In this article we are covering following Perquisites taxable as salary- Domestic Servants, Gas, Electricity or water supplied by employer, Education facility, Specified Security or Sweat Equity Shares Allocated and Interest Free Loans.
Perquisites are considered as a very important element of Income from Salary. Taxation of perquisites will be valued as per Rule 3 of Income Tax Rules, 1962. We have discussed Rent free unfurnished accommodation and motor car as perquisites and its taxability in our earlier articles, the related links are also provided at the end of the article. Now in this article we will cover the in-depth knowledge regarding remaining all small perquisites and their taxability criteria under Income Tax Act, 1961.
Page Contents
We are covering here the following perquisites:
1. Domestic Servants
2. Gas, Electricity or water supplied by employer
3. Education facility
4. Specified Security or Sweat Equity Shares Allocated
5. , Interest Free Loans
The detailed point wise discussion is as under:
a) Domestic Servant:
The perquisite of domestic servant will cover the service of Sweeper, Gardener, Watchman or personal attendant. In this perquisite the taxable amount will be actual cost to the employer less amount recovered from employee.
b) Gas, Electricity or water supplied by employer:
In this there are 2 types i.e one is provided from own source and another one is if provided from outside supplier.
If Provided from Own Source:
In such case the taxable amount will be manufacturing cost to the employer less amount recovered from employer
If provided from outside supplier:
The taxable amount will be amount paid to the supplier less amount recovered from employee
c) Education Facilities
This perquisite is either provided for children of the employee or for other household member.
If provided in the school owned by the employer:
If this facility is providing for children, then this perquisite will be taxable only if the cost of such education in similar school is exceeding Rs 1,000 per month per child.
Otherwise if providing for other household member then the taxable amount of perquisite will be cost of such education in similar institution in or near the locality.
If provided in any other School:
If this facility is providing for children, then this perquisite will be taxable only if the cost of such education is exceeding Rs 1,000 per month per child.
Otherwise if providing for other household member then the taxable amount of perquisite will be cost of such education incurred.
For this kind of perquisite, the meaning of Specified Securities and sweat equity shares are as under:
Specified Securities means the securities as defined in Section 2(h) of the securities Contract (Regulation) Act, 1956 and includes securities offered under an Employee Stock Option Plan (ESOP).
Sweat Equity shares means equity shares issued by a company to its employees or directors at a discount or for consideration other than cash for providing know-how or making available rights in nature of intellectual property rights or value additions.
These kinds of perquisites will be taxable as the difference between the fair market value (FMV) of the share on the date of exercise of the options less the exercise price.
e) Interest Free Loans:
Whenever employer grant loan to the employee which is either interest free or at concessional rate of interest, at that time a notional interest thereon is charged to tax in the in the hands of the employee. The value of perquisite arising from such loans would be the excess of interest payable at prescribed interest rate over interest, if any, actually paid by the employee or any member of his household.
The prescribed interest rate would now be the rate charged per annum by the State Bank of India as on the 1st day of the relevant financial year in respect of loans of same type and for the same purpose advanced by it to the general public.
Perquisite value would be calculated on the basis of the maximum outstanding monthly balance method.
However, please note that notional interest will not be taxable in following 2 cases:
1. A loan given for the purpose of medical treatment of certain prescribed diseases as mentioned in Rule 3A of the Income Tax rules and is not reimbursed to the employee under medical insurance scheme
2. Loan is not exceeding in the aggregate Rs 20,000/-
Compiled by TaxGuru Team
Reference links for other perquisites related articles
1. Valuation of Rent Free unfurnished Accommodation – https://taxguru.in/income-tax/valuation-rent-free-unfurnished-accomodation.html
2. Valuation of Motor Car Provided by Employer as Perquisites – https://taxguru.in/income-tax/valuation-motor-car-employer-perquisites.html
