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.

Irrational Provisions!

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.

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Category : Income Tax (28363)
Type : Articles (18282)
Tags : Fringe Benefit Tax (70) perquisite (32)

0 responses to “Perks & Jerks for Employees!”

  1. Sushil says:

    standard deduction should be re-introduced as CBDT do not allow any expenses to deduct from the salaried individuals as businesses can do…

  2. Shikhar Varshney says:

    The new rules for valuation of perquisites announced by the Central Board of Direct Taxes (CBDT) was effected from on December 18, 2009 and not December 18, 2008 as mentioned above.

  3. Muralidharan says:

    Can it be clarified – Is the value of gift voucher exempted upto Rs.4999/= or Rs.5000/=

  4. Girish Sharma says:

    Why govt is taking such a long time to notify the conditions to calculate perks? Perhaps the salaries drawn by bureaucrats have very little allowances and as such it is not difficult to calculate the value of perks. But in case of private sector employees, it is very difficult and tedious job to ascertain value of perks on the basis of guidelines just published.
    The accounts departments would, I understand, will have to spare the personnel to undertake this job.
    We should see that all such guidelines should be drawn accordingly while finalising the budget and not at the belated stage. Moreover, I am of the strong opinion that we act only when we are left with no other option and have to act upon.
    We should hope that in coming Budget the guidelines will also be thought upon and laid down accordingly.

  5. jagdish says:

    Govt. must consider the practical aspets/difficulites faced by the salary earner in the forthcoming budget

  6. manoj arora says:

    please cnfrm food value is limited to rs 50 per meal or day cn we give two tea allowances of rs 25 each and one lunch or rs 50 vouchers

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