Perquisites are taxable in the hands of the employee.
However since they are paid in kind, notional monetary the value of the perquisites must be determined in order to get the taxable amount of perquisites. There are some broad principles for determining the method of calculation of value of taxable perquisites. In brief theses principles may be stated as follows:
If the perquisite is entirely for personal benefits, then whatever the employer has spent for providing those perquisites will be added to the salary income of the employee.
If the perquisite is given by employer to employee for official purposes only, then such perquisites are not be treated as taxable perquisites in the hands of employee.
Perquisites which are partly used for personal purposes and partly for official purposes - In such cases a reasonable amount of the value of perquisites which is used for personal purposes only will be added to the salary income of the employee.
Though the actual valuation rule are beyond the scope of the syllabus, general principles for valuation of perquisites may be considered
a. Accommodation & Furniture
Valuation of furnished and unfurnished accommodation is made according to Valuation Rules. If the furnishings are owned by the employer then 10 per cent of the cost will be added to the value of accommodation.
b. Transport
Broadly no perquisite value is taken in the hands of individual employees in three cases:
Common transport is provided for all the employees, e.g. a bus,
If the employer is in the transport business.
If a car is provided only for official use or for the purpose of travel from residence to office
In other cases a reasonable cost of such transport facilities will be treated as taxable value of perquisites in respect of such facilities
If the car has been provided for personal uses only, then the taxable amount is reasonable expenses on the car maintenance plus depreciation on the car as per income tax rules if the car is owned by the employer.
If the car is used for private as well as for official purposes then a reasonable proportion of the above is the valuation of the car perquisite in the hands of the employee.
c. Domestic servant
Salary of domestic servants of employer paid by the employer, perquisite value will be taken as per rules.
d. Gas, water or electricity:
If the employer himself is engaged in the business of providing supply of gas, water, or electricity, then there will not be any taxable perquisite in the hands of the employee in respect of such facilities.
If the employer is not in the business of supply of gas, water or electricity, then the amount spent by the employee in providing the facilities to the employee will be the taxable value of perquisites in the hands of the employee provided the entire facilities are for the personal use of the employees only. Any amount recovered from the employee will be reduced from the perquisite value.
Where the connection for gas, electricity, water supply is in the name of employee and the bills are paid or reimbursed by the employer, it is an obligation of the employee discharged by the employer. Such payment is taxable in case of all employees under Section 17(2)(iv)
e. Educational facilities:
If the employer is a school, college or educational institution, then there will not be any perquisites taxable in the hands of any employee.
If the employer is not a school, college or educational institution, but is engaged in some other business or profession, the value of school fees or colleges fees of the children of the employee paid by the employer will be the taxable value of perquisites in respect if such facility.
If the children of the employee are allowed free education in an institute run by the employer where the employer is engaged in other activities, then the value of the perquisites is reasonable cost of education and deemed by the income tax officer in the hands of specified employees.
f. Medical facilities
A sum of up to Rs 15000 paid by the employer to the employee by way of reimbursement of medical expenses of the employee and his family will be exempt perquisite in the hand of the employee. Any payment made in excess of Rs15000 will be taxable.
If the treatment is made in a government approved hospital or recognized hospital, or in government hospital, then no value will be taken as the perquisite value in respect of such medical treatment reimbursement.
If the medical treatment is done outside India, then up to the amount approved by the RBI for such treatment, no perquisite value will be added to the taxable income of the employee. If payments made by the employer to the employee in this connection exceed the amount approved by the RBI, then such excess will be treated as taxable salary in the hands on of the employee.
If the employer himself is a medical institution, then provision of medical facilities will not attract any tax in the hands of the employee.
In other words if an employer’s own institution provides transport, education or medical facilities , there will be no taxable perquisite value in the hands of the employee.