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What are the Perquisites of Income Tax?
Perquisites come in various forms, encompassing both cash and non-cash benefits, and include accommodations, employer or self-owned vehicles, stock options, club memberships, medical reimbursements, subscriptions to magazines, and more. The value of these perquisites is determined based on the expenses incurred by the employer and is governed by the regulations specified in Section 17(2) of the Income Tax Act, 1961. These perks are an integral part of the overall salary structure, highlighting the diverse elements that contribute to an employee’s compensation package.
What are the Types of Prerequisites?
1. Taxable Perquisites
Certain benefits provided to employees are subject to taxation. These include perks such as rent-free housing, utilities like gas, water, and electricity, professional tax deductions from an employee’s salary, reimbursements for medical expenses, and even the salary of a servant hired by the employee. Additionally, taxable perquisites encompass other fringe benefits granted by the employer, such as complimentary meals, gifts valued above Rs. 5,000, and access to club and gym facilities.
2.Exempted Perquisites
Certain benefits provided by employers are exempt from taxation and are known as non-taxable fringe benefits. These perks include a range of offerings, such as travel allowances, company-provided gadgets like laptops for official purposes, refreshments during working hours, access to medical aid, utilization of health and sports clubs, interest-free salary loans extended to employees, contributions made by employers towards the provident fund, as well as complimentary medical and recreational facilities. These benefits serve to enhance the overall work experience and well-being of employees while ensuring they are not subject to tax implications.
3. Prerequisites Taxable Only by Employees
This category includes vehicles that are owned by companies but utilized by their employees, educational institutions catering to children, as well as the provision of domestic service personnel, among other examples.
What are the Benefits of Perquisites?
Let’s explore the advantages of employee perquisites:
1. Fosters Loyalty: Perks play a crucial role in cultivating a strong sense of loyalty among employees towards their company. By offering additional benefits, the organization shows its commitment to the well-being and satisfaction of its workforce. This, in turn, helps create a positive and dedicated work environment.
2. Attracts Top Talent: Competitive perks act as a magnet for attracting highly skilled and qualified individuals to join an organization. In today’s job market, where talent is highly sought after, offering enticing perks can give a company a competitive edge in recruiting the best candidates available. It demonstrates that the organization values its employees and is willing to invest in their happiness and growth.
3. Enhances Productivity and Retention: Providing perks can have a significant impact on employee productivity and job satisfaction. When employees feel valued and appreciated through perks, they are more motivated to perform their best. Moreover, these additional benefits contribute to a higher retention rate as employees are less likely to seek opportunities elsewhere when they are satisfied with their overall work experience.
How are Perquisites in Income Tax Calculated?
Well, when it comes to determining the worth of certain benefits provided by an employer, the term “calculated” might not accurately capture the essence. Perhaps “valued” would be a more fitting term in this context. Typically, the value of a perk or advantage is assessed based on either its actual cost to the employer or its perceived value for the recipient. This evaluation is carried out in accordance with the regulations outlined in the Income Tax Act. Once the value of these benefits, also known as perquisites, has been established, it is added to the employee’s salary and subjected to taxation at the appropriate rate.
To illustrate this process, let’s consider an example. Imagine that your company offers you rent-free housing. In such a scenario, the value of this perk is determined by either the actual amount of rent paid by your employer or 15% of your salary, whichever figure is lower. Subsequently, this value is incorporated into your cost to the company (CTC) and subjected to taxation based on your income bracket and the tax regime you have chosen.
Another instance could involve your company covering the expenses related to your personal or domestic staff, such as a driver, cleaner, gardener or caretaker. In this case, the calculated value of these perquisites would encompass the actual costs incurred by your employer, deducting any amount you may have personally contributed out of your own pocket.
Final Thoughts
It’s essential for both employers and employees to grasp the concept of income tax perquisites. These perks granted by employers upon their employees can greatly influence the tax obligations of both parties involved. Being familiar with the various types of perquisites and their calculation methods is crucial to avoid any potential legal or financial entanglements in the future. Seeking guidance from a tax professional is highly recommended to ensure compliance with all relevant laws and regulations pertaining to perquisites. By staying well-informed and taking the necessary precautions, both employers and employees can fully enjoy the advantages of perquisites without unnecessary stress or complications.
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Author Bio
Priyanka Rao is a content strategist for Jupiter. Money, and specializes in writing on topics related to finance, banking, budgeting, salary & wages, and other financial matters. She has a passion for creating engaging content that resonates with audiences across various digital platforms. In her free time, Priyanka enjoys traveling and reading, which allows her to gain new perspectives and inspiration for her work. With a keen eye for detail and a creative mindset, Priyanka is committed to creating content that connects well with her readers, enhancing their digital experiences.
