Valuation of Perquisites under the Income Tax Act and Rules for the salaried employees for A.Y. 2010-2011
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The Finance (No. 2) Act, 2009, has withdrawn the levy of Fringe Benefit Tax (“FBT”) on expenditure incurred by an employer on or after 1 April 2009.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 table summarises the valuation rules for all perquisites prescribed in the new rule 3. 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.
The key categories of perquisites for which valuation rule have changed are:
ACCOMODATION
Definition of salary under the rules has been expanded to include also lump-sum payments received at the time of termination of service or superannuation or voluntary retirement. Thus, payments like gratuity, severance pay, leave encashment, voluntary retrenchment benefits, commutation of pension and similar payments would also now have to be considered in determining the value of the housing perquisites provided by the employer. With regards to leave encashment it does not appear to cover leave encashment paid otherwise than at the time of retirement.
MOTOR CAR
The perquisites value of a motor car provided by an employer both for official and personal use has been enhanced by Rs. 6001800 per month depending on the engine capacity of the car. Also, the perquisites valuation for employer-provided chauffeur in such cases has been increased from Rs. 600 per month to Rs. 900 per month.
EMPLOYEE STOCK OPTIONS
The valuation of shares and specified securities in relation to employee stock option have been brought under Rule 3 itself, and Rules 40C and 40D of the Income-tax Rules will no longer be apply. Consistent with the change in law as regards the point of time (exercise) when such liability has to be determined, the rule now prescribes that the relevant date will be the exercise date (as against the date of vesting considered in Rule 40C and 40D). All other aspects in relation to valuation of stock options in Rule 40C and 40D remain the same even after the amendment.
WAY FORWARD
Employers will have to determine the tax implications for the employees for April to November 2009, and will have to adjust the shortfall1excess of taxes from future salary payments.
VALUATION RULES
| S No. | Benefits provided by employer | Valuation of Perquisites | ||||
| 1 | Accommodation | Where accommodation is unfurnished | Where accommodation is furnished | |||
| Accommodation provided by Central/State Government | License fee determined by Central/State governmentLess: Rent Actually paid by employee | 24% of salary or actual charges paid whichever is lower plus 10% of the cost of Furniture. (In case of Furniture is rented? Actual hire charges)Less: Amount, if any recovered from the employee |
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| Accommodationprovided by any other employer | A)Where accommodation is owned by employera) 15% of salary in cities having population exceeding 25 lakhs as per 2001 census
b) 10% of salary in cities having population exceeding 10 lakhs but not exceeding 25 lakhs as per 2001 census c) 7.5% of salary in other case |
A & B)The value as determined in unfurnished accommodation plus 10% of the cost of furniture. In case of furniture is rented – Actual hire chargesLess: Amount, if any recovered from the employee | ||||
| B) Where accommodation is taken on lease or rent by the employerActual amount of lease rental paid or payable by the employer or 15% of salary whichever is lower
Less: Rent, if any actually paid by the employee |
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| 2 | Reimbursement of fuel and maintenance charges incurred on motor car | Where cubic capacity of engine does not exceed 1.6 liters | Where cubic capacity of engine exceed 1.6 liters | |||
| (1) Where the motor car is owned or hired by the employer and? | ||||||
| (a) Is used wholly and exclusively in the performance of his office duties | NilNote: Certain documents specified are to be maintained by the employer. (Note 1) | NilNote: Certain documents specified are to be maintained by the employer. (Note 1) | ||||
| (b)Is used exclusively For the private or personal purposes of the employee or any member of his household and the running andMaintenance expenses | Actual amount of expenditure incurred by the employer on running and maintenance of motor car during the relevant previous yearAdd: Any remuneration, if any, paid by the employer to the chauffeur
Add: 10% per annum of the actual cost of the motor car as normal wear and tear of the motor car Less: Any amount charged from the employee for such use. |
Actual amount of expenditure incurred by the employer on running and maintenance of motor car during the relevant previous yearAdd: remuneration, if any, paid by the employer to the chauffeur
Add: 10% per annum of the actual cost of the motor car as normal wear and tear of the motor car Less: Any amount charged from the employee for such use. |
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| (c) Is used partly in the performance of duties and partly for private or personal purposes of his own or any member of his household and | ||||||
| (i) The expenses on maintenance andRunning are met or reimbursed by the employer, | Rs. 1,800 per month (plus Rs. 900 per month, if chauffeur is also provided to run the motor car) | Rs. 2,400 per month (plus Rs. 900 per month, if chauffeur is also provided to run the motor car) | ||||
| (ii) The expenses on running and maintenance for such private or personal use are fully met by the assessee. | Rs. 600 per month (plus Rs. 900 per month, if chauffeur is also provided to run the motor car) | Rs. 900 per month (plus Rs. 900 per month, if chauffeur is also provided to run the motor car) | ||||
| (2)Where the employee owns a motor car but the actual running & maintenance charges (including remuneration of the Chauffeur, if any) are met or reimburse to him by the employer and | ||||||
| (i) Such re-imbursement is for the use of the vehicle wholly and exclusively for the official purpose, | NilNote: Documents specified are to be maintained by the employer (Note1) | NilNote: Documents specified are to be maintained by the employer (Note1) | ||||
| (ii) Such re-imbursement is for the use of the vehicle partly for official purpose and partly for personal or private purposes of the employee or any member of his household |
The actual amount of expenditure incurred by the employerLess: Rs. 1,800 per month (plus Rs. 900 per month, if chauffeur is also provided to run the motorcar)
Note: Documents specified are to be maintained by the employer (Note l) |
The actual amount of expenditure incurred by the employerLess: Rs. 2,400 per month (plus Rs. 900 per month, if chauffeur is also provided to run the motor car)Note: Documents specified are to be maintained by the employer (Note l) |
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| (3) Where employee owns any other automotive conveyance but the actual running And maintenance charges are met or reimburse to him by the employer and |
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| (i) such reimbursement is for the use of the vehicle wholly and exclusively for official | NilNote: Documents specified are to be maintained by the employer (Note l) | Not Applicable | ||||
| (ii)such reimbursement is for the use of the vehicle partly for official purpose and partly for personal or private purpose of the employee | The actual amount ofExpenditure incurred by the employer
Less: Rs. 900 Note: Documents specified are to be maintained by the employer(Note l) |
Not Applicable | ||||
| 3 | Sweeper, gardener,watchman, personal attendant |
Actual cost to the employerLess: Amount paid by the employee for services | ||||
| 4 | Supply of gas, electric energy, Water | Actual amount of expenditure incurred or reimburse by such employer on that accountLess: Amount, if any recovered from the employee for such benefit or amenity (Note2) | ||||
| 5 | Fee or concessional Educational facilities for any member of employees household |
Actual amount of expenditure incurred or reimburse by such employer on that accountLess: Amount, if any recovered from the employee for such benefit or amenity | ||||
| 6 | Interest free Concessional loan for housing | Interest amount, as per SBI rates on maximum outstanding monthly balanceLess: Interest paid by employee, If any Except petty loan upto Rs. 20,000 or loan for medical treatment in respect of diseases specified under Rule3A not taxable provided not reimbursed under any Medical Insurance Scheme. | ||||
| 7 | Free food and non alcoholic beverages | Amount of expenditure incurred by the employerLess: Amount paid by! recovered from the employee
Except if employer provides free food and Non alcoholic beverages during the office working hour at office premises or through paid voucher and amount of expenditure not exceeding Rs. 50 per meal. |
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| 8 | Gifts! Vouchers or token to employees | Actual amount of expenditure incurredHowever, such value to be considered Nil, if the value of gift per employee during the previous year in aggregate is below Rs. 5,000. | ||||
| 9 | Memberships and annual fees | Actual amount of expenditure incurred or reimburse by such employer on that accountLess: Amount, if any recovered from the employee for such benefit or amenity.
Note: However, there will be no perquisite in the hands of employees if complete detail in respect of such expenditure are maintained by the employer & the employer gives the certificate to the effect that the expenditure was incurred wholly and exclusively for the performance of official duties. |
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| 10 | Use of movable assets (other than Laptops) | 10% of actual cost of the asset or the amount of rent paid or payableLess: Amount, if any recovered from the employee for such benefit or amenity | ||||
| 11 | Transfer of movable asset to the employee direct or indirectly |
Actual cost of movable assetLess: 10% of depreciation for each completed year which such assets was put to use by the employer (In case of computer and electronic items 50 percent and motor car 20 percent by reducing balance method)
Less: Amount, if any recovered from the employee for such benefit or amenity |
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| 12 | Any other benefits or amenities, services, rights or privilege | Cost to employer (based on arm’s length transaction)Less: Amount, if any recovered
Note: Expenses on telephone mobile phone actually incurred on behalf of the employee by the employer not to be taxed. |
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| 13 | Equity stock options scheme (ESOP) | Fair Market Value (Note 4) of the specified securities or sweat Equity Share on the date on which the option is exercised by the employeeLess: Amount, if any recovered from the employee for such benefit or amenity. | ||||
Note 1:
i. Log book containing details of journey undertaken for official purpose. The Log book shall contain date of journey, destination, mileage and the amount of expenditure incurred
ii. Certificate from the employer to the effect that expenses were incurred wholly and exclusively for the performance of official duties.
Note 2:
Where supply of gas, electric energy, water is made from resources own by the employer, without purchasing them from any outside agency, the value of perquisite would be manufacturing cost per unit incurred by the employer.
Note3:
i. Complete details in respect of such expenditure maintainable by the employer which may, inter alia, include the date of expenditure and the nature of expenditure.
ii. Employer gives a certificate for such expenditure to the effect that the same was incurred wholly and exclusively for the performance of official duties
Note 4:
For determining the fair market value, Rule 3(8) prescribes method for determining the fair market value of specified security or Sweat Equity Share on the date on which the option is exercised by the employee is as follows:
In case where the company is listed on the recognized stock exchange
i. Fair Market shall be average of the opening price and closing price of the share on the date of exercising option on the stock exchange.
Where the share is listed on more than one recognized stock exchanges
ii. Fair Market shall be average of the opening price and closing price of the share on the date of exercising option on the recognized stock exchange which records highest volume of trading in the shares.
Where there is no trading in the share on any recognized exchange, Fair Market Value shall be
i. Fair Market value would be closing price of the share on the date closest to the date of exercising of the option and immediately preceding date; or
ii. Closing price of share on the date of exercising option on a recognized stock exchange which records highest volume of trading on the date closest to the date of exercising of the option In case where the company is not listed on a recognized stock exchange or specified security not being an equity share.
iii. Fair market value would be value of the share in company as determined by a merchant banker on the date of exercising option.
Transfer of movable asset to the employee
direct or indirectly : If the Motor Car is sold to employee at “market value”, where no benefit is passed-on to employee in such case, is the ITWDV value as specified and Market value traeted as “notional benefit” and treated as perquisite and Tax is payable by employee?? if so landed cost for employee will be higher than sale to an outsider? Any comments?
WHETHER TELEPHONE BILLS REIMBURSED BY THE EMPLOYER WILL BE A TAXABLE PERQUISITE OR NOT????I F YES THEN WHY???? PLZ CLARIFY….
hi,
The article on – Valuation of Perquisites under the Income Tax Act and Rules for the salaried employees for A.Y. 2010-2011, was helpful.
It would be more helpful if u can you provide the list of perquisites(especially i.r.o car)that are taxable only in the hands of ‘SPECIFIED EMPLOYEES’
hoping to get response…
thanking you,
Bheemagouda.
I have gone thru your article on taxable value of perquisites. I require some clarification in this case. I would be thank ful to you if can elaborae on the same.
Issue is some free accomodation is provided to its employees by a company at site. This accomodation has been arranged under contract agreement with customer (State Govt) who is charging nominal rent(licence fees) for the same. Now the issue is whether as per latest circular issued bo CBTD (circular no 1/2010)(F.No. 275/192/2009 IT(B) dt 11/01/2010 perquisite has to be charged at the rate of 7.5 % of the salary or it has to be restricted to nominal rent taken by the customer as it is much below the fair rent.
I will be highly obliged if you can elaborate the issue .
SHUBH K JAIN
BW- 117 A SHALIMAR BAGH
DELHI