How perquisites are taxed

Has your employer given you a car ? Do you live in an apartment provided by your company? Watch out! These privileges or perquisites (popularly known as “perks”) may be taxable in your hands.

Perks are benefits or privileges that are provided in addition to the regular salary and allowances.

Perks maybe provided directly or indirectly by the employer and could be reimbursements such as reimbursement of fuel/medical/telephone expenses or facilities such as motor –car, domestic help and equity incentives like stock options, etc.

Perks are taxed at the cost incurred by the employer or at concessional values. Certain perks like reimbursement of telephone expenses are fully exempt from tax as per the tax laws.

Let us look at a few common perquisites and the taxability of the same:

Cars

Taxability here depends on one, whether the motor car is owned or hired by the employer or employee; and two, on whether the car has been used wholly and exclusively for official purposes or whether the same has been used partly for official purposes and partly for personal purposes.

In respect of cars which have been used wholly and exclusively for official purposes there will be no perquisite valuation. For employer provided cars used partly for official purposes and partly for personal purposes, the taxability will be as follows:

Small cars below 1.6 litres will have a perquisite value of Rs 1,800 a month while cars with engine capacity above 1.6 litre cubic capacity will have a perquisite value of Rs 2,400 a month, if expenses on maintenance and running are reimbursed by the employer.

Company leased accommodation

If the company provides you with a rent-free accommodation, the taxability in your hands will depend on whether the accommodation is owned by the employer, taken on rent or leased by the employer (being furnished or unfurnished accommodation) or whether the accommodation is provided in a hotel.

The perquisite valuation of rent-free accommodation where it is owned by the employer will be 15 per cent of salary in cities where population exceeds 25 lakh, 10 per cent of salary in cities where population exceeds 10 lakh but is below 25 lakh and 7.5 per cent of salary in other cases.

Where accommodation is taken on lease by the employer, the perquisite value shall be actual lease rental paid by the employer or 15 per cent of salary whichever is lower, reducing any amount actually paid by the employee. Where the accommodation is provided in excess of 15 days in a hotel/ guest house/ service apartment etc, the perquisite value shall be 24 per cent of salary or the actual charges paid to the hotel as accommodation reducing any amount paid by the employee.

Stock Options

Granting of equity / RSUs (Restricted Stock Units) are a common mode of rewarding the employees. The fair market value ('FMV') as on the date of exercise (vesting for a RSU) less amount recovered from the employee will be taxable in the hands of the employees as a perquisite. The difference between sale price and FMV which has been taken into account for the purpose of calculation of perquisite value will be taxable as capital gains in the employee’s hands.

Other perquisites

Medical expenditure incurred or reimbursed by the employer will not be chargeable to tax up to Rs 15,000. Any amount incurred or reimbursed in excess of the limit prescribed will be treated as a perquisite in the hands of the employees.

Some of the perquisites such as provision of domestic servant, gas , water and electricity are taxable in the hands of the employee on an actual basis. For credit cards and club memberships, expenses incurred for purpose other than official is taxable.

( The writer is Director, Tax and Regulatory Services, PwC.)

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