Perquisite Rules Mere ‘Old Wine In New Bottle’
Salaried Get No Relief From Anomalies & Inequities
MUKESH M. PATEL
With virtually no reprieve from the tax burden on their pay packages and continuing anomalies and inequities, the new rules for valuation of perquisites announced by the Central Board of Direct Taxes (CBDT) on December 18, 2009 have hugely disappointed millions of salaried employees.
The near five and a half month wait for some meaningful relief and rationalization in this regard, after the Budget announcement to abolish Fringe Benefit Tax (FBT) from 1st April, 2009, has proved not only to be illusory, but even more pinching, as employees will now have to bear the brunt of tax deduction on their perk valuation of twelve months during the coming three months. In effect, the announcement of the CBDT has turned out to be practically nothing but ‘old wine in new bottle,’ with the retention of the rules and limits (except some minor variations) as prevalent during the pre-FBT regime.
Blowing Hot & Cold!
Under the pre FBT regime, any provision of free meal by the employer or grant of food coupon in excess of Rs.50 was taxed as a perquisite. Under the FBT regulations effective from 1st April, 2005, this exemption in respect of food coupons was raised to Rs.100 per day. While some significant rise was expected in this limit keeping in view the steep increase in food prices after four years, in a strange back track and with sheer insensitivity, the new rules have reintroduced the old limit of Rs.50 per meal. This would mean that an employer would have to now deduct tax on value of the free meal or food coupon provided to his employee in excess of Rs.50 effective 1st April, 2009.
However, while dealing with the valuation of motor car perquisites, the new rules have inflicted a 50% rise in the old limits of Rs.1,200 and Rs.1,600 per month for big and small cars and chauffer value of Rs.600 per month. Accordingly, the new limits have been revised to Rs.1,800, Rs.2,400 and Rs.900 respectively, with effect from the start of the current fiscal year.
Ironically, in the cases of employees not receiving any motor car perquisites, the puny exemption limit of Rs.800 per month for transport allowance u/s. 10(14) has remained static since 1997. Going by CBDT’s own figures of cost inflation index announced annually, the said limit should have been doubled at Rs.1,600 by now.
Just consider the impact of hardships and anomalies in view of some queer and irrational provisions under the rules highlighted hereunder:
Case Study-1: The fair rental value of an accommodation provided by an employer to his employee in Ahmedabad is Rs.60,000 per annum. However, just because the annual salary drawn by an employee is Rs.10,00,000, he will have to suffer tax impact on a perquisite value worked out at Rs.1,50,000 (being 15% of his salary).
Case Study-2: An employer has given a big motor car to his employee and incurs annual running and maintenance expenses of Rs.1,20,000 for the same. As per the new rules, the value of such taxable perk is required to be worked out at a flat Rs.2,400 per month, being Rs.28,800 for the year.
In case, the said employee uses his own car (instead of the employer’s car) and the employer incurs similar expenditure of Rs.1,20,000, the perk value has been prescribed to be computed at Rs.1,20,000 less Rs.28,800, that is Rs.91,200. It is highly iniquitous that the employee is called upon to bear more than three times the tax burden in such a case, merely because he prefers to use his own car (and not the employer’s).
Some Silver Linings!
Some silver linings, in the perk valuation rules as announced, are in respect of the following perks proposed to be treated as exempt:
- The value of any gift, voucher or token in lieu of gift given by an employer to his employee or family member on ceremonial occasion, if the value of the same is less than Rs.5,000 during the year.
- Any amount of expenditure on telephone (landline or mobile), incurred by the employer on behalf of the employee.
- Free laptop or computer facility provided by an employer to an employee.
- Interest free loans of petty amounts not exceeding Rs.20,000.
- Any loan for medical treatment in respect of diseases and ailments prescribed under Rule 3A of the IT Rules.