IPCC Paper 4 Taxation Chapter 4 Part 3

Adv. Ajay Malchand Sharma

Term Perquisite indicates benefits or amenities in

cash or kind provided to employee.
The perquisites are provided to the employee
free or at a concessional rate.
The value of perquisites provided to the
employee is regarded as the part of taxable
salary.
Perquisites are legal rights of the employee.

Perquisites must be authorised by the employer.

Once any amenity or facility is provided it

becomes taxable in the hands of the employee
whether he uses it or not.
Reimbursement of expenses to the employee is not
a perquisite.

The value of rent free accommodation provided by the

employer.
Value of concession in the rent for accommodation
provided by the employer.
Any sum paid by the employer in respect of the
obligation which in fact is payable by the employee.
Sums paid by the employer to effect an assurance of the
life of the employee.

The value of specified security or sweat equity

share allotted free of cost or at concessional rate
to the employee.
The amount of contribution to an approved
superannuation fund by the employer
exceeding Rs.1,00,000.
The value of any prescribed fringe benefit or
amenity as may be provided by employer.

Who is Specified
Employee: Section 17(iii)
Director employee
Employee having substantial
interest in the company
If the salary exceeds Rs.50,000
is a specified Employee
6

Case 1: (Accommodation is owned by employer)

(Private sector Employees)
Type of accommodation owned by the
employer provided to the Employee

Value of Perquisite

Accommodation provided in cities having

population exceeding 25 Lakh

15% of Salary

Accommodation provided in cities having

population between 10 Lakh to 25 Lakh

10% of Salary

Accommodation provided in cities having

population up to 10 Lakh

7.5% of Salary

Case 2: (Accommodation is taken on lease by employer)

(Private sector Employees)
Type of accommodation is taken on
lease by the employer provided to the
Employee

Value of Perquisite

Accommodation provided in cities having

population exceeding 25 Lakh

15% of Salary or lease rent payable

by employer whichever is lower.

Accommodation provided in cities having

population between 10 Lakh to 25 Lakh

15% of Salary or lease rent payable

by employer whichever is lower.

Accommodation provided in cities having

population up to 10 Lakh

15% of Salary or lease rent payable

by employer whichever is lower.
8

Case 3: (Accommodation is owned by Government)

(Government Employees)
Type of accommodation owned by the
Government provided to the Employee

Value of Perquisite

Accommodation provided in cities having

population exceeding 25 Lakh

15% of Salary

Accommodation provided in cities having

population between 10 Lakh to 25 Lakh
Accommodation provided in cities having
population up to 10 Lakh

10% of Salary
7.5% of Salary

Case 4: Furnished accommodation taken on lease by the

Government for its Employee
Type of accommodation taken on
lease by the Government provided to
the Employee

Value of Perquisite

Accommodation provided in cities having 15% of Salary or lease rent payable

population exceeding 25 Lakh
by employer whichever is lower
Accommodation provided in cities having 15% of Salary or lease rent payable
population between 10 Lakh to 25 Lakh by employer whichever is lower
Accommodation provided in cities having 15% of Salary or lease rent payable
population up to 10 Lakh
by employer whichever is lower
10

Case 5:
Government Employee where the
accommodation is unfurnished the value of
the perquisite shall be license fees
determined by the Union Government or
State Government
11

In Respect of Furnished
Accommodation both Government
and Private Sector Employees
Furnished rent free
accommodation
provided by the
employer shall further
be increased to the
extent of 10% of the
cost of furniture

Furniture includes
T.V, Radio,
refrigerators, other
house hold
appliances, air
conditioner or
gadgets

W.D.V. of the
furniture shall not be
considered.

12

In respect of
furnished
accommodation
both
Government
and Private
sector
Employees

Hire charges of
furniture shall be
perquisites if the same
is taken on hire by
employer.

13

In respect of
Concessional
rent to the
government
Employees
under section
17(ii)

Concessional rent concept is not applicable

to Government Employees under section
17(ii).

14

Type of
accommodation
owned by the
employer provided
to the Employee

Accommodation provided in
cities having population
exceeding 25 Lakh
Accommodation provided in
cities having population
between 10 Lakh to 25 Lakh
Accommodation provided in
cities having population up to
10 Lakh

Value of Perquisite

15% of Salary less rent

recoverable from employee
10% of Salary less rent
recoverable from employee
7.5% of Salary less rent
recoverable from employee

15

Accommodation taken on lease by

Employer

Rent paid by the employer or 15% of

salary whichever is lower less rent
recoverable from Employee

16

Basic Salary
Taxable Allowances
Bonus
Commission
D.A forming part of Retirement Benefits
17

D.A not forming part of Retirement Benefits

Employers contribution to P.F account of Employee

Exempt Allowances

Value of perquisites u/s. 17(2)

Medical expenses or medical insurance premium to the extent
excluded under first proviso to section 17(2)

18

Mr. X is a Manager in a Ltd Company. The company

has provided him a rent free accommodation in
Mumbai. He gives you the following particulars for
the previous year ending 31st March 2013.
Basic Salary

Rs.10,000 PM

Advance salary for April and May 2013

Rs.20,000 PM

Dearness Allowance

Rs.4000 PM(40% is for

retirement benefits)

Bonus

Rs.2000 PM

19

Even though the company allotted the

house to him on 1.4.2012 , he occupied
the same only from 1.1.2013.
Calculate the taxable value of the
perquisite for assessment year 20132014

20

Basic salary Rs.10,000 for 3 months

=Rs.30,000
Dearness Allowance
(Rs.4,000 x40%= Rs.1600 x 3 months)
=Rs.4,800
Bonus (Rs.2,000 x 3 months)
=Rs. 6,000

Rs. 40,800

21

15% of Rs.40,800
= Rs.6120 is
taxable perquisite
in respect of the
rent free
unfurnished
house.

Note : since Mr. X

occupies the
house only from
1.1.2013 we have
to include the
salary due to him
only in respect of
the months during
which he has
occupied the
accommodation.

Therefore the
salary for three
months only shall
be considered for
calculation of
perquisite.

Advance salary
shall not be
considered as the
same does not
fall in previous
year 1.4.2012 to
31.03.2013.

22

Mr. P is a Manager in ABC Ltd. The company

has provided him a rent free
accommodation in Mumbai. He gives you the
following particulars for the previous year
ending
31st March 2013.
Basic Salary
Advance salary for April and May
2013
Dearness Allowance
Bonus
Other Taxable Allowances

Rs.15,000 PM
Rs.20,000 PM
Rs.6000 PM(40% is for retirement
benefits)
Rs.3000 PM
Rs. 1000PM
23

The company allotted the house to him on

1.4.2012 . He is required to pay a rent of Rs. 2000
PM to the company for the use of the
accommodation.

Calculate the taxable value of the perquisite for

assessment year 2013-2014

24

Basic salary Rs.15,000 for 12 months =

1,80,000
Dearness Allowance
(Rs.6000x12x40%)
=
28,800
Bonus (Rs.3,000 x 12 months)
=
36,000
Other taxable allowance
=
12,000

Rs.

Rs.
Rs.
Rs.

15% of 2,56,800

Rs. 2,56,800
= Rs.

25

Mr. S is a Manager in a Ltd Company. The company

has provided him a rent free accommodation in
Mumbai. He gives you the following particulars for
the previous year ending 31st March 2013.
Basic Salary

Rs.20,000 PM

Advance salary for April and May

2013

Rs.60,000 PM

Dearness Allowance

Rs.6000 PM(60% is for retirement

benefits)

Bonus

Rs.2000 PM

Taxable Children Allowances

Rs. 5000 P.A.

26

Since the company does not own a house,

it has taken the same for Mr. S on lease
and paid rent of Rs.3,000 p.m. Mr. S is
required to pay Rs.1,500 to the company
for the use of accommodation which
allotted to him on 1.4.2012 .

Calculate the taxable value of the

perquisite for assessment year 2013-2014.

27

Basic salary
Dearness Allowance
(Rs.6000x12x60%)
Bonus
Other taxable allowance

Rs. 2,40,000

=
=
=

Rs. 43,200
Rs. 24,000
Rs.
5,000

Rs. 3,12,200
15% of 3,12,200 = Rs. 46,830..(1)
Rent Paid by the Company for House
= Rs. 36,000..(2)
Calculation of the perquisite:
The Lower of the two is
= Rs. 36,000
Less: Rent Recovered from Employee
= Rs. 18,000
..
Value of perquisits
= Rs. 18,000

28

Mr. G is a Manager in Z Ltd. The company has provided him a rent

free accommodation in Mumbai. It has also provided a television
on 1.12.2012 whose WDV is at Rs.10,000 and cost is Rs.30,000.

The company has also provided one air-conditioner which was

taken by it on rent. The rent paid for the air conditioner is
Rs.800 PM by the company.

He further gives you the following particulars for the previous year
ending 31st March 2013.

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Basic Salary

Rs.15,000PM

Advance salary for April and May

2013

Rs.20,000 PM

Dearness Allowance

Rs.6000 PM(40% is for retirement

benefits)

Bonus

Rs.3000 PM

Other Taxable Allowances

Rs.1000PM

The company allotted the house to him on 1.4.2012.He is

required to pay a rent of Rs.1000PM to the company for the
use of the accommodation.
Calculate the taxable value of the perquisite for
assessment year 2013-2014
30

Basic salary
1,80,000
Dearness Allowance
(Rs.6000x12x40%)
28,800
Bonus
Other taxable allowance
12,000

15% of 2,56,800
38,520..(1)
Add: Value of furniture provided

Rs.

Rs.

= Rs. 36,000
= Rs.

Rs. 2,56,800
= Rs.
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Valuation of benefit of provision of domestic

servant / sweeper /Gardner/
/watchman/personal attendant shall be the
actual cost to the employer.

32

Valuation of gas, electricity, water

shall be the manufacturing cost.

If any amount is recovered from the

employee the same shall be reduced
from the perquisite value.

33

The sum equal to the amount incurred by the employer in

the case of all employees whether specified employee or
not.
If the educational institute is maintained and owned by
the employer the perquisite shall be the actual fees
charged in the similar institute.
If the educational institute is owned and maintained by the
employer and no education fees is charged there will be no
perquisite to the extent of Rs.1000 PM.

34

The interest saved shall be treated as perquisite to the

extent of interest rates charged by State Bank per annum
from first day of the relevant previous year on the maximum
outstanding balance on the last day of every month.
Interest free loan aggregate up to Rs.20,000 is not
perquisite.

Interest free loan for specified Diseases shall not be treated

as perquisite.

35

Free concession food and non:

Alcoholic beverages: Rule 3(7)(iii)

36

It shall be treated as perquisite if the value

of the gift in kind is more than Rs.5000

Cash Gift of any amount shall always be

treated as salary.

37

Amount paid by the

employee shall be
reduced from such
perquisite.

38

The value of benefit provided by employer for

club facility for employee and his household.

Club facility used for official purposes.

Initial fees paid by the employer to acquire the

perquisite shall not be a perquisite

39

Motor car provided by employer for official purposes.

Motor car provided by employer for personal

purposes.(Expenses + Chauffeur + Normal ware & tare )

Motor car and services of chauffeur provided by employer:

Car is used for official and personal purposes.( Big car v/s.
Small car)

40

Assets Given

Value of Benefit

Use of laptop and computers

Nil

Other assets

10% p.a. of actual cost of the

assets.

Other assets taken on hire by

employer

Hire charges or rent paid by the

Employer.

41

Assets Transferred

Value of Perquisites

Motor cars

Depreciated value of the car which is

computed @ 20% on WDV for each
completed year of usage

Any other assets

Depreciated value of the assets which

is computed @ 10% on SLM for each
completed year of usage

Completed year

The use of the asset shall be treated

as perquisite only if such use is one
year . If the use is less than a year
then there is np perquisite for the use
of such asset. Use in fraction of the
year shall be ignored..

42

Medical treatment provided in a hospital maintained by Employer.

Expenses incurred by employer on medical treatment provided in
Government Hospitals or Municipal Hospitals.
Expenses incurred by employer for the prescribed diseases in
hospital approved by Chief Commissioner of Income Tax.
Expenses incurred by employer on medical treatment to the extent
of Rs.15,000.
Medical Expenses are not treated as perquisite to the extent of above
specifications.

43

The fair market value of equity shares or

specified securities on the date of exercise
of the options shall be considered as
perquisites.

44

The value of benefit provided by employer for club

facility for employee and his household.

Club facility used for official purposes.

Initial fees paid by the employer to acquire the

perquisite shall not be a perquisite

45

Telephone provided by employer at residence.

Goods sold by employer at concessional rates.

Transport facilities provided by employer engaged

in business of carrying of passengers

46

Privileged passes granted by Indian Railways to

its Employees.
Perquisites allowed outside India by
Government to Indian citizens who is the
Employee.
Sums payable by employer to a RPF, Super
Annulations Fund.

47

Contribution by employer to staff group insurance

schemes.

Leave travel concession.

Premium on personal accident policy.

48

Refreshment provided during working hours in

office.

Subsidized lunch or dinner.

Recreational facilities.

49

Training of the Employee.

Medical facilities up to prescribed limits.

Rent free official residence to judge of a high
court or Supreme Court.

Sports facilities provided by the employer.

50

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