TAXATION OF PERQUISITES
DECEMBER 2009
Preamble:
The Central Board of Direct Taxes on 18.12.2009 notified the rules for valuation of perquisites (vide notification No. 94 dated 18.12.2009). Hitherto, the Finance Act (No.
2), 2009 had abolished the Fringe Benefit Tax with effect from 1st April, 2009 and introduced tax on specified fringe benefits in the hands of the employees as perquisites.
However, the rules for the valuation of the perquisites were yet to be notified. This Communiqué outlines the valuation mechanism prescribed therein.
Valuation of Perquisites:
Perquisite
Taxable Valuation Mechanism
Remarks
15% of salary. Applicable in cities having population
exceeding 25 Lakhs as per 2001 census. E.g. Delhi, Bombay,
Calcutta, Madras, Bangalore, Hyderabad
10% of salary. Applicable in cities having population
exceeding 10 Lakhs but not exceeding 25 Lakhs as per 2001
census. E.g. Jaipur, Agra, Lucknow
7.5% of salary - in other areas
Salary should be in respect of the period during
which the said accommodation was occupied
Amount of lease rent paid or payable or 15% of salary
whichever is lower
Any amount recovered from the employee shall be
reduced from the value of perquisite.
RENT FREE ACCOMMODATION:
Accommodation owned by the employer
Accommodation rented/ leased by the
employer
In case of a furnished accommodation the value of
perquisite as determined in either cases will be
increased by 10% per annum of the cost of the
furniture or actual hire charges if brought on hire
Salary for this purpose includes basic, bonus,
commission, fee, all other taxable allowances and
monetary payments by what ever name called. But
excludes, employer's contribution to PF, all
allowances which are exempt from tax and value of
perquisites
TAXATION OF PERQUISITES
DECEMBER 2009
Perquisite
Taxable Valuation Mechanism
Remarks
MOTOR CAR
Car is owned or hired by the employer:
Used exclusively for the personal purposes
of
the
employee. Running and
maintenance cost is borne by the
employer
Actual amount of expenditure incurred or reimbursed
Salary of the chauffeur.
Further increased by 10% per annum of the actual cost of
the car towards the wear and tear of the car
Used partly for official purpose and partly
for personal purposes of the employee.
Running and maintenance cost is borne by
the employer
If cubic capacity of the motor car exceeds 1.6 litres then
Rs.2,400/- per month
If cubic capacity of the motor car does not exceed 1.6 litres
then Rs.1,800/- per month
Rs.900/- per month for the chauffeur.
Used partly for official purpose and partly
for personal purposes of the employee
Running and maintenance cost is borne by
the employee.
If cubic capacity of the motor car exceeds 1.6 litres then
Rs.900/- per month
If cubic capacity of the motor car does not exceed 1.6 litres
then Rs.600/- per month
Rs.900/- for the chauffeur if it’s provided by the employer
Car is owned by the employee:
Used partly for official purpose and partly
for personal purposes of the employee.
Employer reimburses the running and
maintenance charges including the salary
of the chauffeur
Actual amount of expenditure incurred by the employer
reduced by:
If cubic capacity of the motor car exceeds 1.6 litres then
Rs.2,400/- per month
If cubic capacity of the motor car does not exceed 1.6 litres
then Rs.1,800/- per month
Rs.900/- for the chauffeur.
Employee can claim that amount attributable to
official use is higher than the stipulated amount or
is wholly for official purposes and should not trigger
a perquisite. In such case complete details (date,
destination, mileage) of the journey for official use
has to be maintained and the employer should
issue a certificate in that relation.
TAXATION OF PERQUISITES
DECEMBER 2009
Perquisite
Taxable Valuation Mechanism
Remarks
Actual amount of expenditure incurred by the employer
reduced by an amount of Rs.900/- per month
Employee can claim that amount attributable to official
use is higher than the stipulated amount or is wholly
for official purposes and should not trigger a
perquisite. In such case complete details (date,
destination, mileage) of the journey for official use has
to be maintained and the employer should issue a
certificate in that relation.
TELEPHONE / MOBILE REIMBURSEMENTS
Not a taxable perquisite
The bill should be in the name of the employee and
business expediency needs to be established.
Use of any MOVABLE ASSETS OTHER THAN
10% per annum of the actual cost of such asset reduced by
any amount recovered from employees.
In case of rented asset the rent will be treated as perquisite
Use of Computers / Laptop is not a taxable perquisite
Computers and electronic items is valued at actual cost less
depreciation @ 50%
Car is valued at actual cost less depreciation @ 20%
Value of other assets is valued at actual cost to the
employer less depreciation @10%
If any amount is recovered from the employee, that should
be reduced from the perquisite value
Depreciation to be computed on reducing balance
method for each completed year during which the
asset was put to use by the employer for computers
and electronic items and motor cars. Depreciation on
other assets will be calculated @ 10% of actual cost for
each completed year of use.
Not taxable to the extent provided at office or business premise
or through a lunch coupon and value does not exceed Rs.50/per meal.
Lunch coupons should be non-transferable and
usable only at eating joints.
No threshold limit for meals provided in a remote
area or an off-shore installation
ANY OTHER AUTOMOTIVE (TWO WHEELER)
Owned by the employee and the running
and maintenance cost is reimbursed by the
employer and used by the employee partly
for official purposes and partly for personal
purposes.
COMPUTERS/LAPTOPS
Transfer of ownership of movable asset
owned by employer - LAPTOP/CAR/OTHER
MOVABLE ASSETS
Provision of FREE FOOD OR NON-ALCOHOLIC
BEVERAGES (Lunch coupons )
TAXATION OF PERQUISITES
DECEMBER 2009
Perquisite
Taxable Valuation Mechanism
Remarks
The actual value of the gift. No perquisite will arise if the value
of the gift is below Rs.5,000/- in aggregate for the year.
GIFTS
CLUB FACILITY
Employer have corporate
membership
Employer does not have corporate
membership and employer pay for
the club facility for its employee.
Actual amount of expenditure incurred or reimbursed by
employer as reduced by the amount paid or recovered from the
employee
All expenditure including the membership fee incurred or
reimbursed by the employer as reduced by the amount paid or
recovered from the employee
Amount paid for acquiring the corporate
membership will not form part of perquisite
Employee can claim that the entire expense relates
to the official purpose and in such case the
complete details (date, nature and business
expediency in respect of expenditure is to be
maintained and a certificate to be obtained from
the employer to that effect.
No taxable perquisite for use of health club, sports
and similar facilities provided uniformly to all
employees by the employer
INTEREST FREE OR CONCESSIONAL LOAN
Reimbursements towards PERSONAL TRAVEL
OR HOUSEHOLD OR UTILITY SUPPORT e.g.
personal attendants, gas, electricity, water,
education.
Interest charged by the State Bank of India on the first day of
the previous year in respect of the loans for the same purpose
advance by it on the maximum outstanding monthly balance as
reduced by interest if any actually paid by the employee.
Actual expenditure incurred by the employer as reduced by the
amount paid or recovered from the employee.
Not applicable if the loan amount does not exceed
Rs.20,000/- or
Loan is taken for the medical treatment specified in
Rule 3A.
TAXATION OF PERQUISITES
DECEMBER 2009
Perquisite
EMPLOYEE
shares
STOCK OPTION and sweat equity
Taxable Valuation Mechanism
Remarks
Perquisite value: ‘Fair market value’ of the specified security
or sweat equity shares on the date of exercise of option by the
employee as reduced by the amount paid if any.
In the case of the company not listed, the valuation
done by a merchant banker is valid for 180 days from
the date of the valuation and the same valuation can
be used for valuing the shares exercised within 180
days from such valuation date.
Rule 3(8) of the notification prescribes determination of the fair
market value.
In the case of listed company - average of the opening and
closing price of the share on the date of exercise.
In case the shares are listed in more than one stock exchange
on such date, the fair market value in such case will be average
of the opening and closing price of the share on the stock
exchange that records the highest volume of trading in the
share.
If there is no trading on such date, then closing price of such
share on date closest to date of exercise and immediately
preceding such date or the closing price of the share which
records the highest volume of trading on the date closest to the
date of exercising the option and immediately preceding such
date where shares are listed in more than one stock exchange.
In the case of company not listed, fair market value is as
determined by a merchant banker on the date of exercise of
the option or date earlier than date of exercise of option but
not exceeding 180 days
The fair market value of the specified security other than equity
share on the date of the exercise by the employee will be value
as determined by a merchant banker. This is applicable for both
listed and unlisted companies.
TAXATION OF PERQUISITES
DECEMBER 2009
Key Action Points:
The introduction of the perquisite valuation rules with effect from 1st April 2009 would mean that the employer needs to re-assess the
withholding tax on salaries for the employees for the current financial year and adjust the shortfall/excess in the remaining four months
(December to March) of the financial year.
The documentation emphasis for substantiating that the select expenditure is for official purposes and the associated certificate from the
employer triggers a need to build a robust process internally with appropriate expense authorisation protocols and policy for supportings.
***
The views expressed and the information provided in this communiqué are of general nature and is not intended to address the circumstances of any particular individual or entity. The above content should neither be
regarded as comprehensive nor sufficient for making decisions. No one should act on the information or views provided in this publication without appropriate professional advise. It should be noted that no assurance is
given for any loss arising from any actions taken or to be taken or not taken by anyone based on this publication. This is meant for private circulation only.
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