How are Perquisites Taxed ?
There was a period when this benefit was taxed in the hands of employer in the name of ‘fringe benefit tax’. Now as ‘perquisite’, it taxed in the hands of the receiver who is the employee. The value of the benefit received as perquisite is considered to be a form of income and is added with the salary and taxed.
Accommodation provided by government companies to employees irrespective of state or central government the tax is paid by the government organization which is the employer. For private firms the perquisite tax for this benefit is applicable as a percentage of salary based on the city where he/she is accommodated. There are certain exceptions for accommodation in mining areas, oil research areas and also in conditional transfer.
Facilities like sources of energy (gas, electricity) and water if provided or paid by the employer, the tax is charged in the hands of the employee based on the cost per unit of the facility.
The educational facility of the employee’s relative (son/daughter) if provided by the institution owned by the employer or where the expenses of education of the student is taken care of by the employer, the tax as perquisite is applicable in the hand of the employee. There is an exception in this case. If the expense for education does not exceed Rs 1000 per month in other schools in the same locality then this perquisite is tax exempt.
If an employee owns a vehicle (car) and uses it for both personal and official purposes, tax exemption is based on the cubic capacity of the car engine. A car whose engine is less than 1600 CC the amount of tax exemption is Rs 1200 per month and to those having over 1600 CC engine the amount exempt is Rs 1600 per month.
- 20% of the expenses on telephone or mobile provided to the employee for official purposes is considered as fringe benefit and is taxed in the hands of employer.
- 50% of the expenses on health club facility provided to the employee fall under fringe benefit category.
- 5% of the expenses on travel to foreign countries by the employee from the provided by the employer are considered to be fringe benefit.