Tax Saving

• Rent-free unfurnished accommodation provided to Central and State Government employees

License Fees determined in accordance with rules framed by Government for allotment of houses shall be deemed to be the taxable value of perquisites.

• Unfurnished rent-free accommodation provided to other employees

The taxable value of perquisites

A. If House Property is owned by the employer:

i. 15% of salary, if the population of the city where accommodation is provided exceeds 25 lakhs as per 2001 census

ii. 10% of salary, if the population of the city where accommodation is provided exceeds 10 lakhs but does not exceed 25 lakhs as per 2001 census

iii. 7.5% of salary, if accommodation is provided in any other city

B. If House Property is taken on lease or rent by the employer, the perquisite value shall be :

i. Lease rent paid or payable by the employer or 15% of the salary, whichever is lower

*Salary includes:

a) Basic Pay

b) Dearness Allowance (only to the extent it forms part of retirement benefit salary)

c) Bonus

d) Commission

e) All other allowances (only taxable portion)

f) Any monetary payment which is chargeable to tax

But does not include

i. Value of any perquisite [under section 17(2)]

ii. Employer’s contribution to PF

iii. Benefits received at the time of retirement like gratuity, pension etc.

Note:

1) Rent-free accommodation is not chargeable to tax if provided to an employee working at a mining site or an on-shore oil exploration site, etc.,—

(i) which is being of temporary nature (subject to conditions)

(ii) which is located in a remote area.

2) Rent-free accommodation is 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 Perquisites.

3) The value so determined shall be reduced by the amount of rent, if any, paid by the employee.

4) If an employee is transferred and retain property at both the places, the taxable value of perquisites for an 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, the taxable value of perquisites shall be charged with reference to both the accommodations.

• Rent-free furnished accommodation

The taxable value of perquisites

a) Find out the taxable value of perquisite assuming accommodation to be provided to the employee is unfurnished

b) Add 10% of the original cost of furniture and fixtures (if these are owned by the employer) or actual higher charges paid or payable (if these are taken on rent by the employer).

Note: The value so determined shall be reduced by the amount of rent, if any, paid by the employee

• Furnished accommodation in a Hotel

The taxable value of perquisites

Value of perquisite shall be lower of the following:

a) Actual charges paid or payable by the employer to such hotel

b) 24% of salary

Note: Hotel accommodation will not be chargeable to tax if :

a) It is provided for a total period not exceeding in aggregate 15 days in the financial year; and

b) Such accommodation in the hotel is provided on an employee’s transfer from one place to another place.

• Any sum paid by an employer in respect of any obligation of an employee = Fully Taxable

• Motor Car / Other Conveyance = As per rules

• Services of a domestic servant including sweeper, gardener, watchmen or personal attendant = taxable value of perquisite shall be salary paid or payable by the employer for such services less any amount recovered from the employee.

• Education Facilities = As per rules

• Transport facilities provided by the employer engaged in carriage of passenger or goods (except Airlines or Railways)= Value at which services are offered by the employer to the public less amount recovered from the employee shall be a taxable perquisite

• Amount payable by the employer to effect an insurance on life of employee or to effect a contract for an annuity =Fully Taxable

• ESOP/ Sweat Equity Shares

The taxable value of perquisites

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:

a) In case of listed Shares: Average of opening and closing price as on date of exercise of option (Subject to certain conditions and circumstances)

b) 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.The 

Finance Act, 2020 has deferred the taxation of perquisite in case of start-ups from date of allotment to the earliest of the following three dates:

1. Expiry of 48 months from the end of the relevant assessment year;

2. Sale of such shares by the employees;

3. Date on which employee ceases to be employee of the start-up.

The eligible start-up shall accordingly, be required to deposit tax with the government within 14 days of the happening of any of the above events (whichever is earlier).

However, 17(2)(vi) has not been amended, thus the income shall be computed in the year in which shares are allotted but tax shall be paid in subsequent year.

• Supply of gas, electricity or water for household purposes 

The taxable value of perquisites:

1. Manufacturing cost per unit incurred by the employer., if provided from resources owned by the employer;

2. Amount paid by the employer, if purchased by the employer from outside agency

• Interest-free loan or Loan at concessional rate of interest

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 the 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 the rate of interest charged by the SBI as on the first day of the 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 point 1) at the rate of interest (given in point 2)

4. Interest actually recovered, if any, from employee

5. The balance amount (point 3-point 4) is the taxable value of perquisite

Nothing is taxable if:

a) Loan in aggregate does not exceed Rs 20,000

b) The loan is provided for treatment of specified diseases (Rule 3A) like neurological diseases, Cancer, AIDS, Chronic renal failure, Hemophilia (specified diseases). However, the exemption is not applicable to so much of the loan as has been reimbursed to the employee under any medical insurance scheme.

• Employer’s contribution towards superannuation fund 

Taxable in the hands of employee to the extent such contribution exceeds Rs.1,50,000

• The facility of travelling, touring and accommodation availed of by the employee or any member of his household for any holiday

a) Prerequisite value taxable in the hands of an employee shall be expenditure incurred by the employer less amount recovered from employee.

b) 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 less amount recovered from the employee.

• Free food and beverages provided to the employee

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

a) Food and non-alcoholic beverages provided during working hours in a remote area or in an offshore installation;

b) Tea, Coffee or Non-Alcoholic beverages and Snacks during working hours are tax-free perquisites;

c) Food in office premises or through non-transferable paid vouchers usable only at eating joints provided by an employer is not taxable, if the cost to the employer is Rs. 50(or less) per meal.

• Gift or Voucher or Coupon on ceremonial occasions or otherwise provided to the employee

a) Gifts in cash or convertible into money (like gift cheque) are fully taxable

b) A gift in kind up to Rs.5,000 in aggregate per annum would be exempt, beyond which it would be taxable.

• Credit Card

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

• Free Recreation/ Club Facilities

a) 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

b) Expenses incurred on club facilities for the official purposes are exempt from tax.

c) Use of health club, sports and similar facilities provided uniformly to all employees shall be exempt from tax.

• Use of movable assets of the employer by the employee is a taxable perquisite

Taxable value of perquisites

a) Use of Laptops and Computers: Nil

b) 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.

• Transfer of movable assets by an employer to its employee

The taxable value of perquisites

a) 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

b) 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

c) 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.

• Any other benefit or amenity extended by employer to employee

The 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.

• Tax paid by the employer on perquisites (not provided for by way of monetary payments) given to employee = Fully exempt

• Medical facilities in India

1) The 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:

a)  Hospital maintained by the employer.

b)  Hospital maintained by the Government or Local Authority or any other hospital approved by Central Government

c)  Hospital approved by the Chief Commissioner having regard to the prescribed guidelines for the treatment of the prescribed diseases.

2) A medical insurance premium paid or reimbursed by the employer is not chargeable to tax.

However, the medical facility is taxable only in the case of Specified Employees

• Medical facilities outside India

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):

a) Expenses on medical treatment - exempt to the extent permitted by RBI.

b) Expenses on stay abroad for the patient and one attendant - exempt to the extent permitted by RBI.

c) Cost on the travel of the employee or any family or one attendant - exempt, if Gross Total Income (before including the travel expenditure) of the employee, does not exceed Rs. 2,00,000.