Depending on your employer and the nature of your job, perquisites may be a part of your salary income. However, if you’re like most people, you may believe they are just like allowances. However, the truth is that salary perquisites are quite different from allowances and other benefits.
To clarify this, let’s first define perquisites and then understand what they are with some examples.
Perquisites are any kind of casual emolument or benefit that you may receive from your employer in addition to your regular salary or wages. Section 17(2) of the Income Tax Act, 1961 defines perquisites as including benefits.
As the list above indicates, perquisites in salary are typically paid over and above the regular salary and allowances that you receive. It can be monetary or non-monetary in nature.
Let’s take a closer look at some common examples of perquisites and how they are valued.
This is a common perquisite that may be provided to government and non-government employees by their employers. Depending on your category, this perquisite will be valued as outlined below.
Here, the value of the perquisite will be calculated as per the following formula:
In this case, the value depends on the population of the city in which the accommodation is located. Check out the details below.
If your employer offers you furnished accommodation as a perquisite, the value will be computed in the same manner as outlined above. In addition to that, 10% of the cost of the furniture will be added to the value. Any amount that you pay out of pocket will be deductible.
If the perquisite involves hotel accommodation offered by your employer, the value will be the lower of the following sums:
For these perquisites, the value will be the actual costs incurred by your employer, minus any sum that you may have paid out of pocket for the same.
Here too, the value of the perquisite will be any sum that your employer pays towards these suppliers, set off by any sum recovered for the same from you.
The different perquisites you may receive from your employer can belong to any of the following three categories.
These are perquisites that are fully taxable in the hands of all employees. Some common examples of benefits in this category include accommodation provided by the employer, reimbursement of salary for helpers, reimbursement of gas, water, electricity bill, motor car expenses, etc.
These are perquisites that are not taxable at all. Some examples of such benefits that are exempt from tax include any perquisites allowed outside the country by the government to an Indian citizen for providing services outside India, the rent-free official accommodation provided to judges of the high courts, and other such specified benefits.
These are perquisites that are only taxable when they are paid out to specified employees, as mentioned in the Income Tax Act, 1961.
This sums up the fundamentals of what perquisites are. The examples of perquisites listed and discussed above should offer you more clarity on this. If you receive any kind of perquisites from your employer, you can now better assess whether it is taxable or tax-free.
Different perquisites are taxed in different ways. For instance, some perquisites are taxable for all employees, some are not taxable at all, and some are taxable only in the hands of specified employees.
Based on their taxability, perquisites in salary can be classified as taxable, tax-exempt, or taxable only in the hands of specified employees.
Some perquisites are liable to tax in the hands of employees. A few examples of such perquisites include the value of rent-free accommodation provided by the employer, the value of any concession in rent, the value of stock options or sweat equity allotted to the employee for free or at concessional rates, etc.
There are typically two types of perquisites: taxable perquisites and non-taxable perquisites. Taxable perquisites include benefits like accommodation, vehicle facilities, club memberships, and more. Non-taxable perquisites are those that are specifically exempt from taxation, such as medical reimbursements or certain allowances up to specified limits.
In HRM, examples of perquisites, also known as employee benefits, include health insurance, retirement plans, paid time off (vacation and sick leave), employee discounts, tuition reimbursement, and wellness programs. These benefits are offered to enhance employee satisfaction, attract talent, and promote employee well-being and work-life balance.
