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Valuation of Perquisites other then accommodation, motor car and ESOP for financial year 2009-2010

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. 1. New Perquisite rules in respect of accommodation / house property provided by employer including accommodation in hotel.2. New rules for valuation of perquisites for use of motor car by staff for personal use – provided by employer.3. Valuation of perquisites in respect of employee stock option (ESOP) for the financial year 2009-2010.

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The Finance (No. 2) Act, 2009, has withdrawn the levy of Fringe Benefit Tax (“FBT”) on expenditure incurred by an employer on or after 1 April 2009.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.

1. New Perquisite rules in respect of accommodation / house property provided by employer including accommodation in hotel

2. New rules for valuation of perquisites for use of motor car by staff for personal use – provided by employer

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
institute by reason of his being

in         employment         of        that
employer.

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:
  • where the loan granted for medical treatment in respect of certain diseases specified in Rule 3A, excluding the amount claimed under a  medical insurance scheme
  • where the amount of loan does not exceed INR 20,000 in the aggregate.
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:
  • Laptops and computers; and
  • Assets already specified in the rules

Rule 3(7)(vii)

  • 10% per annum of the actual cost of such assets, or
  • The amount of rent or charge

paid       or     payable     by     the
employer as the case may be

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.

Categories: Income Tax

View Comments (1)

  • 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.

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