Valuation of Perquisites

Perquisite - when taxable/not-taxable

Any casual emolument or benefit attached to an office or position in addition to salary or wages Provided in cash or kind Taxable under the head salary only if
Allowed by an employer to his employee Allowed during the continuance of employment Directly dependent upon service, resulting in personal advantage to an employee Derived by virtue of employers authority

Valuation of rent free Unfurnished accommodation

Accommodation includes a house, flat , farm house or accommodation in hotel, motel, service apartment , guest house, mobile home, ship or other floating structure Employees are divided into 2 categories
Central and State Government employees Value of perquisite = License Fee Private sector employees or other employees

Calculation of salary for the purpose of RFA

Salary = Basic salary + DA + bonus + commission + fee + other taxable allowances + any monetary payments which is chargeable to tax Salary shall be determined on accrual basis

Value of RFA

Central and State Government employee

Private Sector or other employee

Value of perquisite = License fee

Accommodation taken on rent by employer

Accommodation owned by employer

Population > 25 lakh 15% of sal for the period

Population b/w 10-25 lakh 10% of sal for the period

Population <10 lakh

7.5% of sal for the period

Lower of: Amount of lease rent paid or 15% of Salary

Valuation of rent free furnished accommodation

Furnished accommodation (not being in a hotel)

Step 1
Step 2

Value of perquisite on the assumption that the accommodation is unfurnished

Add value of furniture If owned by employer = 10% p.a. of original cost of furniture If hired by employer = actual hire charges paid

Valuation of rent free furnished accommodation

Furnished accommodation in a hotel
Value of perquisite is lower of :
24% of salary for the period during which the accommodation is occupied, or Actual charges paid

Exception: nothing is taxable if the following two conditions are satisfied:

Provided for less than 15 days in aggregate Provided on transfer of employee

If accommodation is provided for more than 15 days, then the perquisite is not taxable for the first 15 days

Valuation of accommodation provided at concessional rent

Step 1: Calculate value of perquisite on the assumption that no rent is charged by the employer
Step 2: Deduct the rent charged by the employer The balancing figure if it is positive is the taxable value of the perquisite

Valuation of free domestic servant

The value of perquisite in respect of services of sweeper, a gardener, a watchman or a personal attendant = actual cost to the employer Where, actual cost is the total amount of salary paid less any amount paid by the employee for such service If the employer provides RFA (owned by employer), expenses of gardener paid by employer are attached to the house, is not taxable separately

Valuation of Free Gas, Electricity or Water Supply

Mode of Valuation Gas, electricity or water supply is purchased by the employer from an outside agency
Amount paid or payable by the employer to the outside agency Recovery from the employee Balancing amount (if it is positive)

Gas, electricity or water supply is supplied by the employer out of own sources
Manufacturing cost per unit incurred by the employer Recovery from the employee Balancing amount (if it is positive)

Cost to the employer

Amount recovered from the employee Taxable value of the perquisite

Valuation of Free Education

Training of employees
Free education and training of the employees not taxable

Fixed Education Allowance

Given in cash by the employer to meet the needs of the education of family members of the employee Exempt from tax to the extent of Rs.100 per month per child (upto max 2 children) Allowance granted to the employee to meet hostel expenditure of children - Tax exempt upto Rs.300 per month per child (upto max 2 children)

Valuation of Free Education

Payment of school fees of employees children
School fess of family members of the employees paid by the employer directly to the school Taxable

Reimbursement of school fees of employees children

Reimbursement of expenditure incurred for the education of family of employee - Taxable

Valuation of Free Education

Education facility in employers institute
Situation Where educational institute is owned and maintained by the employer a) Where education facility is provided to employees children Where cost of education or value of such benefit does not exceed Rs.1000 per month per child (no restriction on number of children) Where such amount exceeds Rs.1000 per month per child NIL Amount Chargeable to tax

Cost of such education in a similar institution in/near locality Rs.1000 per month per child amount paid/recovered from employee Cost of such education in a similar institution in/near locality amount

b) Where educational facility is provided to member of his household (other

Valuation of Free Education

Trust for the benefit of employees children
Contribution made under an educational trust, created for the named children of employees Not Taxable

Valuation of Interest free loan or Concessional rate of interest

Loan given by employer to employee is chargeable on the following basis
Step 1 Find maximum outstanding monthly balance outstanding balance for each loan as on last day of each month Find rate of interest charged by SBI on first day of relevant previous year Calculate interest for entire previous year From total interest calculated deduct interest recovered

Step 2 Step 3 Step 4

Step 5

Balancing amount is taxable

Valuation of Interest free loan or Concessional rate of interest

SBI lending rates are used to calculate the interest When perquisites is not chargeable to tax
If a loan is made available for medical treatment in respect for certain diseases Where the amount of original loan does not exceed in the aggregate Rs.20,000

Valuation of use of movable assets

Mode of Valuation Perquisite in respect of use of movable assets Computer / Laptop or Car Step 1 Find the cost to the employer NIL Any other assets Owned by employer 10% p.a. of actual cost Recovery from the employee Balancing amount (if it is positive) Taken on hire by employer Amount/Rent paid or payable Recovery from the employee Balancing amount (if it is positive)

Step 2 Less: Amount NIL recovered from employee Taxable value of the perquisite (Step 1 Step 2) NIL

Valuation of Movable Assets sold by employer to employee at nominal rates

For such assets, the taxable part is calculated to be the actual cost of the asset as reduced by the cost of normal wear and tear per year of use by the employer Taxable Part = Asset Value (no of yrs of use by employer before sale)*(wear & tear rate) The amount so calculated will further be reduced by the amount, if any, paid by the employee or such member of his household

Valuation of Movable Assets sold by employer to employee at nominal rates

The rates of normal wear and tear per year are as specified below:
Electronic items/computers 50% by reducing balance method Motor Car 20% by reducing balance method Other assets 10% of actual cost

Reducing Balance Method Wear and tear for successive years is applied to the reduced value of the asset (not the initial value)

Valuation of Motor Car

(i) Where car is owned by Employee:Situation (a) Car expenses met by employee (b) Running & maintenance expense Used wholly for official purpose Used wholly for private purpose Nil if employer maintains complete details of journey and gives Certificate for official use Taxable value= Actual expenditure of employer Value of perquisites from 1/4/01 Not a Perquisites-Not taxable

(ii) Where car is owned or hired by employer:(a) Running & maintenance expense Not a Perquisite-Not taxable Used wholly for official purpose Used wholly for Private purpose Owned by employer Hired by employer

Taxable value=10% p.a of cost of car(+)drivers salary

Taxable value=Hire charges (+) drivers salary

Used partly for official Taxable value= 600 p.m if cc 1.6 litres OR and partly for private 900 p.m if cc 1.6 litrres (+) purpose 900 p.m if chauffer is provided

Used partly for official Taxable value= and partly for private 1800 p.m if cc 1.6 litres OR 2400 p.m if cc 1.6 litrres (+) purpose 900 p.m if chauffer is provided

Valuation of Free Meal /Refreshment

This forms a part of the set of Tax free Perquisites to the employee Not Taxable

Valuation of Credit Card

Credit card facility provided to employee for office use shall be exempted, provided:
details of expenditure are maintained by the employer employee gives a certificate to the effect that the expenditure were incurred wholly and exclusively for the performance of official duty

If used for personal purposes Taxable

expenses including membership and annual fees incurred by the employer shall be taxable in the hands of all employees

Thank You