Perquisites

Perquisites Meaning

Perquisites are extra employee perks or facilities that employers provide to workers in addition to the base pay or remuneration. These may be monetary or non-monetary in nature and are usually provided to enhance job satisfaction and loyalty.

Common examples of perquisites include:

• Rent-free accommodation
• Use of a company car for personal purposes
• Club memberships
• Free meals or refreshments at the workplace
• Employer-paid health insurance premiums

Legal Definition of Perquisites Under Indian Tax Laws

Under Section 17(2) of the Income Tax Act, 1961, perquisites are defined as benefits provided by an employer to an employee in addition to the salary or wages. These benefits are considered part of the employee's income and are taxed accordingly. The valuation rules for perquisites are specified under Rule 3 of the Income Tax Rules.

Different Types of Perquisites

Classification Based on Taxability and Nature

Perquisites vary widely based on the policies of an organization, the seniority level of employees, and the tax treatment prescribed by law. These are typically categorized based on whether they are taxable, partially taxable, or fully exempt.

1. Tax-Free Perquisites

These benefits are exempt from tax under specific conditions:

• Medical insurance premiums paid by the employer
• Provision of laptops or computers for official use
• Free refreshments at the workplace
• Reimbursement of mobile or internet bills for work-related usage

2. Partially Taxable Perquisites

These perquisites are only partially taxed, depending on defined limits:

• Education benefits for children (exempt up to ₹1,000 per month per child for up to two children)
• Gifts or vouchers provided by the employer (exempt up to ₹5,000 annually)

3. Fully Taxable Perquisites

These perquisites are fully added to the employee's taxable income:

• Rent-free housing provided by the employer
• Company vehicle used for both personal and professional purposes
• Interest-free loans exceeding ₹20,000
• Provision of domestic staff such as drivers or cooks

4. Monetary vs. Non-Monetary Perquisites

Monetary Perquisites: These are benefits in the form of cash or equivalents, such as performance bonuses or incentives.

Non-Monetary Perquisites: These include benefits like accommodation, club memberships, and health club facilities.

What is the Difference Between Allowances and Perquisites?

Both allowances and perquisites are part of an employee’s total compensation package, but they are distinct in form and function.

Definition

• Allowances: Fixed amounts paid regularly to meet specific expenses, such as House Rent Allowance (HRA), Travel Allowance, or Medical Allowance.
• Perquisites: Non-cash benefits or services extended by an employer that offer additional value beyond salary.

Examples

• Allowance: HRA, Dearness Allowance, Travel Allowance
• Perquisite: Rent-free housing, company car, club fees

Tax Implications

Allowances may be fully taxable, partially exempt, or completely exempt depending on the type. Perquisites are subject to valuation and taxation as per Rule 3 of the Income Tax Rules.

Mode of Benefit

• Allowances: Typically paid in cash along with the monthly salary.
• Perquisites: Usually provided in kind, though they carry a notional cash value for tax purposes.

Calculation of Taxation on Perquisites Under the Income Tax Act

What Is Perquisite Tax and Who Is Responsible for Paying It?

Perquisite tax refers to the tax liability imposed on the value of non-cash benefits received by an employee. These benefits are treated as part of the employee’s salary for taxation purposes.

Responsibility of the Employee and Employer:

• Employee: Responsible for paying tax on the perquisites received.
• Employer: Must calculate the value of perquisites, report them in Form 16, and deduct Tax Deducted at Source (TDS) accordingly.

Valuation Guidelines for Common Perquisites

The Income Tax Department provides a detailed method for calculating the value of perquisites. Below are a few examples:

Perquisite	Valuation Rule
Rent-Free Accommodation	15% of salary or actual lease value
Use of Company Car	₹1,800 – ₹2,400 per month plus driver cost
Employer-Provided Education	Exempt up to ₹1,000 per month per child
Domestic Help	Full cost added to income
Interest-Free Loans	Calculated based on prevailing SBI interest rate

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