IPCC Paper 4 Taxation Chapter 4 – Part 3

Adv. Ajay Malchand Sharma

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Term Perquisite indicates benefits or amenities in cash or kind provided to employee.

The perquisites are provided to the employee free or at a concessional rate.

The value of perquisites provided to the employee is regarded as the part of taxable salary.

Perquisites are legal rights of the employee.

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Perquisites must be authorised by the employer.

Once any amenity or facility is provided it becomes taxable in the hands of the employee whether he uses it or not.

Reimbursement of expenses to the employee is not a perquisite.

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The value of rent free accommodation provided by the employer.

Value of concession in the rent for accommodation provided by the employer.

Any sum paid by the employer in respect of the obligation which in fact is payable by the employee.

Sums paid by the employer to effect an assurance of the life of the employee.

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The value of specified security or sweat equity share allotted free of cost or at concessional rate to the employee.

The amount of contribution to an approved superannuation fund by the employer exceeding Rs.1,00,000.

The value of any prescribed fringe benefit or amenity as may be provided by employer.

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• Director employee • Employee having substantial

interest in the company • If the salary exceeds Rs.50,000

is a specified Employee

Who is Specified Employee: Section 17(iii)

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Type of accommodation owned by the employer provided to the Employee

Value of Perquisite

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Case 1: (Accommodation is owned by employer) (Private sector Employees)

Accommodation provided in cities having population exceeding 25 Lakh

15% of Salary

Accommodation provided in cities having population between 10 Lakh to 25 Lakh

10% of Salary

Accommodation provided in cities having population up to 10 Lakh

7.5% of Salary

Type of accommodation is taken on lease by the employer provided to the Employee

Value of Perquisite

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Case 2: (Accommodation is taken on lease by employer) (Private sector Employees)

Accommodation provided in cities having population exceeding 25 Lakh

15% of Salary or lease rent payable by employer whichever is lower.

Accommodation provided in cities having population between 10 Lakh to 25 Lakh

15% of Salary or lease rent payable by employer whichever is lower.

Accommodation provided in cities having population up to 10 Lakh

15% of Salary or lease rent payable by employer whichever is lower.

Type of accommodation owned by the Government provided to the Employee

Value of Perquisite

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Case 3: (Accommodation is owned by Government) (Government Employees)

Accommodation provided in cities having population exceeding 25 Lakh

15% of Salary

Accommodation provided in cities having population between 10 Lakh to 25 Lakh

10% of Salary

Accommodation provided in cities having population up to 10 Lakh

7.5% of Salary

Type of accommodation taken on lease by the Government provided to the Employee

Value of Perquisite

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Case 4: Furnished accommodation taken on lease by the Government for its Employee

Accommodation provided in cities having population exceeding 25 Lakh

15% of Salary or lease rent payable by employer whichever is lower

Accommodation provided in cities having population between 10 Lakh to 25 Lakh

15% of Salary or lease rent payable by employer whichever is lower

Accommodation provided in cities having population up to 10 Lakh

15% of Salary or lease rent payable by employer whichever is lower

Government Employee where the accommodation is unfurnished the value of the perquisite shall be license fees determined by the Union Government or State Government

Case 5:

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In Respect of Furnished Accommodation both Government and Private Sector Employees

Furnished rent free accommodation provided by the employer shall further be increased to the extent of 10% of the cost of furniture

Furniture includes T.V, Radio, refrigerators, other house hold appliances, air conditioner or gadgets

W.D.V. of the furniture shall not be considered.

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• Hire charges of furniture shall be perquisites if the same is taken on hire by employer.

In respect of furnished

accommodation both

Government and Private

sector Employees

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• Concessional rent concept is not applicable to Government Employees under section 17(ii).

In respect of Concessional rent to the government Employees under section 17(ii)

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Type of accommodation owned by the

employer provided to the Employee

Value of Perquisite

• Accommodation provided in cities having population exceeding 25 Lakh

• Accommodation provided in cities having population between 10 Lakh to 25 Lakh

• Accommodation provided in cities having population up to 10 Lakh

• 15% of Salary less rent recoverable from employee

• 10% of Salary less rent recoverable from employee

• 7.5% of Salary less rent recoverable from employee

Accommodation taken on lease by Employer

Rent paid by the employer or 15% of salary whichever is lower less rent recoverable from Employee

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Basic Salary

Taxable Allowances

Bonus

Commission

D.A forming part of Retirement Benefits

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D.A not forming part of Retirement Benefits

Employer’s contribution to P.F account of Employee

Exempt Allowances

Value of perquisites u/s. 17(2)

Medical expenses or medical insurance premium to the extent excluded under first proviso to section 17(2)

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Mr. X is a Manager in a Ltd Company. The company has provided him a rent free accommodation in Mumbai. He gives you the following particulars for the previous year ending 31st March 2013.

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Basic Salary Rs.10,000 PM

Advance salary for April and May 2013 Rs.20,000 PM

Dearness Allowance

Rs.4000 PM(40% is for retirement benefits)

Bonus Rs.2000 PM

Even though the company allotted the house to him on 1.4.2012 , he occupied the same only from 1.1.2013.

Calculate the taxable value of the perquisite for assessment year 2013-2014

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Basic salary Rs.10,000 for 3 months =Rs.30,000

Dearness Allowance (Rs.4,000 x40%= Rs.1600 x 3 months) =Rs.4,800 Bonus (Rs.2,000 x 3 months) =Rs. 6,000

……………………… Rs. 40,800

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15% of Rs.40,800 = Rs.6120 is

taxable perquisite in respect of the

rent free unfurnished

house.

Note : since Mr. X occupies the

house only from 1.1.2013 we have

to include the salary due to him only in respect of the months during

which he has occupied the

accommodation.

Therefore the salary for three

months only shall be considered for

calculation of perquisite.

Advance salary shall not be

considered as the same does not fall in previous

year 1.4.2012 to 31.03.2013.

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Mr. P is a Manager in ABC Ltd. The company has provided him a rent free accommodation in Mumbai. He gives you the following particulars for the previous year ending 31st March 2013.

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Basic Salary Rs.15,000 PM

Advance salary for April and May 2013

Rs.20,000 PM

Dearness Allowance

Rs.6000 PM(40% is for retirement benefits)

Bonus Rs.3000 PM

Other Taxable Allowances Rs. 1000PM

The company allotted the house to him on 1.4.2012 . He is required to pay a rent of Rs. 2000 PM to the company for the use of the accommodation.

Calculate the taxable value of the perquisite for assessment year 2013-2014

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Basic salary Rs.15,000 for 12 months = Rs. 1,80,000

Dearness Allowance (Rs.6000x12x40%) = Rs.

28,800 Bonus (Rs.3,000 x 12 months) = Rs.

36,000 Other taxable allowance = Rs.

12,000

……………… Rs. 2,56,800 15% of 2,56,800 = Rs.

38 520 25

Mr. S is a Manager in a Ltd Company. The company has provided him a rent free accommodation in Mumbai. He gives you the following particulars for the previous year ending 31st March 2013.

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Basic Salary Rs.20,000 PM

Advance salary for April and May 2013

Rs.60,000 PM

Dearness Allowance Rs.6000 PM(60% is for retirement benefits)

Bonus Rs.2000 PM

Taxable Children Allowances Rs. 5000 P.A.

Since the company does not own a house, it has taken the same for Mr. S on lease and paid rent of Rs.3,000 p.m. Mr. S is required to pay Rs.1,500 to the company for the use of accommodation which allotted to him on 1.4.2012 .

Calculate the taxable value of the perquisite for assessment year 2013-2014.

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Basic salary = Rs. 2,40,000 Dearness Allowance (Rs.6000x12x60%) = Rs. 43,200 Bonus = Rs. 24,000 Other taxable allowance = Rs. 5,000 ……………… Rs. 3,12,200 15% of 3,12,200 = Rs. 46,830..(1) Rent Paid by the Company for House = Rs. 36,000..(2) Calculation of the perquisite: The Lower of the two is = Rs. 36,000 Less: Rent Recovered from Employee = Rs. 18,000 ………….. Value of perquisits = Rs. 18,000

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Mr. G is a Manager in Z Ltd. The company has provided him a rent free accommodation in Mumbai. It has also provided a television on 1.12.2012 whose WDV is at Rs.10,000 and cost is Rs.30,000.

The company has also provided one air-conditioner which was taken by it on rent. The rent paid for the air conditioner is Rs.800 PM by the company.

He further gives you the following particulars for the previous year ending 31st March 2013.

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Basic Salary Rs.15,000PM

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•The company allotted the house to him on 1.4.2012.He is required to pay a rent of Rs.1000PM to the company for the use of the accommodation. • Calculate the taxable value of the perquisite for assessment year 2013-2014

Advance salary for April and May 2013

Rs.20,000 PM

Dearness Allowance

Rs.6000 PM(40% is for retirement benefits)

Bonus Rs.3000 PM

Other Taxable Allowances Rs.1000PM

Basic salary = Rs. 1,80,000

Dearness Allowance (Rs.6000x12x40%) = Rs.

28,800 Bonus = Rs. 36,000 Other taxable allowance = Rs.

12,000 ………………… Rs. 2,56,800 15% of 2,56,800 = Rs.

38,520..(1) Add: Value of furniture provided (30000 10% 4 +800 12 12000+9600) R

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Valuation of benefit of provision of domestic servant / sweeper /Gardner/ /watchman/personal attendant shall be the actual cost to the employer.

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Valuation of gas, electricity, water shall be the manufacturing cost.

If any amount is recovered from the employee the same shall be reduced from the perquisite value.

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The sum equal to the amount incurred by the employer in the case of all employees whether specified employee or not.

If the educational institute is maintained and owned by the employer the perquisite shall be the actual fees charged in the similar institute.

If the educational institute is owned and maintained by the employer and no education fees is charged there will be no perquisite to the extent of Rs.1000 PM.

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The interest saved shall be treated as perquisite to the extent of interest rates charged by State Bank per annum from first day of the relevant previous year on the maximum outstanding balance on the last day of every month.

Interest free loan aggregate up to Rs.20,000 is not perquisite.

Interest free loan for specified Diseases shall not be treated as perquisite.

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Free concession food and non: Alcoholic beverages: Rule 3(7)(iii)

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Cash Gift of any amount shall always be treated as salary.

It shall be treated as perquisite if the value of the gift in kind is more than Rs.5000

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Amount paid by the employee shall be reduced from such perquisite.

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The value of benefit provided by employer for club facility for employee and his household.

Club facility used for official purposes.

Initial fees paid by the employer to acquire the perquisite shall not be a perquisite

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Motor car provided by employer for official purposes.

Motor car provided by employer for personal purposes.(Expenses + Chauffeur + Normal ware & tare )

Motor car and services of chauffeur provided by employer: Car is used for official and personal purposes.( Big car v/s. Small car)

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Assets Given Value of Benefit

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Use of laptop and computers Nil

Other assets 10% p.a. of actual cost of the assets.

Other assets taken on hire by employer

Hire charges or rent paid by the Employer.

Assets Transferred Value of Perquisites

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Motor cars Depreciated value of the car which is computed @ 20% on WDV for each completed year of usage

Any other assets Depreciated value of the assets which is computed @ 10% on SLM for each completed year of usage

Completed year The use of the asset shall be treated as perquisite only if such use is one year . If the use is less than a year then there is np perquisite for the use of such asset. Use in fraction of the year shall be ignored..

Medical treatment provided in a hospital maintained by Employer.

Expenses incurred by employer on medical treatment provided in Government Hospitals or Municipal Hospitals.

Expenses incurred by employer for the prescribed diseases in hospital approved by Chief Commissioner of Income Tax.

Expenses incurred by employer on medical treatment to the extent of Rs.15,000.

Medical Expenses are not treated as perquisite to the extent of above specifications.

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The fair market value of equity shares or specified securities on the date of exercise of the options shall be considered as perquisites.

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The value of benefit provided by employer for club facility for employee and his household.

Club facility used for official purposes.

Initial fees paid by the employer to acquire the perquisite shall not be a perquisite

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Telephone provided by employer at residence.

Goods sold by employer at concessional rates.

Transport facilities provided by employer engaged in business of carrying of passengers

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Privileged passes granted by Indian Railways to its Employees.

Perquisites allowed outside India by Government to Indian citizens who is the Employee.

Sums payable by employer to a RPF, Super Annulations Fund.

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Contribution by employer to staff group insurance schemes.

Leave travel concession.

Premium on personal accident policy.

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Refreshment provided during working hours in office.

Subsidized lunch or dinner.

Recreational facilities.

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Training of the Employee.

Medical facilities up to prescribed limits.

Rent free official residence to judge of a high court or Supreme Court.

Sports facilities provided by the employer.

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