INCOME FROM SALARIES

Perquisites
A Introduction
• In addition to regular payments like basic pay, dearness allowances, other
allowances etc, an employer may also provide some extra benefits or facilities
to his employees. These extra benefits or facilities which may be paid in cash
or in kind are called perquisites.
• Only the perquisites which arise because of an employer – employee
relationship are chargeable under Income from salaries. Perquisites which
arise in the course of a profession e.g perquisites given to a lawyer by his
client are charged under the head Income from business or profession.
• When expenses incurred in the course of discharge of official duties are
reimbursed by the employer to the employee, there is no perquisite involved
e.g actual traveling expenses to meet a client incurred by an employee and
reimbursed by the employer. Perquisites can be taxed under the head income
from salaries only if it has a legal origin. If an employee derives any benefit
which is not authorized by his employer, the benefit so derived cannot be
charged as perquisites.
• Any income tax paid by the employer on behalf of the employee, (i.e. tax free
salary) is a perquisite in the hands of the employee. It is not relevant whether
the employer pays the income tax under a contract or voluntarily.
B) Let us now discuss perquisites under the following headings:
Unit 1. Definition of perquisites u/s 17 (2)
Unit 2. i) Perquisites chargeable in the hands of all employees.
ii) Perquisites exempt in the hands of all employees and
iii) Perquisites chargeable in the hands of only specified employees
Unit 3. Valuation of perquisites – Rule 3 of the Income – Tax Rules 1962.
Unit 4. Perquisites provided by employers who are not liable to Fringe Benefit Tax.
These perquisites are chargeable in the hands of the employees who
receive such perquisites.
Unit 5. Certain Medical facilities not considered as perquisites and hence not
chargeable in the hands of the employees

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Unit 6. Premium paid by employees on personal accident insurance policies on the
lives of his employees not considered as perquisite and hence not
chargeable in the hands of the employees.

Unit 1. Definition of perquisite u/s 17 (2)

Sl. Section
Perquisite Remarks
No. Numbers
a) The value of any rent free 17 2 (i) Refer Unit 3 for valuation
accommodation of perquisites
(both unfurnished and furnished)
b) The value of any concession 17 2 (ii) Refer Rule 3(1) and
(reduction) in the matter of rent Supreme Court’s
arising to an employee in respect of decision in the case of
any accommodation provided to him Arun Kumar. V UOI.
by his employer i.e. Accommodation According to Supreme
provided at a concessional rate Court’s decision, there
must be concession in
the matter of rent before
this can be charged as
perquisite. We have to
first find out if there is
deemed concession.
Refer Unit 3 for valuation.
c) The value of any benefit or amenity 17 2 (iii) Refer Unit 3 for valuation
granted either free of cost or at a of perquisite
concessional rate in the case of
specified employees
d) Any sum paid by the employer on 17 2 (iv) Refer unit 3 for valuation
behalf of the employee in respect of of perquisite
any obligation which would have
been paid or met by the employee if
the employer had not paid the same.
e) Any sum paid by the employer 17 (2) (v) Any sum paid by the
directly to the employee or through a employee through a
fund to insure the life of the Recognized provided
employee or to for effecting an fund / superannuation
annuity contract for the employee fund / deposit linked
insurance fund is not
perquisite
f) The value of any fringe benefit or 17 (2) (vi) Under chapter XII-H,
amenity some fringe benefits
provided to employees
are chargeable in the
hands of certain
employers. These fringe
benefits are not included
under section 17 (2) (vi)

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 Perquisites chargeable in the case of i) all employees ii) exempt in the case of all employees
Unit 2. and iii) chargeable in the case of only specified employees.

Table – A Table – B Table – C

Perquisites chargeable in the case of Perquisites exempt in the case of all Perquisites chargeable only in the case
all employees (taxed) employees (not taxed) of specified employees – 17(2) (iii)

• Value of rent – free accommodation •
provided to the employee – 17 (2) (ii)
Note : Rent free accommodation provided •
to a High Court Judge / Supreme Court
Judge / Officer of Parliament is not
chargeable • Free or concessional rate transport facility
• Value of concession (reduction) in respect
of rent free accommodation provided by
an employer to his employee – 17(2) (ii)
• Perquisite provided outside India by
• Value of any amount paid by an employer
which would have otherwise been paid by
the employee – 17(2) (iv)
E.g : The employee engages the service •
of a domestic servant to work in his
house. It is his obligation / responsibility to
pay the servant. If the employer pays the
domestic servant’s salary, it is chargeable
in the hands of the employee as
perquisite.
• Any insurance premium paid by the
employer on the life of his employee – 17 •
(2) (v)
Telephone provided at employees • Perquisites which are taxable as given in
residence. Table A are chargeable in the hands of
specified employees also.
Any goods sold to an employee by an
employer at concessional (reduced) rate • Perquisites which are exempt as given in
Table B are exempt in the hands of
specified employees also.
provided to an employee by his employer
engaged in transportation business • The value of any other perquisites (i.e.
including railways. which are not included in Tables A and B)
provided free of cost or at a concessional
rate is taxable only in the hands of
Government of India to its citizen specified employees.
rendering service outside India e.g. staff of
Indian Embassy in a foreign country. Who is a specified employee?
Any sum payable by an employer to a i) An employee of a company who is also a
Recognized Provident Fund, approved director of the company including full time
superannuation fund, deposit linked director, part – time director & nominee
insurance fund under coal mines P.F. Act director. Even if he has been a director for
or Employees Provident Fund Act. only a part of the previous year, such
person will be treated as a specified
• Contribution of an employer to a group employee.
insurance scheme for his employees.
ii) Any person who has a substantial interest
Leave travel concession / assistance in the company i.e. a person who is the
provided by an employer to his employees beneficial owner of equity shares with 20%
subject to certain limits. or more voting power in the company

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 Table – A
Perquisites chargeable in the case of
all employees (taxed)
Exceptions : The following life insurance
premium payments are not perquisites i.e.
premium paid to RPF, approved
superannuation fund, deposit linked insurance
fund, group annuity scheme, employees state
insurance scheme & fidelity insurance
scheme.
• The value of any fringe benefit received by the
employee on which the employer is not
obliged to pay fringe benefit tax (-17 (2) (vi)
Table – B
Perquisites exempt in the case of all
employees (not taxed)
• Annual premium paid by employer on personal
accident policy on employee’s life.
• Any refreshment i.e snacks, tea, coffee,
beverages etc. provided to employees during
working hours in office premises including
subsidized (reduced rate) lunch or dinner.
• Any recreational facilities like sports, club
facilities etc. Such facilities must be provided
by an employer to his employees in general
and not a select few employees.
• Any amount spent by an employee in training
his employees including boarding and lodging
expenses incurred during such training.
• Value of medical facilities provided to the
employees subject to certain limits.
• Rent fee residence provided to a High Court
judge, Supreme Court judge, officer of the
parliament, central government minister and
leader of the opposition in the parliament.
• Conveyance facility given to High Court judges
and Supreme Court judges.
• Motor car facility provided to employer.
Note : The employer is liable to pay fringe Benefit
Tax on some of the above perquisites. The
employees are not taxed for any of the above
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Table – C
Perquisites chargeable only in the case
of specified employees – 17(2) (iii)
iii) An employee (other than employees covered
under i) and ii) above) whose income under the
head salary during the previous year is more
than
Rs. 50,000/-.
Note : Salary income this purpose is to be
calculated as follows :
All Monetary payments or income received from
one or more employers.
Less
Monetary benefits exempt under section 10 e.g
HRA, education allowance etc to the extend they
are exempt under section 10
Less
Deductions for entertainment allowance and
profession tax paid U/S 16.
Note : Value of non – monetary benefits or
amenities such as rent – free accommodation,
concesional rent of accommodation, free supply
gas, electricity & water, free education facilities,
free conveyance etc are not to be included while
calculating salary income.
 perquisites.

Unit 3. Valuation on of Perquisites (Rule 3 of Income – Tax Rules 1962

3.1 Valuation of unfurnished Accommodation (taxable in the hands of all employees)

Unfurnished Accommodation provided to

Private Sector Employees

including employees of a local
Central & State Govt employees including military
authority like Municipal
personnel i.e Central & State Govt. employees, Govt. Corporation & foreign government
employees on deputation to public sector undertakings
or a Government body. The accommodation should
have been provided by such undertaking

Accommodation hired / Accommodation owned by the

leased by the employer employer
Value of Perquisite
Value of perquisite = Licence fee
determined by the Central / State Value of Perquisite
Government Less Rent, if any The value of perquisite is the
actually paid by the employee. lower of the two
Value of PerquisitePopulation of the city as per 2001 actual amount of lease or rental
censusValue of perksa) 10 Lakh or less7.5% of paid or payable by the
salaryb) More than 10 lakh upto 25 lakh10% of salary employer
c) More than 25 lakh15% salary In all above cases rent OR
actually paid by the employee should be deducted from 15% of salary
value of perks Less : The rent, if
5 any, actually paid by
the employee
Important points :

1. In case the actual rent paid by the employee is more than the specified percentages of salary i.e 7.5%, 10% and 15%
respectively, there is no perquisite value for the unfurnished accommodation and it is not chargeable in the hands of the
employee i.e. there is no deemed concession as per Supreme Court’s judgment mentioned earlier.

2. “Salary” for the purpose of valuation of unfurnished accommodation includes the following :
i) Basic pay ii) Dearness allowance forming part of salary for retirement benefits iii) taxable allowances iv) bonus,
commission v) any other monetary payment by whichever name it is called.

However, “Salary” does not include the following :

i) Dearness allowance which is not considered for calculation of superannuation or retirement benefit of the employee.
ii) Employers contribution to the employees Provident Fund account.
iii) The value of all perquisites under section 17 (2) i.e. for valuation of unfurnished accommodation do not include value of
any taxable perquisites in salary.
iv) ESOP and related payments
v) Medical allowance to the extent it is not taxable.

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3.2 Valuation of Furnished Accommodation
Both Government & Private Sector employees

Value of unfurnished accommodation calculated as per 3.1 above

PLUS

If the furniture If the furniture is

is owned by the hired by the employer
employer

Value of furniture @ 10% per Actual hire charges for the

annum on the original cost of the furniture paid or payable by the
furniture employer

Point to remember : Furniture includes all appliances and equipments like

T.V, radio, music system, refrigerator, fan, air conditioner and all other
household appliances.

3.3 Valuation of accommodation provided in a hotel / motel / service

apartment / guest house etc.

Both Government and Private Sector employees

24% of the salary paid or The actual charges paid

payable by the employer or payable by the
during the previous year employer for the period
of accommodation

The lower of the two less any rent actually paid by the employee is the value to
be taxed as perquisite

Point to remember : If, during the transfer of an employee from one place to
another place, hotel accommodation is provided for upto 15 days in total

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 during the previous year, it is not treated as perquisite. It is not charged in the
hands of the employee.

3.4 Accommodation provided at the time of transfer

Government and Private sector employees may be transferred from one

place to another from time to time say from Chennai to Bangalore.

Sometimes, the employee retains the old accommodation say at Chennai.

The employer also provides him accommodation at the new place of work say
Bangalore.

In such cases, for a period of 90 days accommodation provided in only one of

the two places say Chennai or Bangalore whichever is lower is treated as
perquisite and valued and charged in the hands of the employee.

If both the accommodations are retained by the employee for more than 90
days, then the value of both accommodation will be valued and charged in the
hands of the employee as perquisite.

Point to remember : In the following cases, the above rule does not apply :

If the accommodation is provided to an employee who is working at a mining

site / on shore oil exploration site / project execution site / dam construction
site / power generation site / off shore site subject to the following conditions :

i) The accommodation should be of a temporary nature with a plinth area of

not more than 800 sq. feet and the accommodation should be located at
least 8 kms from the municipality / cantonment board limits

OR

ii) The accommodation should be in a remote area i.e which is located

atleast 40 kms away from a town with a population of not more than
20,000 as per latest census. The accommodation can be a temporary or
permanent structure in this case.

In the above cases, the accommodation provided will not be treated as

perquisite with hands of the employee and will be tax – free.

3.5 Domestic Servants

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 There are four possibilities here depending on who employs the domestic
servant and who pays his / her salary.

Sl. Salary of What is the

Servant
Servant value of Chargeability to tax
No. appointed by
paid by perquisite?
1. Employee Employee NIL NIL
2. Employer Employee NIL NIL
3. Employee Employer Actual cost spent Chargeable in the hands of all
by the employer employees including specified
employees
4. Employer (in Employer Actual cost spent i) Taxable in the hands of
the pay roll of by the employer only specified employees
the employer) ii) Not taxable in the hands of
other employees
Point to remember : In cases 3 & 4 any amount paid by the employee is to
be reduced from the value of perquisite.

3.6 Supply of gas, electricity and water by the employer

Here, there are two possibilities depending on whose name the gas /
electricity / water facility is registered.

Perquisite value
Sl. Facility
in the Facility provided Facility provided by Chargeability to tax
No. name of from employers employer from outside
own source source
1. Employee Manufacturing cost Actual amount paid by the Taxable in the hands of
included by the employer to such outside all employees including
employer source specified employees
2. Employer Manufacturing cost Actual amount paid by the i) Taxable in the
incurred by the employer to such outside hands of only
employer source specified
employees
ii) Not taxable in the
hands of other
employees
Point to remember : In both the cases, any amount paid by the employee is
to be deducted from the value of perquisite.

3.7 Educational facilities provided by the employer either free of cost or at

concessional (reduced) rate

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 • Where the employee first pays the education expenses of his children /
house hold members and the employer reimburses the same fully or
partly to the employee, the entire amount reimbursed by the employer is
taxable in the hands of all the employees including specified employees.

• Where the employer provides such educational facility to the employee,

it is taxed only in the hands of specified employees.

Value of Perquisite taxable in the hands of specified employees

Educational facility is owned by the Educational facility

employer provided in any other
school (owned by
others)

Cost of education in a Cost of such

For
similar employee’s
school subject to
For employee’s
education in a For employee’s For employer’s
children other household children other household
an exemption limit of Rs. similar school is
members
1,000/- per month per fully taxed in the
child i.e any value the hands of specified
excess of Rs. 1,000/-p.m employee (No
per child is taxable as exemptions)
perquisite in the hands Amount actually paid by Amount actually
specified employees employer for such paid by employer
education subject to an for such education
Points to exemption limit of Rs. is fully taxed in the
remember : 1,000/- p.m per child i.e hands of the
any amount in excess of specified employee
i) Any educational facility provided by the Rs. 1,000/- p.m per child is (No exemption)
taxable as perquisite in the
employer to his employee’s children / hands if specified other
employee.
household members either in a school owned
by the employer or in other schools is not taxed as perquisite in the hands of
other employees i.e. employee’s who are not specified employees.

ii) Child includes employee’s step-child and adopted child.

iii) Other household members includes spouse (husband or wife of the

employee), employee’s children and children’s spouses (husband or wife),
employee’s parents, employee’s servants and employee’s dependants.

3.8 Other Fringe Benefits and Amenities

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 • Some fringe benefits (small benefits) provided by the employer to his
employees like telephone at employee’s residence, goods sold at
reduced price etc., are not taxed in the hands of the employees. Instead,
the employer pays what is known as fringe benefit tax to the government
on these benefits provided by him to his employees. These fringe
benefits are chargeable in the hands of certain employers under chapter
XII – H.

• However, other fringe benefits not covered under chapter XII – H, are
taxed in the hands of the employees who receive such fringe benefits
from their employers. These chargeable fringe benefits U/S 17(2) (vi)
are valued and taxed in the hands of the employees as perquisites.
Such taxable fringe benefits are :

3.8.1) Interest free or concessional loan provided to any employee by his

employer

• If the employer provides his employee or any member of the employee’s

household any loan on interest – free or concessional (reduced)
interest rate basis, the employee receives a perquisite (benefit) from
his employer. Such benefit is taxable in the hands of the employee.

• Value of perquisite in case of interest – free or concessional rate of

interest loan provided by an employer to this employee

Interest computed (calculated) as per interest rate charged by State

Bank of India for similar purpose loan on the 1st day of the relevant
previous year.

Less

Interest recovered by the employer from the employee.

For example, an employer provides a vehicle loan of Rs. 2 Lakhs to his

employee on 01.10.2008 @ 3% interest. SBI vehicle loan interest as on
01.04.2008 (1st day of the previous year) is 12%. The employee has paid

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 interest @ 3% for 6 months but has not repaid any principal amount to
his employer. The value of perquisite will be calculated as follows :

Interest on Rs. 2,00,000 for 6 months @ 12% (SBI rate) Rs. 12,000
Less : Interest recovered from the employee @ 3% on 3,000
Rs. 2,00,000 for 6 months
Value of concession i.e. perquisite chargeable in the 9,000
hands of the employee

Points to remember :

i) If the loan amount is upto Rs. 20,000/- in total, there is no perquisite and
nothing is charged in the hands of the employee.

ii) Rule 3A of Income Tax Rules specifies certain diseases. If the loan is
provided by the employer to his employee for medical treatment of such
specified diseases, there is no perquisite and nothing is charged in the hands
of the employee. However, if the employee receives any medical insurance
claim, tax will be charged in the hands of the employee for any concession in
interest relating to the claim amount received.

For example, an employee has received a loan of Rs. 3,00,000/- @ 3%

interest from his employer for treatment of a disease specified under rule 3A.
However, he receives Rs. 2,00,000/- as medical insurance. On
Rs. 2,00,000/- the difference in interest amount calculated based on SBI rate
of interest and 3% rate of interest will be taxed as perquisite in the hands of
the employee.

iv) The interest shall be calculated on the maximum outstanding monthly balance
on each loan on the last day of each month.

3.8.2) Use of Movable Assets

Sometimes, an employer may allow his employees to use for their personal
purpose movable assets belonging to the employer. Value of perquisite in
such case is as follows :-

Sl.
Movable Asset Value of Perquisite
No.
i) Use of laptops and computers NIL
ii) Movable assets other than 10% of cost of such

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 laptops and computers asset
Point to remember : If any amount is recovered from the employee for
use of such asset, the amount recovered should be deducted from the
value of perquisite calculated as above.

3.8.3) Transfer of Movable Assets

An employer may sell some movable assets like computers, cars or

other assets belonging to him to his employees. This is called transfer of
movable assets. In such cases, the perquisite value of movable assets
transferred is to be calculated as follows :

Sl.
Assets Transferred Value of Perquisite
No.
Depreciated value of asset.
Computers and Calculate depreciation @50% on
i)
electronic items WDV method for each completed
year of usage by the employer
Depreciated value of asset.
Calculate depreciation @ 20% on
ii) Motor cars
WDV method for each completed
year of usage by the employer
Depreciated value of asset.
Any other asset Calculate depreciation @ 10% on
iii) including motor cycle, SLN i.e. Straight Line Method for
scooter each completed year of usage by
the employer
Points to remember :

i) Any amount paid by the employee towards transfer of such assets should be
deducted from the value of perquisite and the balance is charged in the hands
of the employee.

ii) Depreciation is to be calculated only for the number of completed years of

usage. Ignore fraction of year.

E.g :

1) An employer transfers a motor car to his employee on 1.12.2008. The

motor car was originally purchased by the employer on 01.04.2006.
Calculate depreciation for only two years i.e. 01.04.2006 to 31.03.2007

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 and 01.04.2007 to 31.03.2008. Ignore the fraction of year 1.04.2008 to
01.12.2008.

2) Completed year does not necessarily mean a financial year. For

example if the date of purchase of motor car was 01.05.2005 and date
of transfer was 01.08.2008, completed years of usage will be 3 years
calculated as follows :

01.05.2005 to 30.04.2006
3 years from the
01.05.2006 to 30.04.2007 date of purchase i.e.
3 years from
01.05.2007 to 30.04.2008 01.05.2005

Ignore fraction of year 01.05.2008 to 01.08.2008 for depreciation

calculation.

3.8.4) Other benefits or amenity [sub – rule 7 (ix) of Rule 3]

If the employer provides any other benefit, facility, service or amenity to the
employee, the value of such perquisite will be the cost incurred by the
employer. The valuation of such benefit should be done on an “arms length
transaction basis” i.e. without taking into account any undue favour to the
employee in order to reduce his income tax liability.

Point to remember : Cost incurred by the employer in providing telephone or

mobile phone facility (for employee’s personal use) will not be a perquisite. It
is not chargeable to tax in the hands of the employee.

Unit 4 Where an employer is not liable to pay fringe benefit tax

4.1 Employers liable to pay fringe benefit tax (Chapter XII – H)

U/S 2 (23B) the following employers are liable to pay fringe benefit tax on
several perquisites provided by them to their employees :

i) a company ii) firm iii) Association of persons or body of individuals whether

incorporated or not iv) local authority v) every other artificial judicial person.

Several perquisite provided by the above employers to their employees are

not chargeable to tax in the hands of their employees. The employers pay
fringe benefit tax on these perquisites.

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4.2 Employers not liable to pay fringe benefit tax under chapter XII – H

However, not all employers are covered under fringe benefit tax. There are
exemptions. The following persons are not liable to pay fringe benefit tax
under chapter XII – H.

i) Any person eligible for exemption U/S 10 (23C) or registered under

section 12AA e.g : Charitable institutions, public religious trust, a non –
profit university or educational institution, hospital etc.,

ii) A political party registered U/S 29A of the Representation of the People
Act, 1951.

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 If any of the above employers exempted from paying fringe benefit tax, provides the following perquisites to his
employees, such perquisites should be valued and charged to income- tax in the hands of the employees who receive
such perquisites.

Perquisites taxable in the hands of the employees (where employer is not liable to pay Fringe Benefit Tax)

a) MOTOR CAR

Running & Value of Perquisite Taxable

Case Motor Car Maintenance
Car used by the employee for
# owned / hired by cost incurred Cubic capacity of car Cubic capacity of car
by upto 1.6 litres above 1.6 litres

1. Employer i) Exclusively for official duties Employer No perquisite value
ii) Exclusively for the personal Employer Actual amount spend by the
purpose of the employee or employer PLUS salary if any
any member of his house hold paid to the chauffeur (driver)
PLUS value of normal wear &
tear of the car if the car is
owned by the employer (10%
per annum of the cost of the
car) LESS any amount
recovered from the employee
for such use.
No perquisite value
Actual amount spent by the
employer PLUS salary, if any,
paid to the Chauffeur (driver)
PLUS value of normal wear &
tear of the car if the car is
owned by the employer (10%
per annum of the cost of the
car) LESS any amount
recovered from the employee
for such use.

ii) Partly for official duties and i) Employer Rs. 1200/- Plus Rs. 600 if any Rs. 1600/p PLUS Rs. 600 if
partly for personal purpose of chauffeur’s is salary is also any chauffeur’s salary is also
the employee or any member paid paid
of his household ii) Employee Rs. 400/- PLUS Rs. 600/- if Rs. 600/- PLUS Rs. 600 if any
any chauffeur’s salary is paid chauffeur’s salary is paid by
by the employer. the employer

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 a) MOTOR CAR

Running & Value of Perquisite Taxable

Case Motor Car Maintenance
Car used by the employee for
# owned / hired by cost incurred Cubic capacity of car Cubic capacity of car
by upto 1.6 litres above 1.6 litres

2. Employee i) Exclusively for official duties Employer No perquisite value No perquisite value
ii) Partly for official duties and Employer Actual amount spent by Actual amount spent by
partly for personal purpose of the employer LESS Rs. the employer LESS Rs.
the employee or any member 1200 PLUS Rs. 600 if 1,600 PLUS Rs. 600 if
of his house hold chauffeur is provided chauffeur is provided

3. Employee (owns i) Exclusive for official duties Employer No perquisite value Not applicable
any other ii) Partly for official purpose and Employer Actual amount spent by Not applicable
automotive partly for personal purpose of the employer LESS
conveyance i.e the employee Rs. 600
other than motor
car e.g motor
cycle, scooter)

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b) Free or concessional tickets [sub-rule (6) of Rule 3]
Employees who are in the business of carriage of passengers or goods may
provide free of cost or at concessional fair tickets for private journey of his
employee or his house hold members. Such private journeys may be
provided in a transport vehicle either owned or leased by the employer.
In the above case, the value of perquisite taxed in the hands of the employee
will be the normal journey fare offered by the employer to the general public
less any amount recovered by the employer from the employee for such
private journey.
c) Traveling Touring and Accommodation [Sub-rule 7 (ii) of Rule 3]
• The value of perquisite in respect of travel, tour, stay and other
expenses borne by the employee for the holiday of an employee or
any member of his household will be actual expenditure incurred by
the employer.
• However, tours availed by an employee under Leave Travel
concession (LTC) which is exempt u/s 10(5) is not covered under sub-
rule 7(ii) of Rule 3. LTC is exempt under section 10(5) subject to
certain limits.
• If the facility is maintained by the employer and is offered only to a few
select employees, the value of perquisite will be the value at which
other agencies maintaining similar facility charge the general public.
Note :
• If such facility is offered to all employees uniformly, then there is no
perquisite value and it is exempt in the hands of employees availing
such facility.
• It may so happen that an employee may be on official tour. His
household member say wife / children may accompany him on such
tour. In this case, the amount expenditure incurred by the employer on
employee’s household member will be the perquisite value taxable in
the hands of the employee.

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 • An employee who is on official tour after the completion of official tour
may extend his tour as personal vacation. In such case, the
expenditure incurred by the employer for such extended vacation
period will be the perquisite value taxable in the hands of the
employee.
• In all the above cases, any amount recovered by the employer from
the employee shall be deducted from perquisite value calculated and
the balance will be chargeable in the hands of the employee.
d) Free or concessional food and non-alcoholic beverages [sub – rule 7 (iii)
of Rule 3]
• If an employer provides the above items to the employee the value of
such items less any amount recovered from the employee will be
treated as perquisite and charged in the hands of the employee.
• However, the following are exempt and will be not be charged in the
hands of the employees :
i) Such items provided during working hours at office or business premises
upto Rs. 50/- per meal.
ii) Such items provided through paid vouchers which are not transferable and
can be used only at eating places upto Rs. 50/- per meal.
iii) Tea / snacks provided during working hours (No limit)
iv) Such items provided during working hours to employees working in
remote area or offshore installation (No limit)
e) Value of gifts, vouchers or token in lieu (instead) of such gifts [sub –
rule 7 (iv) of Rule 3]
• On ceremonial occasions or any other occasion, an employer may give
gifts, vouchers, token etc to his employee or any of his house hold
members. The value of such gifts received by the employee will be
treated as perquisite in the hands of the employee.
• However, if the total value of such gifts received by an employee
during the previous year is below Rs. 5000/-then there is no perquisite
value chargeable in the hands of the employee.

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f) Credit card expenses [sub-rule 7(v) of Rule 3]

• If an employer pays the personal credit card expenses including membership

fees and annual fees incurred by the employee or any member of his
household, the amount so paid by the employer will be treated as value of
perquisite in the hands of the employee. Any amount recovered / paid by the
employee is to be deducted from the value of perquisite.

• However, if such credit card expenses are exclusively incurred by the

employee for official purposes there will be no perquisite value.

g) Club expenditure [Sub – rule 7(vi) of Rule 3]

• The employee may incur for his personal purposes, expenditure in a club
including annual membership, periodic payment for himself or any member of
his household. If his employer reimburses or makes payment for such club
expenditure of his employee, the amount paid / reimbursed by the employer
less the amount if any recovered from the employee will be taxable value of
perquisite in the hands of the employee.

• If initial fee is paid by the employer to acquire corporate membership and the
club facility is used by the employee, such initial fee shall not be charged as
perquisite in the hands of the employee.

• If the employer provides all employees the use of health club, sports or
similar facilities, there is no perquisite value chargeable.

• If the club expenditure is exclusively incurred by the employee for official

purpose, there is no taxable perquisite value.

Important points to remember regarding taxable perquisite value of provision of

motor car, free or concessional ticket, free or concessional food or non – alcoholic
beverages, value of gifts, credit card expenses and club expenses.

• If an employee works for an employer e.g a company, who is liable to pay Fringe
Benefit tax, the above will not be charged in the hands of the employee as
perquisite. In this case, the employer pays Fringe Benefit Tax on above perquisites.

• If an employee works for an employer who is not liable to pay Fringe Benefit Tax e.g
a non – profit organization, the above will be charged in the hands of the employee
as perquisites.

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5. Medical Facilities (applicable to all employees)

The following medical facilities are not treated as perquisites and hence are not taxed in the hands of the employees.

Sl. Sl.
Medical Facilities exempted Medical Insurance premium payments exempted
No. No.

i) The value of any medical treatment provided to an i)
employee or his family members in any hospital
maintained by the employer
Any premium paid by the employer to effect an
insurance on the health of his employee. Such insurance
scheme should be approved by the Central Government
or the Insurance Regulatory Development Authority
(IRDA)

ii) Any payment made by the employer for medical treatment ii) Any sum paid by the employer towards any premium
of the employee or his family members in any paid by the employee to effect an insurance on his
Government hospital family members. Such insurance scheme should be
approved by the Central Government for the purpose of
section 80 D.

iii) Any payment made by the employer for medical treatment

of prescribed diseases or ailments for the employee or
any member of his family in any hospital approved by
the chief commissioner. (This exemption has been
provided because facilities for treatment of serious
diseases may not be available in Govt. Hospitals)

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Sl. Sl.
Medical Facilities exempted Medical Insurance premium payments exempted
No. No.

iv) Any sum paid by the employer for medical treatment of

the employee or his family members upto a limit of
Rs. 15,000/- in the previous year. To avail this exemption
limit of upto Rs. 15,000/- it is not necessary that the
medical treatment must be taken in a Government
hospital or any hospital approved by the Chief
Commissioner. The employee or his family members can
take treatment even in Private Hospitals and Clinics.

v) Medical treatment outside India as follows :

a) Any expenditure incurred by the employer for any
medical treatment of the employee or any member of
the employee’s family outside India
b) Travel and staying expenses of the employee or any
member of his family for medical treatment outside
India.
c) Travel and staying expenses of one attendant
accompanying the patient for treatment outside India.

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Sl. Sl.
Medical Facilities exempted Medical Insurance premium payments exempted
No. No.

Conditions :
• Reserve Bank of India has prescribed certain limits
for expenditure on medical treatment and stay
abroad. The perquisite value of medical treatment
and stay abroad will be exempt only upto the limit
prescribed by RBI (In the examination, you will be
given the RBI limit)
• Expenditure for traveling expenses of the patient
and one attendant will be exempt only if the
employee’s Gross Total Income (including income
from all heads of income) before including travel
expenditure does not exceed Rs. 2 Lakhs.

NOTE : For both medical facility and insurance purposes, the employees family means : i) spouse of the employee i.e husband or
children ii) Children of the employee – children may be dependent on the employee or independent, married or unmarried
iii) Parents, brothers and sisters of the employee if they are wholly or mainly dependent on the employee (Grand parents
and grand children of the employee are not included in family)

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Unit 6: Premium paid by the employer on personal Accident insurance policy
on the lives of his employees

When an employer takes out personal accident policy on the lives of his
employees and pays the premium on such policies, the premium so paid by
the employer will not be treated as a perquisite and hence will not be taxed in
the hands of the employees. It is fully exempt. The reasons are as follows :

a) The employee does not get any immediate benefit from such policy.
The employee may benefit in the future that too only if certain events
like accident happens.

b) The employer takes out personal accident insurance policies because

the insurance company would pay the employees in case of accidents
resulting in injury or loss of life of his employees. The employers
primary interest is to safeguard his business against any such
compensation to be paid in future incase of accidents.

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