give an idea about how perquisites and fringe benefits are categorized. There are many more categories and areas of taxation for both FBT and perquisites. The valuation can change from time to time based on the changes made to tax laws.
Note: As of now FBT has been withdrawn and all perquisites are taxed in hands of employee after giving such slabs of exemption.