Perquisites and assessment of individuals

Income tax presentation on perquisites and assessment of individuals.

1. Definition Of Perquisites “Perquisite” may be defined as any casual emolument or benefit attached to an office or position in addition to salary or wages. In essence, these are usually non-cash benefits given by an employer to employees in addition to cash salary or wages. However, they may include cases where the employer reimburses expenses or pays for obligations incurred by the employee. Perquisites are also referred to as fringe benefits.

2. Broadly, “perquisite” is defined in the section 17(2) of the Income-tax Act as including: 1) Value of rent-free or concessional rent accommodation provided by the employer. 2) Value of any benefit/amenity granted free or at concessional rate to specified employees etc. 3) Any sum paid by employer in respect of an obligation, which was actually payable by the assessee. 4) Any sum paid by the employer for assurance on life of the employee or to effect a contract for an annuity. 5) Value of any other fringe benefit as may be prescribed.

3. EXEMPTED FROMTAX (FULLY EXEMPTED) Free medical facilities or reimbursement of medical expenditure: exempted upto Rs 15000 p.a ¢ Free refreshment supplied ¢ Free meals given at remote area or offshore ¢ Free recreational facilities ¢ Provision for telephone including mobile phones ¢ Free education : should not exceed Rs 1000 per child ¢ Cost of refresher course ¢ Any rent free residential ¢ Good sold by employer to employee ¢ Free ration received by members ¢ Perquisite allowed by govt to employees posted abroad ¢ Rent free house given to officer of parliament

4. Conveyance facilities to judges ¢ Any amount contributed by employee towards pension ¢ Any amount contributed by employee towards pension ¢ Transfer of movable assets ¢ Accident insurance premium ¢ Interest free loan: does not exceed Rs 20,000 ¢ Perquisites and allowance paid by government to its employees posted outside India.

5. IMPORTANT POINTS Employees covered under payment of gratuity act, 1972: applies to the employees or workers covered under this act. ¢ Calculation of length of service/ service period: period exceeding 6 moths is taken as a full year. ¢ How to calculate 15 days salary: (a) in case of monthly rated employees: 15 days salary= monthly salary last drawn * 15 days ------------------------------------26 days ¢ (b) in case of piece rated employees: on the basis of avg of the total wages/salary of a period of 3 months immediately preceding his retirement wages for overtime period are to be ignored

6. Tax Free Medical Fecilities As per proviso to Section 17(2) exemption is available from income tax, on medical facilities for the employee and his family. This exemption would now be available in respect of (i) Medical facility provided in hospitals, clinics, etc. maintained by the employer; (ii) Reimbursement by the employer of expenditure incurred by the employee in hospitals, dispensaries, etc. maintained by government, local authority, or in a hospital approved under the central health scheme or a similar scheme of any state government or private hospitals and nursing homes approved by the Chief CIT (for some prescribed diseases); (iii) Group medical insurance obtained by the employer for his employees (including members of their families) or reimbursement of insurance premium to the employees who take such medical insurance; and

7. As per proviso to Section 17(2) exemption is available from income tax, on medical facilities for the employee and his family. This exemption would now be available in respect of (i) Medical facility provided in hospitals, clinics, etc. maintained by the employer; (ii) Reimbursement by the employer of expenditure incurred by the employee in hospitals, dispensaries, etc. maintained by government, local authority, or in a hospital approved under the central health scheme or a similar scheme of any state government or private hospitals and nursing homes approved by the Chief CIT (for some prescribed diseases); (iii) Group medical insurance obtained by the employer for his employees (including members of their families) or reimbursement of insurance premium to the employees who take such medical insurance

8. PERQUISITES TAXABLE IN THE HANDS OF ALL CATEGORIES OF EMPLOYEES The following perquisites are taxable in the hands of all employees: Rent Free Accommodation Any concession in the matter of rent in respect of accommodation provided by employer to employee Discharge of monetary obligation of the employee Any sum payable by the employer whether directly or through a fund to effect an assurance on the life of the assesse Fringe benefits

9. RENT FREE ACCOMMODATION

10. Central or state government employee-RFA

11. Other employer

12. Value of taxable perquisites= Actual amount of expenditure met by employer Examples are given below: Gas, Electricity bill paid Children education expenses paid Medical expenses paid MONETARY OBLIGATION PAID BY EMPLOYER

13. Value of taxable perquisites= Actual amount of expenditure met by employer LIFE INSURANCE PREMIUM PAID BY EMPLOYER

14. FRINGE BENEFITS Taxable perquisites in the hands of All employees

15. Interest Free Or Concessional Loans Value of benefit resulting from loans made available to employee or any member of his household by his employer or a person in this behalf in the relevant previous year. Value - Maximum outstanding monthly balance X SBI Lending rate (as reduced by interest paid by him) Exceptions to chargeability of the value of benefit: 1. where the amount of loan does not exceed Rs . 20,000 2. loan for treatment of diseases mentioned in Rule 3A .

16. Travelling, Touring, Accommodation etc. 1. Not available uniformly to all employees 2. Available uniformly to all employees Value at which such facilities are offered by other agencies to the public. Amount actually incurred by the employer B. Household Member accompanying an employee on an official tour Amount incurred by employer in respect of the member. C. Official tour extended as a vacation Value limited to the part of expenses incurred on the vacation D. Any other case involving such facility Amount incurred by employer

17. Value of Free Food & Non-beverages 1. T ea or snacks during working hours NIL 2. Facility provide in a remote are or an offshore installation NIL 3. Facility provided i . at office or business premises ii. Through paid vouchers NIL upto Rs . 50 per meal 4. Any other case Amount incurred by employer less amount recovered

18. Expenses on Credit Cards Expenses including membership fees and annual fees charged to credit card paid or reimbursed by the employer , then the value of benefit will be the amount paid or reimbursed by the employer. Where such expenses are incurred wholly and exclusively for official purposes, then value of benefit is NIL provided some conditions are fulfilled. Club membership and expenses incurred in a club Same as above

19. Use of Movable Asset Use of Laptops and computers N IL Movable assets, other than- Laptops and computers Assets already specified 10% p.a of the actual cost Rent or charge paid by the employer

20. Transfer of any Movable Asset A SSET TRANSFERRED VALUE OF BENEFIT Computers and electronic items C ost of asset reduced by 50% of cost for each completed year, on the basis of RBM Motor cars C ost of asset reduced by 20% of cost for each completed year, on the basis of RBM Any other asset C ost of asset reduced by 10% of cost for each completed year, on the basis of S LM

21. PERQUISITES TAXABLE IN THE HANDS OF SPECIFIED EMPLOYEES Sometimes the employer provides the perquisites in the form of facility to the employee. Such facility will be a perquisite only for specified employees mentioned in section 17(2)(iii) like services of a sweeper, gardener, watchman or personal attendant, use of motor car etc..

22. Specified employee Under section 17(2)(iii), an employee shall be a specified employee, if he falls under any of the following 3 categories: He is a director of a company; He, i.e. the employee, has a substantial interest in the company. As per section 2(32), person who has a substantial interest in the company, in relation to a company means a person who is the beneficial owner of shares, not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits, carrying not less than 20% of the voting power. His income under the head salaries(excluding non-monetary benefits/perquisites), exceeds Rs 50,000. The following are to be deducted from salary for this purpose. (a) entertainment allowance (b) tax on employment

23. S.No Circumstances VALUE OF TAXABLE PERQUISITES Where cubic capacity of engine does not exceed 1.6 litres (small car/vehicle) VALUE OF TAXABLE PERQUISITES Where cubic capacity of engine exceed 1.6 litres (large car/ vehicle) 1. Where the car is owned or hired by the employer and the running and maintenance expenses are met or reimbursed by the employer: (a) Is used wholly and exclusively in the performance of his official duties; (b) Is used exclusively for the private or personal purpose of the employee or any member of his household; No value Actual amount of expenditure made by the employer+10% p.a. on original cost of motor car/hire charges + driver’s salary- any amount charged from the employee for such use No value Actual amount of expenditure made by the employer+10% p.a. on original cost of motor car/hire charges + driver’s salary- any amount charged from the employee for such use

24. S.No Circumstances VALUE OF TAXABLE PERQUISITES Where cubic capacity of engine does not exceed 1.6 litres (small car/vehicle) VALUE OF TAXABLE PERQUISITES Where cubic capacity of engine exceed 1.6 litres (large car/ vehicle) (c) Is used partly in the performance of official duties and partly for personal or private purposes of his own or of his household— The expenses on running and maintenance are met or reimbursed by the employer. The expenses on running and maintenance for such private or personal use are fully met by the employee. Rs 1800 p.m. + Rs 900 for driver’s salary if any Rs 600 p.m. + Rs 900 for driver’s salary if any Rs 2400 p.m. + Rs 900 for driver’s salary if any Rs 900 p.m. + Rs 900 for driver’s salary if any

25. S.No Circumstances VALUE OF TAXABLE PERQUISITES Where cubic capacity of engine does not exceed 1.6 litres (small car/vehicle) VALUE OF TAXABLE PERQUISITES Where cubic capacity of engine exceed 1.6 litres (large car/ vehicle) 2. Where the employee owns a motor car but the actual running and maintenance charges are met reimbursed to him by the employer : Such reimbursement is for the use of the vehicle wholly and exclusively for official purposes Such reimbursement is for the use of private or personal purposes of employee or member of his household. No value Actual amount incurred by the employer including driver’s salary- amount charged from employee for such use No value Actual amount incurred by the employer including driver’s salary- amount charged from employee for such use

26. S.No Circumstances VALUE OF TAXABLE PERQUISITES Where cubic capacity of engine does not exceed 1.6 litres (small car/vehicle) VALUE OF TAXABLE PERQUISITES Where cubic capacity of engine exceed 1.6 litres (large car/ vehicle) (c) Such reimbursement is for the use of the vehicle partly for official purposes and partly for personal purposes of the employee or any member of his household. (d) Where the car is partly used for official purposes and partly for personal purposes but the expenses for personal use is borne by the employee Actual amount of expenditure incurred by the employer- Rs 1800 p.m.(including driver’s salary of Rs 900 p.m. if any) Rs 600 p.m. + Rs 900 for driver’s salary if any Actual amount of expenditure incurred by the employer- Rs 2400 p.m.(including driver’s salary of Rs 900 p.m. if any) Rs 900 p.m. + Rs 900 for driver’s salary if any

27. S.No Circumstances VALUE OF TAXABLE PERQUISITES Where cubic capacity of engine does not exceed 1.6 litres (small car/vehicle) VALUE OF TAXABLE PERQUISITES Where cubic capacity of engine exceed 1.6 litres (large car/ vehicle) 3. Where the employee owns any other auto-motive conveyance but the actual running and maintenance charges are met or reimbursed to him by the employer- Such reimbursement is for the use of the vehicle wholly and exclusively for official purposes Such reimbursement is for the use of the vehicle partly for official purposes and partly for personal or private purposes of the employee. No value actual amount of expenditure incurred by the employer-900 p.m.- amount charged from the employee Not applicable

28. PROVISION BY THE EMPLOYER OF SERVICES OF A SWEEPER, A GARDENER, A WATCHMAN OR PERSONAL ATTENDANT Value of taxable perquisites=the value shall be the actual cost to the employee-any amount paid by the employee for such services

29. VALUE OF BENEFIT TO THE EMPLOYEE RESULTING FROM THESUPPLY OF GAS, ELECTRIC ENERGY OR WATER FOR HOUSEHOLD CONSUMPTION Circumstances Value of benefits (a) Where such supply is made from resources owned by the employer without purchasing from the outside agency It shall be the manufacturing cost per unit incurred by the employer (b) In any other case Amount paid on this account by the employer to the agency supplying the gas, electric energy or water

30. FREE OR CONCESSIONAL EDUCATION FACILITIES TO ANY MEMBER OF EMPLOYEES’ HOUSEHOLD [Rule3(5)]

31. CIRCUMSTANCES VALUE OF BENEFIT Where the educational institution is itself maintained and owned by the employer The cost of education in a similar institution in or near the locality . However , if the educational facilities are provided to the children of the employee (any other member of the household no covered here), the value of this perquisite shall be nil if the cost of such education does not exceed Rs 1000 b) Where free education facilities for such members of employees’ household are allowed in any other educational institution by reason of his being in employment of that employer Actual amount of expenditure made by the employer. However , if the educational facilities are provided to the children of the employee (any other member of the household no covered here), the value of this perquisite shall be nil if the cost of such education does not exceed Rs 1000

32. FREE OR CONCESSIONAL JOURNEY GIVEN TO THE TRANSPORT EMPLOYEES AND THEIR FAMILY MEMBERS[Rule 3(6)]

33. PARTICULARS VALUE OF PERQUISITES Provisions of transport to the employee or to a member of his household by the employer who is engaged in the carriage of passengers or goods- In the case of employee of an airline or the railways In the case of any other employee: If provided free of cost If provided at concessional rate Nil Value at which such benefit or amenity is offered by such employer to the public Reduce from the above value, the amount paid by or recovered from the employee for such benefit or amenity.

34. ASSESSMENT OF INDIVIDUALS An individual means natural person i.e. human being. Individual includes: male Female Minor child Lunatic An idiot

35. Incomes of an individual which are taxable Income earned by an individual himself- in his individual capacity. Remuneration and interest received by the partner from a firm or a LLP. Income received as a member of an association of persons, etc. Income of other persons included in the income of the individual. Incomes from impartible estate of an individual.

36. Computation of total income and tax liability STEP 1: Compute the income of an individual under 5 heads STEP 2: Add income of any other person includible STEP3: Set off losses if permissible STEP 4: Carry forward and set off the losses of past years STEP 5:Give deductions u/s 80C TO 80U from Gross Total Income STEP6 :Now Total income is rounded off to the nearest 10

37. STEP7:Compute tax on such Total Income at the prescribed rate of tax. STEP8:Allow rebate of maximum Rs 5000 in case of resident individual having total income upto Rs 5,00,000. STEP9: Add surcharge @ 15% if the total income exceeds Rs 1 crore. STEP10:Add education cess@ 2% and SHEC @ 1% on the tax. STEP 11:Allow relief under section 89, if any STEP 12: Deduct TDS, advance tax paid for the relevant assessment year. The balance is the net tax payable which will be rounded to nearest 10 rupees .

38. PARTICULARS RATE OF TAX Winning from lotteries, crossword puzzles or races including horse races 30% B. Short term capital gain on equity shares in a company or units of an equity oriented fund 15% C. Long term gains 20% The balance of total income in case of: An individual (man or woman) resident in India who is age of 80 years or more at any time during previous year: Upto Rs 5,00,000 Rs 5,00,000 to Rs 10,00,000 Above Rs 10,00,000 An individual (man or woman) resident in India who is age of 60 years or more at any time during previous year: Upto Rs 2,00,010 Rs 2,00,010 to Rs 5,00,000 Rs 5,00,010 to Rs 10,00,000 Above 10,00,000 3) An individual, (other than mentioned above)HUF, AOP/BOI Upto Rs 2,50,000 Rs 2,50,010 to Rs 5,00,000 Rs 5,00,010 to Rs 10,00,000 Above 10,00,000 Nil 20% 30% Nil 10% 20% 30% Nil 10% 20% 30%

39. Alternate Minimum Tax (AMT) Where the regular income tax payable for a previous year by a person is less than the alternate minimum tax payable for such previous year, the adjusted total income shall be deemed to be the total income of such person and he shall be liable to pay income- tax on such total income at the rate of 18.5% [Section 115JC(1)]

40. An illustration

41. Mr. Sameer Raichand , who is an Indian Citizen and is a resident for income tax purposes submits the following information for assessment year 2017 to 2018. Rs Gross Salary 2,50,000 Profession tax paid 2,000 Own contribution to RPF 10,000 Employer’s contribution to provident fund 10,000 Dividend from Indian company 2,000 Income on deposits with a company (gross) 49,000 Long-term capital gain from house property 60,000 Short- term capital gain from shares 40,000 covered under section 111A 40,000 Compute the total income and tax payable by Sameer Raichand

42. Computation of TOTAL INOME OF SAMEER RAICHAND FOR THE ASSESSMENT YEAR 2017-2018 Rs Rs 1) Income from Salary Gross Salary 2,50,000 Less: Deduction on account of profession tax (2000) 2,48,000 2) Income from Capital Gains Long term capital gains 60,000 Short term capital gains 40,000 1,00,000 3) Income from other sources Dividend from other company Exempt Interest on deposit with company 49,000 49,000 GROSS TOTAL INCOME 3,97,000

43. GROSS TOTAL INCOME 3,97,000 Less: Deduction u/s 80C 10,000 TOTAL INCOME 3,87000 Computation of tax LTCG- Rs60,000@ 20% 12000 STCG u/s111A-Rs40,000@15% 6,000 Tax on balance Rs2,87,000 3,700 21,700 Less: Rebate u/s 87A 5,000 16,700 Add: Education cess and SHEC @3% 501 17,201 Tax rounded off 17200

44. MADE BY MALLIKA HALDAR LAXMI CHAUHAN MADHAVI BANSAL MAHIMA UPADHYAY KRITI VARSHNEY