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Perquisites

Written by: CHETNAA GOYAL Posted on: 9 December, 2022

Perquisites Section 17(2)

“Perquisite” may be defined as any casual emolument or benefit attached to an office or position in addition to salary or wages. “Perquisite” is defined in the section 17(2) of the Income tax Act as including

(i) Value of rent-free/accommodation provided by the employer

The term ‘perquisite’ indicates some extra benefit in addition to the amount that may be legally due by way of contract for services rendered. In modern times, the salary package of an employee normally includes monetary salary and perquisites like housing, car etc.

Perquisite may be provided in cash or in kind.
Reimbursement of expenses incurred in the official discharge of duties is not a perquisite.
Perquisite may arise in the course of employment or in the course of profession. If it arises from a relationship of employer-employee, then the value of the perquisite is taxable as salary. However, if it arises during the course of profession, the value of such perquisite is chargeable as profits and gains of business or profession.
Perquisite will become taxable only if it has a legal origin. An unauthorised advantage taken by an employee without his employer’s sanction cannot be considered as a perquisite under the Act

(A) Perquisites taxable in the case of all employees

The following perquisites are chargeable to tax in case of all employees

Rent Free Accommodation	Value of rent-free accommodation provided to the assessee by his employer [Section 17(2)(i)]. [Refer discussion on valuation of perquisite]
Exception - Rent-free official residence provided to a Judge of a High Court or to a Judge of the Supreme Court is not taxable.
Concession in rent	Value of concession in rent in respect of accommodation provided to the assessee by his employer [Section 17(2)(ii)].
Payment by the employer in respect	Amount paid by an employer in respect of any
of an obligation of employee	obligation which otherwise would have been
	payable by the employee [Section 17(2)(iv)].
Example 12 - If a domestic servant is engaged by an employee and the employer reimburses the salary paid to the servant, it becomes an obligation which the employee would have discharged even if the employer did not reimburse the same. This perquisite will be covered by section 17(2)(iv) and will be taxable in the hands of all employees.
Amount payable by an employer directly or indirectly to effect an assurance on the life of the assessee	Amount payable by an employer directly or indirectly to effect an assurance on the life of the assessee or to effect a contract for an annuity, other than payment made to RPF or approved superannuation fund or deposit-linked insurance fund established under the Coal Mines Provident Fund and Miscellaneous Provisions Fund, 1948 or Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 [Section 17(2)(v)].
	However, there are schemes like group annuity scheme, employees state insurance scheme and fidelity insurance scheme, under which insurance premium is paid by employer on behalf of the employees. Such payments are not regarded as perquisite in view of the fact that the employees have only an expectancy of the benefit in such schemes.
Specified security or sweat equity shares allotted or transferred, by the employer	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 [Section 17(2)(vi)] [Refer discussion on valuation of perquisite].
Amount or the aggregate of amounts of any contribution made to the	The amount or aggregate of amounts of any contribution made

account of the assessee by employer

in a recognised provident fund

in NPS

in an approved superannuation fund

in a recognised provident fund

in NPS referred to in section 80CCD(1)

in an approved superannuation fund
by the employer to the account of the assessee, to the extent it exceeds 7,50,000 [Section 17(2)(vii)].

Annual accretion to the balance at the credit of the recognised provident fund/ NPS/ approved superannuation fund which relates to the employer’s contribution and included in total income (on account of the same having exceeded 7,50,000)

Refer discussion below

Any other fringe benefit or amenity

The value of any other fringe benefit or amenity as may be prescribed by the CBDT [Section 17(2)(viii)].

Rule 3(7) prescribed the following other benefits or amenity taxable in case of all the employees.

Interest free or concessional loan
Travelling, touring and accommodation
Free or concessional food and non-alcoholic beverages
Gift, voucher or token in lieu of such gift
Credit card expense
Club expenditure
Use of movable assets
Transfer of movable assets
Other benefit or amenity [For valuation, refer discussion on valuation of perquisite]

Annual accretion to the balance at the credit of the recognised provident fund/ NPS/ approved superannuation fund which relates to the employer’s contribution and included in total income (on account of the same having exceeded 7,50,000)

Any annual accretion by way of interest, dividend or any other amount of similar nature during the previous year to the balance at the credit of the recognized provident fund or NPS or approved superannuation fund to the extent it relates to the employer’s contribution which is included in total income in any previous year under section 17(2)(vii) computed in prescribed manner [Section 17(2)(viia)]. In other words, interest,

dividend or any other amount of similar nature on the amount which is included in total income under section 17(2)(vii) would also be treated as a perquisite.

Exemption in respect of Payment from super annuation funds [Section 10(13)]

Any payment received by any employee from an approved superannuation fund shall be entirely excluded from his total income if the payment is made

to the legal heirs on the death of beneficiary (e.g. payment to widow of the beneficiary) or
to an employee in lieu of or in commutation of an annuity on his retirement at or after the specified age or on his becoming incapacitated prior to such retirement or
by way of refund of contribution on the death of the beneficiary or,
by way of refund of contribution to an employee on his leaving the service in connection with which the fund is established otherwise than by retirement at or after a specified age
or his becoming incapacitated prior to such retirement, to the extent the payment made does not exceed the contribution made prior to 1-4-1962 and the interest thereon. For example, where the amount received by an employee does not include any contribution made prior to 1.4.1962, the whole amount is taxable.
by way of transfer to the account of the employee under a pension scheme referred to in section 80CCD, which is notified by the Central

(B) Tax free perquisites in all cases

The following perquisites are exempt from tax in the hands of all employees.

Telephone	Telephone provided by an employer to an employee at his residence
Transport Facility	Transport facility provided by an employer engaged in the business of carrying of passengers or goods to his employees either free of charge or at concessional rate
Privilege passes and privilege ticket	Privilege passes and privilege ticket orders granted by Indian Railways to its employees
Perquisites allowed outside India by the Government	Perquisites allowed outside India by the Government to a citizen of India for rendering services outside India
Employer’s contribution to staff group insurance scheme	Employer’s contribution to staff group insurance scheme
Annual premium by employer on personal accident policy	Payment of annual premium by employer on personal accident policy effected by him on the life of the employee
Refreshment	Refreshment provided to all employees during working hours in office premises
Subsidized lunch	Subsidized lunch provided to an employee during working hours at office or business premises provided the value of such meal is upto 50
Recreational facilities	Recreational facilities, including club facilities, extended to employees in general i.e., not restricted to a few select employees
Amount spent on training of employees	Amount spent by the employer on training of employees or amount paid for refresher management course including expenses on boarding and lodging
Sum payable by employer to a RPF or an approved superannuation fund	Sum payable by an employer to a RPF or an approved superannuation fund or deposit-linked insurance fund established under the Coal Mines Provident Fund and Miscellaneous provisions Act, 1948 or the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 upto the limit prescribed
Leave travel concession	Leave travel concession, subject to the conditions specified under section 10 (discussed below)
Note - Value of Leave travel concession provided to the High Court judge or the Supreme Court Judge and members of his family are completely exempt without any conditions.

Medical facilities	Medical facilities subject to certain prescribed limits
Rent-free official residence	Rent-free official residence provided to a Judge of a High Court or the Supreme Court
Conveyance facility	Conveyance facility provided to High Court Judges under section 22B of the High Court Judges (Conditions of Service) Act, 1954 and Supreme Court Judges under section 23A of the Supreme Court Judges (Conditions of Service) Act, 1958.

Exemption in respect of Leave travel concession [Section 10(5)]

This clause exempts the leave travel concession (LTC) received by employees from their employers for proceeding to any place in India,

- either on leave or
- after retirement from service or
- after termination of his
The benefit is available to individuals - citizens as well as non-citizens - in respect of travel concession or assistance for himself or herself and for his/her family- e., spouse and children of the individual and parents, brothers and sisters of the individual or any of them wholly or mainly dependent on the individual.
Limit of exemption - The exemption in all cases will be limited to the amount actually spent subject to such conditions as specified in Rule 2B regarding the ceiling on the number of journeys for the place of destination. Under Rule 2B, exemption will be available in respect of 2 journeys performed in a block of 4 calendar years commencing from the calendar year 1986.

Where such travel concession or assistance is not availed by the individual during any block of 4 calendar years, one such unavailed LTC will be carried forward to the immediately succeeding block of 4 calendar years and will be eligible for exemption
Monetary limits - Where the journey is performed on or after the 1.10.1997, the amount exempted under section 10(5) in respect of the value of LTC shall be the amount actually incurred on such travel subject to the following conditions

S.No.	Journey performed by				Limit
1	Air				Amount not exceeding the air economy fare of the National Carrier by the shortest route to the place of destination
2	Any other mode:
	(i)	Where rail available	service	is	Amount not exceeding the air-conditioned first class rail fare by the shortest route to the place of destination
	(ii)	Where rail available	service is	not
		(a) a recognised public transport system exists			amount not exceeding the 1st class or deluxe class fare, as the case may be, on such transport by the shortest route to the place of destination
		(b) no recognised public transport system exists			amount equivalent to the air-conditioned first class rail fare, for the distance of the journey by the shortest route, as if the journey had been performed by rail

Note - The exemption referred to shall not be available to more than two surviving children of an individual after 1.10.1998. This restrictive sub-rule shall not apply in respect of children born before 1.10.1998 and also in case of multiple births after one child.

Medical facilities (Provison to section 17(2))

The following medical facilities will not amount to a perquisite

1. Value of medical treatment in any hospital maintained by the employer - The value of any medical treatment provided to an employee or any member of his family in any hospital maintained by the employer

2. Reimbursement of expenditure actually incurred on medical treatment - Any sum paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family

in any hospital maintained by the Government/local authority/any other hospital approved by the Government for the purpose of medical treatment of its employees
in respect of the prescribed disease or ailments in any hospital approved by the Principal Chief Commissioner or Chief Commissioner having regard to the prescribed

However, in order to claim this benefit, the employee shall attach with his return of income a certificate from the hospital specifying the disease or ailment for which medical treatment was required and the receipt for the amount paid to the hospital.

Thus, the two types of facilities are covered

payment by the employer for treatment in a Government hospital and
payment by an employer for treatment of prescribed diseases in any hospital approved by the principal Chief Commissioner or Chief

3. Premium paid to effect an insurance on the health of employee - Any premium paid by an employer in relation to an employee to effect an insurance on the health of such However, any such scheme should be approved by the Central Government or the Insurance Regulatory Development Authority (IRDA) for the purposes of section 36(1)(ib).

4. Reimbursement of premium paid to effect an insurance on the health of employee or for the family of an employee - Any sum paid by the employer in respect of any premium paid by the employee to effect an insurance on his health or the health of any member of his family under any scheme approved by the Central Government or the Insurance Regulatory Development Authority (IRDA) for the purposes of section 80D.

5. Amount paid towards expenditure incurred outside India on medical treatment - Any expenditure incurred by the employer or any sum paid by the employer on any expenditure actually incurred by the employee on the following

medical treatment - of the employee or any member of the family of such employee outside India
travel and stay abroad - of the employee or any member of the family of such employee for medical treatment
travel and stay abroad of one attendant - who accompanies the patient in connection with such treatment.

Conditions

The perquisite element in respect of expenditure on medical treatment and stay abroad will be exempt only to the extent permitted by the
The expenses in respect of traveling of the patient and the attendant will be exempt if the employee’s gross total income as computed before including the said expenditure does not exceed 2 lakh.

Note - For this purpose, family means spouse and children of the individual. Children may be dependent or independent, married or unmarried. It also includes parents, brothers and sisters of the individual if they are wholly or mainly dependent upon him. Hospital includes a dispensary or a clinic or a nursing home.

(C) Perquisites taxable only in the hands of specified employees [Section 17(2)(iii)]

Any monetary obligation of the employee which is discharged by the employer is perquisite in the hands of all employees as per section 17(2)(iv). However, sometimes instead of discharging employee’s obligation, employer provides perquisites in the form of facility to the employee. Such perquisites are taxable in the hands of specified employees only.

The value of any benefit or amenity granted or provided free of cost or at concessional rate which have not been included in (A) & (B) above will be taxable in the hands of specified employees. Followings are the example of such services

Provision of sweeper, gardener, watchman or personal attendant
Facility of use of gas, electricity or water supplied by employer
Free or concessional tickets
Use of motor car
Free or concessional educational facilities
For valuation of such perquisites, refer discussion on valuation of perquisite

Meaning of Specified employees

Director employee - An employee of a company who is also a director is a specified It is immaterial whether he is a full-time director or part-time director. It also does not matter whether he is a nominee of the management, workers, financial institutions or the Government. It is also not material whether or not he is a director throughout the previous year.

An employee who has substantial interest in the company - An employee of a company who has substantial interest in that company is a specified employee. A person has a substantial interest in a company if he is a beneficial owner of equity shares carrying 20% or more of the voting power in the company.

Beneficial and legal ownership - In order to determine whether a person has a substantial interest in a company, it is the beneficial ownership of equity shares carrying 20% or more of the voting power that is relevant rather than the legal ownership

Employee drawing in excess of 50,000 - An employee other than an employee described in (i) & (ii) above, whose income chargeable under the head ‘salaries’ exceeds 50,000 is a specified employee. The above salary is to be considered exclusive of the value of all benefits or amenities not provided by way of monetary payments

In other words, for computing the limit of 50,000, the following items have to be excluded or deducted
(a)	all non-monetary benefits
(b)	monetary benefits which are exempt under section 10. This is because the exemptions provided under section 10 are excluded completely from salaries. For example, HRA or education allowance or hostel allowance are not to be included in salary to the extent to which they are exempt under section 10.
(c)	Standard deduction upto 50,000 [under section 16(ia)], Deduction for entertainment allowance [under section 16(ii)] and deduction toward professional tax [under section 16(iii)] are also to be excluded.

If an employee is employed with more than one employer, the aggregate of the salary received from all employers is to be taken into account in determining the above ceiling limit of 50,000, i.e., Salary for this purpose = Basic Salary + Dearness Allowance + Commission, whether payable monthly or turnover based + Bonus + Fees + Any other taxable payment + Any taxable allowances + Any other monetary benefits – Deductions under section 16]

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CHETNAA GOYAL

Chetnaa Goyal one of the co-founder of TaxSmooth. An Qualified Chartered Accountant. More than 12 years of Experience in Direct Taxation. having own Taxation Practice in Delhi. Expertise in Income Tax Cases, Return filing, Tax Planning, Tax Advisory etc.