Perquisites are fringe benefits that are received over and above an employee’s salary. These fringe benefits or perquisites can be taxable or non-taxable depending upon their nature. There are a number of benefits that come in addition to an individual’s salary and are grouped under fringe benefits or perks. These components are taxed separately from the employer’s account so as to maintain transparency and accountability. Amenities that are made available to employees by the company are included in perquisites and are subject to taxation as per the rules and conditions prescribed. Here we have talked about what exactly are perquisites in salary, its types, benefits, example, calculation, and taxation.

What are perquisites in Salary?

Perquisite is defined as a privileged gain or profit incidental to regular salary. Perquisites are both taxable and exempt. Perquisites can be simple as company car, fuel reimbursement etc. or may also include interest-free loan, medical facilities, credit cards, accommodation sponsored by the company, etc. 

“Perquisite” is defined in the section 17(2) of the Income-tax Act as including:

1. Value of rent-free/concessional rent accommodation provided by the employer.

1. Any sum paid by the employer in respect of an obligation which was actually payable by the assessee.

1. Value of any benefit/amenity granted free or at concessional rate to specified employees etc.

1. The value of any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the employer, or former employer, free of cost or at concessional rate to the assessee.

1. The amount of any contribution to an approved superannuation fund by the employer in respect of the assessee, to the extent it exceeds one lakh rupees; and

1. The value of any other fringe benefit or amenity as may be prescribed.

Difference between Perquisite and Allowances

Following are some of the major differences between the two:

Types of Perquisites

Depending upon the tax that is levied on perquisites these can be classified into the following three heads.

1. Taxable Perquisites

Some of the perquisites that are taxable in nature include rent-free accommodation, supply of gas, water and electricity, professional tax of employee, reimbursement of medical expense, and salary of servant employed by employee. Taxable perquisites also include any other fringe benefit provided by the employer to employees like free meals, gifts exceeding Rs.5,000, club and gym facilities etc.

2. Exempted Perquisites

Non-taxable fringe benefits include travel allowance, computer or laptop provided by the company for official use, refreshment provided by employer during office hours, provision of medical aid, use of health club, sports club, telephone lines, interest free salary loan provided by employer to employees, contribution to provident fund by employers, free medical and recreational facilities and so on.

3. Perquisites taxable only by employees

This type includes cars owned by companies but used by employees, education facilities for children, service of domestic servants etc.

Taxability of Perquisites and who pays perquisite taxes?

According to the Finance Act, 2005, perquisites are taxed by the government in case these perks are provided or are deemed to be provided to employees by employers. The rate at which perquisites are taxed is 30% of the value of fringe benefits.

The perquisite tax is paid by the employer who furnishes these fringe benefits to employees. It can be a company, a firm, an association of persons or body of individuals.

However, the employer may choose to pay tax on behalf of employees. Since it is in the nature of an obligation, it is non-monetary. It is to be noted that such tax paid is considered as a non-monetary perquisite which is exempt on the hands of employee u/s 10(10CC).

Benefits of perquisites

Perquisites are additional benefits which are derived from a job profile at work. For example – if an employee has a sales profile, then he/she will be required to do a lot of field work. This means the employee will need to travel a lot on a regular basis for work purposes. The expense of travel on a daily basis will cost the employee a lot of money on fuel expense, maintenance of the car, food expense, accommodation, etc. To ensure that the employee does not feel the burden of such expenses, the company or the employer normally offers perquisites in addition to the salary to compensate for such expenses. 

Tax calculation on perquisites

Generally, taxability of perquisite is determined as an average of income tax that is calculated based on these following –

1. Rate of tax for the given fiscal year

1. Income charged under ‘salaries’

1. Value of perquisites for the amount of tax paid by the employer

Let’s understand this with the help of an example:

Suppose the income charged under ‘Salaries’ of a regular employee is Rs. 8 lakh inclusive of Rs. 90,000 that is paid by the employer as non-monetary perquisites. As per the ITA, the perquisite tax will be –

Income that is charged under ‘Salaries’ – Rs. 8 lakh

Tax on salary inclusive of education and health cess @4% – Rs. 75,400

Average tax rate – 75400/8,00,000 x 100 = 9.4%

Tax paid on Rs. 90000 = 9.24% x 90,000 i.e. Rs. 8,316

The amount to be deposited every month – Rs. 8,316/12, i.e. Rs. 693

Hence, Rs. 693 will be paid by the employers as TDS on employee’s salary.

Examples of the most common perquisites and their taxation

Some of the most popular perquisites provided by a major percentage of companies to their employees are accommodation, cars and stock options. Let us see how these perks are taxed and how is this tax calculated?

Company provided Accommodation:

Many employees are provided leased accommodation options by their employers. This cost of accommodation is taxable and is a perk offered by the company. The tax will however depend upon whether the place is rented, owned or leased by the employer.

The tax levied in the above listed cases is as depicted in the table below.

Cards provided by the employer:

The tax on this type of perquisite depends upon two factors. First is whether the car is owned or leased by the employer and second whether the car is being used only for official purposes or partly for personal purposes and partly for official use. In both the cases, the tax calculated will be different. The below given table shows the corresponding rate of taxation in the various cases that may arise.