In India, perquisites are the fringe benefits or amenities an employer provides their employees over and above their regular salary. There are several types of perquisites in the income tax catalogue, some of which can be taxable or non-taxable, depending on their nature and value. This is not the case, as both are financial entities with varying tax implications. Let us help clarify the concept and give you a better grasp of the perquisites of income tax.
Perquisites can be in the form of cash or non-cash benefits and can include accommodation, company or self-owned vehicles, stock options, club memberships, medical reimbursements, subscriptions to periodicals, etc. The value of the perquisite is calculated based on the cost incurred by the employer and is governed by the rules stipulated in the Perquisites Section 17(2) of the Income Tax Act, 1961.
Perquisites can be classified into two types: taxable and non-taxable perquisites. Non-taxable perquisites are exempted from tax, while tax is levied on taxable perquisites.
Here are some examples of perquisites that do not have any tax liability associated with them.
Well, calculated may not be the best term for this. ‘Valued’ might be a more appropriate term here. Typically, the value of a perquisite is calculated based on its actual cost to the employer or its deemed value for the beneficiary and under the governance of the rules provided by the Income Tax Act. After that, the value of the said perquisites is added to the employee's salary and taxed at the applicable rate.
Let’s understand this better using an example. Let us assume that your company provides you with rent-free accommodation. In such a case, the value of this perquisite is calculated as the actual rent paid by your employer or 15% of your salary, whichever is lower. This value is then added to your cost to the company (CTC) and taxed as per your income bracket and the tax regime you have opted for.
Another example can be that your company bears the cost of your personal/domestic staff, such as a driver, sweeper, gardener, watchman, or caretaker. For these perquisites, the calculated value will be the actual costs incurred by your employer minus any sum you may have paid out of your pocket.
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It is the employer's responsibility to calculate the value of the perquisite, deduct the perquisite tax from the employee's salary and deposit it with the government on behalf of the employee.
Yes, perquisites are part of an employer's Cost to Company (CTC) package. The CTC is the total cost that an employer incurs in hiring an employee and includes not only the employee's salary but also various other costs, including perquisites. Do note, though, that while perquisites are included in the CTC, the value of these benefits may not be fully realised by you, perquisites are subject to taxation under the Income Tax Act, which reduces your actual take-home salary.
Several perquisites are considered taxable and are required to be included in an employee's income for income tax. The five most common ones are:
Although an employer, allowances and perquisites provide, both benefits are treated separately. An allowance is the amount the employer pays to cover specific expenses related to the employee’s work. Allowances are usually paid regularly and are included in the employee's salary. Examples of allowances include travel allowance, meal allowance, medical allowance, and house rent allowance. Perquisites are fringe, non-cash benefits an employer provides to an employee in addition to their regular salary.