Perquisites, or perks, are extra benefits provided by employers beyond salary, such as company cars or club memberships. They aim to improve working conditions and boost job satisfaction. These non-monetary privileges affect an individual’s income and tax liability, regulated by the Income Tax Act.
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How Perquisites are different from Allowances?
Employees get two types of extra benefits: perquisites and allowances, and these affect taxes differently. Perquisites, like a company house or car, add to taxable income. Allowances, such as House Rent Allowance (HRA) or travel allowances, are set amounts for specific expenses, and some are fully taxable, some partially, and some have limits on tax exemption.
Types of Taxable Perquisites and Their Impact:
What are the various types of perquisites commonly provided in India, and how do they impact taxation?
The various types of perquisites are listed below –
Company Accommodation: Designated residence adds to well-being but increases taxable income.
Company Car: Taxable value assessed based on factors like car details, personal usage, and expenses.
Concessional Loans: Interest benefit on loans below prescribed rates is taxable.
Stock Options: Taxable when exercised, considering the stock’s market value and exercise price difference.
Free or Subsidized Food: Value of provided meals is a taxable perquisite.
Club Memberships: Membership value adds to taxable income.
Interest-Free Loans: Difference between actual and prescribed interest rates is a taxable perquisite.
Medical Reimbursements: Amounts exceeding limits are taxable.
Telecommunication Facilities: Personal use may be subject to taxation.
Utilities: Employer-covered bills for electricity, water, and gas are taxable perquisites.
Driver and Domestic Servant: Salaries or wages for provided personnel are taxable perquisites
Perquisite taxes are not uniformly deducted at a fixed rate for all types of perquisites in India. The taxation of perquisites is governed by the Income Tax Act, and the rates and methods of taxation can vary depending on the nature of the perquisite.
What are tax-exempt perquisites in India?
Certain perquisites or benefits provided by employers to employees are exempt from income tax. These exemptions are outlined in the Income Tax Act, and they are designed to encourage certain types of employee benefits. Here are some common tax-exempt perquisites in India:
House Rent Allowance (HRA): Exempt portion for rented accommodation, following specified rules.
Leave Travel Allowance (LTA): Exempt within limits for domestic travel during leave.
Medical Reimbursements: Exempt for medical expenses within a set limit, subject to conditions.
Conveyance Allowance: Exempt up to a prescribed limit for commuting expenses.
Children Education Allowance: Exempt for employees’ children education, up to a specified limit.
Uniform Allowance: Exempt for uniform purchase or maintenance within certain limits.
Helper Allowance: Exempt for expenses related to a helper engaged for official duties, within specified limits.
Mobile/Telephone Reimbursement: Exempt for official phone/mobile usage, subject to conditions.
Special Allowances for Duties: Exempt allowances specifically for job duties.
Retrenchment Compensation: Exempt up to specified limits for compensation during retrenchment or voluntary retirement.
Who is responsible for paying perquisite taxes in India?
Employees receiving perquisites pay perquisite taxes. Employers calculate taxable values; include them in Form 16, detailing salary and allowances. Employees declare perquisites in income tax returns and pay taxes on the taxable value.”
Conclusion:
In India, perquisites, or ‘perks,’ enhance employee compensation beyond wages, but their taxation complexity, governed by the Income Tax Act, varies based on nature. Distinguishing from allowances is crucial for compliance. Tax-exempt perquisites provide relief, but understanding is vital. Employees bear tax responsibility, with employers playing a key reporting role. Staying informed ensures compliance and transparency in Indian employment.
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We are open for comments and suggestions. The above article has been prepared as by Ms. Priyanka Gaud (priyanka.gaud@abacussolutions.co.in) and reviewed by Mr. Suyash Tripathi (suyash.tripathi@abacussolutions.co.in)
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