VALUATION OF PERQUISITES
Under Rule 3 of Income Tax Rule 1962 read with sub section 2 of section 17 of Income Tax Act. 1961
(As Revised wide Income Tax (Thirteenth Amendment) Rules. 2009)
The Finance (No. 2) Act, 2009, has withdrawn the levy of Fringe Benefit Tax (“FBT”) on expenditure incurred by an employer on or after 1 April 2009. Consequently, by an employee benefits which were subject to FBT have been brought back within the ambit of perquisites and taxable in the hands of employees from the financial year (“F.Y.”) 2009-10 onwards.
The relevant rules required to compute the valuation of such perquisites were awaited ever since the change was brought about by the Finance Act. These rules have now been notified on dated 18-12-2009 wide Notification No. 94120091F No. 14212512009-s 0 (TPL), by the Central Board of Direct Taxes and the existing Rule 3 and insertion of Rule 40F of the Income-Tax Rules, 1962 (“The Rules”) has been substituted completely. The new rule 3 is deemed to have come into effect from 1st day of April 2009.
For the sake of convenience, the attached tables summarises the valuation rules for all perquisites prescribed in the new rule 3 except the valuation of perquisites in respect of accommodation, motor car and ESOP which are mentioned separately by us and link for the same is been given below . It may be noted that for most perquisites the valuation rules which were contained in the old Rule 3 (as it applied to those employees who, or to items of perquisites which, were not subject to FBT) have remained unchanged.
3. Valuation of perquisites in respect of employee stock option (ESOP) for the financial year 2009-2010
| Nature of benefit provided by the employer |
Value of perquisite as per erstwhile rules |
Value of perquisite as per new rules |
| Sweeper, gardener, watchman or personal attendant | ||
| Rule 3(3) | Amount of salary paid to such person incurred by the employeras reduced by amount, if any, actually paid by the employee. | Same as erstwhile provisions |
| Supply of gas, electric energy or water for employee’s household consumption | ||
| a) Using resources owned by the employer without purchasing from outside agencyRule 3(4) | Manufacturing cost per unit incurred by the employeras reduced by amount, if any, actually paid by the employee. |
Same as erstwhile provisions |
| b) Any other case Rule 3(4) | Actual amount incurred by the employer to the agency supplying the resourcesas reduced by amount, if any, actually paid by the employee. | Same as erstwhile provisions |
| Free or concessional educational facilities for any member of household | ||
| a) Where the educationalinstitution is itself maintained and owned by the employerOR Where such facilities are allowed in other educational in employment of that Rule 3(5) |
The cost of such education in a similar institution in or near the locality.However, if the facilities are provided to the children of the employee (any other member of the household not covered here), the value of benefit shall be Nil if the cost of such education per child does not exceed INR 1,000 per month. | Same as erstwhile provisions |
| b) In any other case Rule 3(5) | Actual amount incurred by the employeras reduced by amount, if any, actually paid by the employee. | Same as erstwhile provisions |
| Nature of benefit provided by the employer |
Value of perquisite as per erstwhile rules |
Value of perquisite as per new rules |
| Free or concessional transport provided by the employer engaged in the carriage of passengers or goods for personal or private journey | ||
| a) Employers in a business other than airlines and railwaysRule 3(6) | Value at which such benefit or amenity is offered by such employer to the publicas reduced by amount, if any, actually paid by the employee. | Same as erstwhile provisions |
| b) Employers in a business of an airline and railways. | Nil | Same as erstwhile provisions |
| Interest free/concessional loan for any purpose | ||
| Rule 3(7)(i) | Value is equal to the interest computed at the rate1 charged per annum by State Bank of Indiaon the maximum outstanding monthly balance2as reduced by the interest, if any, actually paid by the employee or any such member of his household.However, in the following cases the value is not taxable:
|
Same as erstwhile provisions |
1. Rate prevailing as on the 1st day of the relevant previous year in respect of loans for the same purpose advanced by the State Bank of India.
2. ‘Maximum outstanding monthly balance’ is the aggregate outstanding balance for each loan as on the last day of each month
| Nature of benefit provided by the employer |
Value of perquisite as per erstwhile rules |
Value of perquisite as per new rules |
| Travelling, touring, accommodation and any other facility provided by the employer for personal purposes, other than leave travel concession | ||
| a) Where such facility ismaintained by the employer, and is not available uniformly to all employees
Rule 3(7)(ii) |
Value at which such facilities are offered by other agencies to the publicas reduced by amount, if any, actually paid by the employee. | Same as erstwhile provisions |
| b) Where any official tour is extended as a vacationRule 3(7)(ii) | Actual amount incurred by the employer in relation to suchextended period of stay or vacation. |
|
as reduced by amount, if any, actually paid by the employee.Same as erstwhile provisionsc) In any other case Rule 3(7)(ii)Actual amount incurred by the employeras reduced by amount, if any, actually paid by the employee.Same as erstwhile provisionsFree food and non-alcoholic beveragesRule 3(7)(iii)
Actual amount incurred by the employeras reduced by amount, if any, actually paid by the employee.
If food and non-alcoholic
beverages are provided during
working hours at office or
business premises or through
non-transferable paid vouchers usable only at eating joints, the value of facility to the extent of INR 50 per meal is exempt from the tax. Tea and snacks provided during working hours and free food or non-alcoholic beverages during working hours provided in a remote location or an off-shore installation exempt from tax.
Same as erstwhile provisions
| Nature of benefit provided by the employer |
Value of perquisite as per erstwhile rules |
Value of perquisite as per new rules |
| Gifts/ Voucher/ Token in lieu of gift | ||
| Rule 3(7)(iv) | Actual amount of gift shall be considered as perquisite.However, the value of perquisite is NIL in case the value of gift is below INR 5,000 in the aggregate during the previous year. | Same as erstwhile provisions |
| Credit Card expenses including membership and annual fees | ||
| Rule 3(7)(v) | Actual amount incurred by the employeras reduced by amount, if any, actually paid by the employee.
However, the amount incurred by the employer wholly and exclusively for business purposes Subject to the fulfillment of conditions prescribed1 is exempt from tax. |
Same as erstwhile provisions |
1. Conditions to be fulfilled:
a) complete details in respect of such expenditure are maintained by the employer which may, inter alia, include the date of expenditure and the nature of expenditure;
b) the employer gives a certificate for such expenditure to the effect that the same was incurred wholly and exclusively for the performance of official duties.
| Nature of benefit provided by the employer |
Value of perquisite as per erstwhile rules |
Value of perquisite as per new rules |
| Club expenses including annual and periodical fees | ||
| a) Other than corporate membershipRule 3(7)(vi) |
Actual amount incurred by the employeras reduced by amount, if any, actually paid by the employee.
However, the amount incurred by the employer wholly and exclusively for business purposes subject to the fulfilment of conditions as prescribed above is exempt from tax. |
Same as erstwhile provisions |
| b) Corporate membership | Value of perquisite shall not include the initial fee paid foracquiring such corporate membership. |
Same as erstwhile provisions |
| c) Health club, sports and similar facilities |
If such facilities are provided uniformly by the employer to allthe employees, the value of perquisite will be NIL |
Same as erstwhile provisions |
| Use of moveable assets | ||
| a) Laptops and computers belonging to employer or hired by him | Nil | Same as erstwhile provisions |
b) Moveable assets, other than:
Rule 3(7)(vii) |
paid or payable by the as reduced by amount, if any, actually paid by the employee. |
Same as erstwhile provisions |
| Nature of benefit provided by the employer |
Value of perquisite as per erstwhile rules |
Value of perquisite as per new rules |
| Transfer of any moveable assets | ||
| a) Computer and electronic itemsRule 3 (7) (viii) |
Actual cost to the employer as reduced by 50% of the actual cost for each completed year during which such asset was put to use by the employer, on the basis of reducing balance method.as reduced by amount, if any, actually paid by the employee. | Same as erstwhile provisions |
| b) Motor Cars Rule 3(7)(viii) | Actual cost to the employer as reduced by 20% of the actual cost for each completed year during which such asset was put to use by the employer, on the basis of reducing balance method.as reduced by amount, if any, actually paid by the employee. | Same as erstwhile provisions |
| c) Any other asset Rule 3(7)(viii) | Actual cost to the employer as reduced by 10% of the actual cost for each completed year during which such asset was put to use by the employer.as reduced by amount, if any, actually paid by the employee. | Same as erstwhile provisions |
| Other benefits | ||
| a) Telephones including mobiles Rule 3(7)(ix) | Expenses incurred by employer on behalf of employee will be exempt from tax | Same as erstwhile provisions |
| b) Any other benefit Rule 3(7)(ix) | Actual cost to the employer under an arm’s length transactionas reduced by employee’s contribution |
Same as erstwhile provisions |
Our Comments:
The new rules prescribed by CBDT are primarily similar to the erstwhile provisions that prevailed prior to the introduction of FBT. Both employers and employees will now have more clarity on the individual’s tax liability.
As there was no clarity on the valuation rules till date, it was no possible for employers to value the perquisites. However, now as the tax liability for the full tax year needs to be recovered by 31 March 2010 from the employee’s salary, it may result in significant cash outflow for the employee in the coming months.
After the introduction of the new rules, it may be worthwhile to revisit the existing compensation packages of the employees.
what if gifts by the employer exceeds Rs. 5000?
Does only the exceed part will be treated as perquisites or entire gift amount iwill be considered as perquisites.
Regards.