• Feb
  • 07
  • 2013

Income tax Planning in respect of Salary Perquisites

For employees of large Indian and multinational companies, benefits go beyond salaries to include lifestyle perks such as company accommodation or club membership. Growth in business operations and competition for talent are now prompting even mid-sized companies to adopt the HR practices of such large companies. However, with tax regulations constantly evolving, it is not clear whether these perks are tax efficient or not. Certain perks such as company mediclaim, which doesn’t qualify as a lifestyle perk, is a useful benefit offered to employees.Here is a look at some company perks and how they benefit you:

Company lease vs self rent

One has to choose the best option by calculating the net tax benefit.

In case of a company lease, the amount of rent paid by your employer is deducted from your salary and hence your taxable income reduces to that extent.

However, perquisite value of such accommodation is added to your taxable income. Perquisite value is the lower of 1) 15% of taxable salary excluding the value of perquisites; or 2) Actual rent paid by the company.

For a self lease, on the other hand, you can claim HRA exemption. The tax exemption on HRA is computed as the minimum of following three conditions: i) Actual HRA on your pay slip; ii) 40-50% of your basic salary; iii) The rent amount minus 10% of the salary. If you stay in any of the metros (Mumbai, Kolkata, New Delhi or Chennai), HRA is calculated at 50% of your salary. In other cities/towns, HRA is calculated at 40% of the salary.

You have to calculate the net tax benefit under both the options to find which gives you a higher tax saving. “If you are saving more through your HRA claim, then it’s better to opt for a personal accommodation.

On the other hand, despite the addition of perquisite, if the overall taxable income is lowered because of company accommodation, opt for that,” says Vaibhav Sankla, executive director, Adroit. (Refer table).

Driving a company car

If your employer provides you with a car lease option, you should consider availing of the same as it would be a tax efficient option.

In such case, the EMI paid by your employer to the leasing company is deducted from your monthly salary resulting in reduction in your taxable income.

Further, reimbursement of expenses associated with the car (such as driver’s salary, fuel, repairs and maintenance) are also considered as non-taxable.

However, perquisite value of such facility is added to your taxable income. (Refer table). Perquisite value is equal to Rs 1,800 per month if the cubic capacity of car is up to 1,600. For cars with higher cubit capacity, the perquisite value is Rs 2,400 per month. Further, Rs 900 per month is added if a chauffeur facility is also provided.

Lifestyle benefits

Corporate club membership fee paid by your employer to help you join a club is considered a tax exempt perquisite. This facility can be used by the employee or any of his family members.

If the club membership has been taken only for business purposes, you should maintain the details of expenditures such as the date of expenditure, the nature of expenditure and the amount of expenditure. Consequently, the company would provide a certificate stating the same to the employee.

The value of food coupons issued by the employer, redeemable only at eating joints, are exempt from tax as long as the value of the food coupons does not exceed Rs 50 per meal.

Group mediclaim

This is a common benefit offered to employees irrespective of their grade and the premium is less than half of an individual mediclaim.

Most group health insurance products offer wider coverage and they are more lenient than individual policies. There are several advantages in opting for such group policies.

“A corporate cover waives off the 30-day waiting period unlike a standalone health cover, which means that you are not covered for any disease/health ailment that you get within first 30 days from the effective date of the policy,” says Radhakrishna Chamarty, director of India Insure Risk Management & Insurance Broking Services.

Secondly, a group cover offers maternity cover, which is rare in standalone policy.

“In a group cover, the number of claims can be offset by a set people who wouldn’t make any claim related to maternity. Hence the risk of covering maternity expenses in a group gets diluted because of the dispersion effect from an insurer’s perspective,” says Sanjay Datta, head of health insurance, ICICI Lombard General Insurance.

However, in maternity insurance there is a waiting period of nine months. Ideally, the employee should have completed nine months in the organisation before the conception stage.

You don’t have to pay for the premium; the company mostly bears the cost. Some companies, however, deduct the premium charges from the employee’s salary.

(Republished with amendments)


18 Responses to “Income tax Planning in respect of Salary Perquisites”

  1. Garima says:

    I am about to join PNB as PO and I am planning to buy a New car(polo/swift). My question here is that if I buy car on EMI than will I be able to get income tax reduction on interest paid?

  2. umesh says:

    This is regarding rent free furnished accommodation it is provided and 7.5% of salary added to the income and HRA which was payable to me not paid as free accommodation provided here in this case HRA would be deducted from perquisites value ( being 7.5% of salary)

  3. Manohara says:

    sir, i am working in govt. organisation. my company providing accommodation & deducting IT on perqs. As i am working in power generation site which is 15KM from town, can i apply for refund? If so how to apply while filing return?
    i herd that those working in power plants in remote place, exempted from tax on perquisites.

  4. jayakrishnan says:

    Sir after self computation of tax i am eligible for a refund, my doubt is the perk tax paid by my employer on behalf of me is reflected in 26AS of my pan. Shall i claim the refund of perk tax paid by my employer on my behalf

  5. Kamal Mehta says:

    Sir,

    We are trying to introduce Car Lease scheme at our company. However that taxation team is of the view that there is no section in the IT act which allows tax exemption on lease rental.

    Can you please help me with information on which section allows the same?

    Thank you.

  6. RANADHIR ADHIKARY says:

    sir iam an public sector employee . my company is paying self lease to me for my own house in which i live via a lease agreement. i bought the house through bank loan.
    lease value per month is 15K

    10% of my basic pay being deducted as rent recovery.

    lease perquisite value of 15% of my income is added to my taxable income.
    my doubt is about the form 12C . how should i calculate the income from house property and claim exemption for the hosing loan interest paid. whether lease amount received from company to be declared ? , how much to be declared ?

  7. baskar says:

    sir iam an public sector employee . my company is paying self lease to me for my own house in which i live via a lease agreement. i bought the house through bank loan.
    lease value per month is 15K

    10% of my basic pay being deducted as rent recovery.

    lease perquisite value of 15% of my income is added to my taxable income.
    my doubt is about the form 12C . how should i calculate the income from house property and claim exemption for the hosing loan interest paid. whether lease amount received from company to be declared ? , how much to be declared ?

  8. A.Jayaprakas says:

    Rural Postal Life insrance policy premium is exmepted from Income tax

  9. Nilang Shah says:

    Using company car. Company funded 100% of car value (0% Loan). Every month deducting rs. 10400. Car is registered under company’s name. Company is claiming depriciation every year on car & also deducting EMI from salary. Self will be leaving company in few months. Self have to buy said car on written down value. Please advice whether it is legal on part of company to claim depriciation on car for which they are getting emi from eployee ?

    Please advice.

    regards
    Nilang Shah

  10. ARUN says:

    I am covered in Group mediclaim policy taken by my employer. the premium paid for my family is 18K wherein 5K is borne bt the employer, rest is deducted from my salary in intallment.
    Am i eligible for the rebate undr SEc 80D

  11. Yogesh says:

    My wife is getting Car Lease Rental from my present company since she has given car on lease. Please revert what kind of rebate is available (like car maintenance etc.) Which Income Tax Return to be filed for this income. She also has income from House Property.

  12. NAGABUSHANAM says:

    Hi,
    To avail self lease accommodation, if the property is held in both husband and wife, can the non working spouse of the working person receive the rent if lease agreement is made between the non working spouse and the company. In such case, the rent is paid after TDS, can refund of TDS thus deducted be claimed back (as he/she is not having any other taxable income) by he/she through filing IT return. In such a case can the working person claim the tax exemption on interest paid on home loan repayment to the bank and if so to what is the upper limit of the interest paid towards the bank loan amount that is eligible for tax exemption. I request you to kindly clarify on this matter.

    regards,
    Nagabushanam

  13. m m bidani says:

    is reimbursement of driver salary exempt inthe hands of emplyee when car is owned by the emplyee .

  14. Amrita Jha says:

    i wanted to now the tax implication of various salary components for employer…please guide

  15. Abhishek says:

    like in my company we get upto only Rs.1500 Per month of food coupons of which they deduct this amount from our monthly salary. and yearly thus we can only save taxes upto 1500*12 = rs. 18000.

    So please let me know that for Food coupons Per month amount limit is how much?

  16. Manish says:

    Amount in excess of Rs 50 is taxable.

  17. Mahesh says:

    Hi

    Regarding food coupons, it is told Rs50 per meal. If an employee has 3 meals, then it is Rs150. Hence for 30 days it will be Rs4500. Is this amount full exempt? Hence a clarity is required, whether it is one meal per day and the number of days the employee has worked in the month.

  18. Benita says:

    The article could hv also included the tax implication of those staying in company quarters

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