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New perk rules :- Under the new perquisite rules, a distinction is to be made between the car owned by the employer and the car owned by the employee, as the value of the tax perquisite in the two scenarios varies considerably. Even though there could be different permutation and combination, under which the car benefit could be provided by the employer to the employee, this article primarily focuses on two scenarios where the car is either owned by the employer or employee and the car expenses are met/reimbursed by the employer.
Last week, CBDT issued a notification on how each perquisite provided to a salaried employee should be taxed. It is applicable with retrospective effect, from April 1 2009. The guidelines cover every perk: home accommodation to gifts to educational benefits. The most important change, though, is taxation of car facilities.
Employee stock options (ESOPs) is a significant employer-granted benefit that too is subject to the above FBT /perquisite-based taxation system. In fact, it almost seems as if the authorities cannot quite make up their minds as to how they wish to tax shares given to employees by their employers on a concessional basis. Having been subject to various changes in their valuation norms, the following is the latest position:
Way back on September 25, 2000, Rule 3 governing perquisites (perks) was amended by Notification SO 940(E). The major change brought in was taxing on a ‘cost to employer’ basis, thereby giving perks the colour and character of salary. This in turn resulted in many employers increasing the salary of the employee instead of granting perks, thereby avoiding the requirement to maintain cumbersome records.
The salaried class, reeling under the inflationary pressures, has suffered yet another setback this holiday season with the announcement of new perquisite valuation rules by the Central Board of Direct Taxes (CBDT) on December 18. The new rules have come in the wake of the abolishment of fringe benefit tax (FBT) by finance minister Pranab Mukherjee in this year’s Budget and will be applicable retrospectively from April 1, 2009.
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 The Finance (No. 2) Act, 2009, has withdrawn the levy of Fringe Benefit Tax (“FBT”) on expenditure incurred by an employer on or after 1 April 2009.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.
This article summarizes Notification No. 94/2009/F. No. 142/25/2009-SO(TPL) dated 18 December 2009 (Notification) issued by the Central Board of Direct Taxes (CBDT)that substitutes Rule 3 (Rule) relating to valuation of perquisites arising from employment. The new Rule is effective from 1 April 2009 and is largely similar to the erstwhile Rule. All employers, including employers who were liable to Fringe Benefits Tax (FBT) prior to its removal, will now be covered under the new Rule. They would be required to compute the taxable value of perquisites provided to the employees as per the new Rule, with effect from 1 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.
The perquisites value of a motor car provided by an employer both for official and personal use has been enhanced by Rs. 600 to 800 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.
The much awaited new rules have now been notified by The Central Board of Direct Taxes (CBDT) vide Notification dated 18 December 2009. The amended provisions will be retrospectively effective from 1 April 2009 onwards. The new valuation rules as prescribed by CBDT and the comparative analysis with the earlier perquisite rules (Rule 3) have in respect of accommodation provided by employer including in respect of accommodation in hotels is tabulated as under:
