Perquisites, in essence, can be described as privileged gains or profits that are incidental to regular salary. In fact, they serve as benefits availed over and above one’s salary. One must note that there are both taxable and exempted perquisites. To account for the accompanying taxes and make the most of available exemptions, salaried individuals must find out more about the taxability of perquisites. Individuals should try to become familiar with the underlying concept.
A fringe benefit is a perquisite for which tax needs to be separately paid, these are the benefits that are covered under the Act:
One must note that perquisites can be tax-free or taxable based on their nature. On the basis of taxability of perquisites, it is categorised under three heads.
The specific benefits that are received by an employee should not be treated as perquisites are mentioned here below:
Based on the taxability of perquisites, they are classified into these following –
The taxable category of perquisites includes – supply of water, electricity and gas, rent-free accommodation, professional tax, the salary of domestic help hired by the employee, medical expense reimbursements, etc.
Further, other fringe benefits like free meals, club and gym facilities and gifts worth more than Rs. 5000 are subject to tax.
This table helps gain an idea about the tax imposed on the type of accommodation provided to the employee –
|Type of accommodation||City population||Rate of tax|
|Leased by employers||15% or actual rent paid (whichever is lower)||Not applicable|
|Accommodation in a guest house or hotel for more than 2 weeks.||24%|
|Owned by employers||More than 25 lakhs||15%|
|10 lakhs – 25 lakhs||10%|
|Less than 10 lakhs||7%|
These are the perquisites that are exempted from taxes. The most common tax-free perquisites include – travel allowance, medical and recreational facilities, laptop or desktop provided by the company, refreshments provided during office hours and interest-free salary loans. Other than these, the use of facilities like a sports club, health club and telephone lines are also included in this tax-free category.
Generally, this category of perquisites includes cars (owned by employers but is necessarily used by employees), service of domestic help and education opportunities for children, among others.
This table below helps gain an insight into the rate of tax on cars provided by the employers –
|Type of Car||Taxation rate|
|Big cars above 1.6 litres||Rs. 2400/month|
|Small cars below 1.6 litres||Rs. 1800/month|
The Finance Act, 2005 states – Perquisites will be taxed by the government when such benefits have been provided or are considered to have been provided to employees by employers.
Ideally, perquisites are taxed at the rate of 30% of the entire value of the availed fringe benefits. Notably, the perquisite tax is paid by the employers who provide these above-mentioned benefits to their employees. They can be either a firm, a company, a body of individuals or an association of individuals.
Generally, taxability of perquisite is determined as an average of income tax that is calculated based on these following –
Example of Perquisite Tax Calculation: Suppose the income charged under ‘Salaries’ of a regular employee is Rs. 800000 inclusive of Rs. 90000 that is paid by the employer as non-monetary perquisites. As per the Income Tax Act, the perquisite tax will be –
Income that is charged under ‘Salaries’ – Rs. 800000
Tax on salary inclusive of education and health cess @4% – Rs. 75400
Average tax rate – 75400/800000 x 100 = 9.4%
Tax paid on Rs. 90000 = 9.24% x 90000 i.e. Rs. 8316
The amount to be deposited every month – Rs. 8316/12, i.e. Rs. 693
Hence, Rs. 693 will be paid by the employers as TDS on employee’s salary.
These following perquisites are exempted from taxes –