Salaried employees may burn a hole in their pockets with the Government all set to impose tax on all perks –residential accommodation, conveyance and others — paid for by the company, under a new law that replaces the already abolished Fringe Benefit Tax. Perquisites given by the employer such as residential accommodation, conveyance facility and other benefits to the family of the employee could soon be added to their salary for income tax purposes and the Government may come out with a notification soon on the valuation of these perks.
Earlier, the tax on these perks were paid by the employer in the form of the Fringe Benefit Tax (FBT) that was done away with in the Budget 2009-10 by Finance Minister Pranab Mukherjee.
The perquisites to be included in the taxable salary include residential accommodation given by the employer, expenses on motor car for official or personal use, salaries of the driver, gardener and even sweeper if paid by the employer and concessional education provided to the employee’s children.
“Under the FBT regime, tax burden of the perquisites was on the employer, but will now be on the employee,” said Ernst & Young tax partner Amitabh Singh when asked about the new income tax valuation rules.
The valuation rules, yet to be officially announced by the Finance Ministry, are likely to be applicable with retrospective effect from April 1 this year.
“The taxes for about nine months would have to be paid by employees in case the rules come in effect from April 1, 2009,” Singh added.
In addition to the perks such as residential accommodation and conveyance, others like travelling,free-food and non-alcoholic beverages provided by the employer, any gift or vouchers received by the employee on ceremonial occasions, reimbursements for membership of a club and tour allowances would also come under the purview of this new income tax valuation system.
Earlier also, the perquisites were added to the salary for tax purposes, but if specified as FBT, they had to be paid by the employer and not the employee.
In regard to government employees, the new valuation rules may be the same for all except for those on deputation, who will have to cough up a higher amount as tax.
“The residential accommodation allowances of the government employees on deputation will be taxed higher as if they are of a private company. Generally private companies pay residential rentals at the market price, while the valuation government accommodation is much lower than the market rates,” said Singh.