Tax upon advance salary and perquisites

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According to (Sec 17 (2)) 'perquisite' includes the following:
The value of rent-free accommodation provided to the assessee by his employer;
The value of any concession in the matter of rent with respect to any accommodat
ion provided to the assessee by his employer;
The value of any benefit or amenity granted or provided free of cost or at conce
ssional rate in any of the following cases:
Any benefit given by a company to an employee, who is a director thereof;
Any benefit given by a company to an employee, being a person who has a substant
ial interest in the company;
Any benefit given by any employer (including a company) to an employee to whom t
he provisions of paragraphs (a) and (b) of this sub-clause do not apply and whos
e income under the head "Salaries" (whether due from, or paid or allowed by, one
or more employer/s), exclusive of the value of all benefits or amenities, not p
rovided for by way of monetary payment, exceeds Rs 50,000. However, nothing in t
his sub-clause shall apply to the value of any benefit provided by a company fre
e of cost or at a concessional rate to its employees by way of allotment of shar
es, debentures or warrants, directly or indirectly under any Employees' Stock Op
tion Plan or Scheme of the company offered to such employees in accordance with
the guidelines, issued in this behalf by the Central Government. The use of any
vehicle, provided by a company or an employer for journey by the assessee from h
is residence to his office or other place of work, or from such office or place
to his residence, shall not be regarded as a benefit or amenity granted or provi
ded to him free of cost or at concessional rate for the purposes of this sub-cla
use.
Any sum, paid by the employer in respect of any obligation which, but for such p
ayment, would have been payable by the assessee;
Any sum, payable by the employer, whether directly or through a fund, other than
a recognised provident fund or an approved superannuation fund or a Deposit-lin
ked Insurance Fund, established under section 3G of the Coal Mines Provident Fun
d and Miscellaneous Provisions Act, 1948 (46 of 1948), or, as the case may be, s
ection 6C of the Employees' Provident Funds and Miscellaneous Provisions Act, 19
52 (19 of 1952)], to effect an assurance on the life of the assessee or to effec
t a contract for an annuity; and
The value of any other fringe benefit or amenity as may be prescribed.
Nothing in this clause shall apply to the following:
The value of any medical treatment provided to an employee or any member of his
family in any hospital maintained by the employer;
Any sum, paid by the employer in respect of any expenditure, actually incurred b
y the employee on his medical treatment or treatment of any member of his family
-(a) In any hospital, maintained by the Government or any local authority or any
other hospital approved by the Government for the purposes of medical treatment
of its employees; (b) In respect of the prescribed diseases or ailments, in any
hospital approved by the Chief Commissioner, having regard to the prescribed gu
idelines. In such a case, the employee shall attach, with his return of income,
a certificate from the hospit al specifying the disease or ailment for which med
ical treatment was required and the receipt for the amount paid to the hospital.
Any portion of the premium, paid by an employer in relation to an employee, to e
ffect or to keep in force an insurance on the health of such employee under any
scheme approved by the Central Government for the purposes of clause (ib) of sub
-section (1) of section 36;
Any sum, paid by the employer in respect of any premium paid by the employee to
effect or to keep in force an insurance on his health or the health of any membe
r of his family under any scheme, approved by the Central Government for the pur
poses of section 80D;
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 o
ther than the treatment referred to in clauses (i) and (ii); so, however, that s
uch sum does not exceed Rs 15,000 in the previous year;
Any expenditure incurred by the employer on the following:
Medicl 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 emplo
yee for medical treatment;
Travel and stay abroad of one attendant who accompanies the patient in connectio
n with such treatment, subject to the following conditions:
The expenditure on medical treatment and stay abroad shall be ex cluded from per
quisite only to the extent permitted by the Reserve Bank of India; and
The expenditure on travel shall be excluded from perquisite only in the case of
an employee whose gross total income, as computed before including therein the s
aid expenditure, does not exceed two lakh rupees;
Any sum, paid by the employer in respect of any expenditure actually incurred by
the employee for any of the purposes specified in clause (vi) subject to the co
nditions specified in or under that clause:
For the assessment year beginning on the 1st day of April, 2002, nothing contain
ed in this clause shall apply to any employee whose income under the head "Salar
ies" (whether due from, or paid or allowed by, one or more employers) exclusive
of the value of all perquisites, not provided for by way of monetary payment, do
es not exceed Rs 1,00,000.
Explanation
For the purposes of clause (2),
i. 'Hospital' includes a dispensary or a clinic or a nursing home;
ii. 'Family', in relation to an individual, shall have the same meaning as in cl
ause (5) of section 10; and
'Gross total income' shall have the same meaning as in clause (5) of section 80B
;
How are perquisites valued?
For the purpose of computing the income chargeable under the head 'Salaries,' th
e value of perquisites provided by the employer directly or indirectly to the as
sessee (hereinafter referred to as employee) or to any member of his household b
y reason of his employment shall be determined in accordance with Rules 3 of the
Income Tax Act.
What is the perquisite value of furnished Accommodation?
In the case of furnished accommodation, first the value of the un-furnished acco
mmodation is worked out and to that 10% per annum of the original cost of the fu
rniture is added. If the furniture is not owned by the employer, the actual hire
charge that is payable (whether paid or not) is added.
How is the perquisite value of a motorcar, provided to the employee by an employ
er, computed?
Value of Perquisite per calendar month
Sl. No. Circumstances Where cubic capacity of engine does not exceed 1.6 litre
s Where cubic capacity of engine exceeds 1.6 litres
1. Where the motor car is owned or hired by the employer and-
a. is used wholly and exclusively in the performance of his official duties.
Is used exclusively for the private or personal purposes of the employee or any
member of his house-hold and the running and maintenance expenses are met or rei
mbursed by the employer.
Is used partly in the performance of duties and partly for private or personal p
urposes of his own or any member of his household and
The expenses on maintenance and running are met or reimbursed by the employer.
The expenses on running and maintenance for such private or personal use are ful
ly met by the assessee.
No value provided that the documents specified in clause (B) of this sub-rule ar
e maintained by the employer.
Actual amount of expenditure incurred by the employer on the running and mainten
ance of motor car during the relevant previous year including remuneration, if a
ny paid by the employee or any member of his house-hold and the running and main
tenance expenses are met or reimbursed by the employer.
Rs. 1,200 (plus Rs. 600, if chauffeur is also provided to run the motor car)
Rs. 400 (plus Rs. 600, if chauffeur is provided by the employer to run the motor
car) No value provided that the documents specified in clause (B) of this sub
-rule are maintained by the employer.
Actual amount of expenditure incurred by the employer on the running and mainten
ance of motor car during the relevant previous year including remuneration, if a
ny, paid by the employer to the chauffeur as increased by the amount representin
g normal wear and tear of the motor car and as reduced by any amount charged fro
m the employee for such use.
Rs. 1,600 (plus Rs. 600, if chauffeur is also provided to run the motor car)
Rs. 600 (plus Rs.600, if chauffeur is also provided to run the motor car)
2. Where the employee owns a motor car but the actual running and maintenan
ce charges (including remuneration of the chauffeur, if any) are met or reimburs
ed to him by the employer and
such reimbursement is for the use of the vehicle wholly and exclusively for offi
cial purposes.
such reimbursement is for the use of the vehicle partly for official purposes an
d partly for personal or private purposes of the employee or any member of his h
ousehold.
No value provided that the documents specified in clause (B) of this sub-rule ar
e maintained by the employer.
Subject to the provisions contained in clause (B) of this sub-rule, the actual a
mount of expenditure incurred by the employer as reduced by the amount specified
in col.(1)(c)(i) above. No value provided that the documents specified i
n clause (B) of this sub-rule are maintained by the employer.
Subject to the provisions contained in clause (B) of this sub-rule, the actual a
mount of expenditure incurred by the employer as reduced by the amount specified
in col. (1)(c)(i) above.
3. Where the employee owns any other automotive conveyance but the actual r
unning and maintenance charges are met or reimbursed to him by the employer and
such reimbursement is for the use of the vehicle wholly and exclusively for offi
cial purposes.
Such reimbursement is for the use of the vehicle partly for official purposes an
d partly for personal or private purposes of the employee.
No value provided that the documents specified in clause (B) of this sub-rule ar
e maintained by the employer.
Subject to the provisions contained in clause (B)of this sub-rule, the actual am
ount of expenditure incurred by the employer as reduced by an amount of Rs.600:
No applicable
Provided that where one or more motor-cars are owned or hired by the employer an
d the employee or any member of his household are allowed the use of such motor-
car or all or any such motor-cars (otherwise than wholly and exclusively in the
performance of his duties), the value of perquisite shall be the amount calculat
ed in respect of one car in accordance with item (1)(c)(i) of the Table II as if
the employee had been provided one motor-car for use partly in the performance
of his duties and partly for his private or personal purposes and the amount cal
culated in respect of the other car or cars in accordance with item (1)(b) of th
e Table II as if he had been provided with such car or cars exclusively for his
private or personal purposes.
(B) Where the employer or the employee claims that the motor-car is used wholly
and exclusively in the performance of official duty or that the actual expenses
on the running and maintenance of the motor-car owned by the employee for offici
al purposes is more than the amounts deductible in item 2(ii) or 3(ii) of the ab
ove Table, he may claim a higher amount attributable to such official use and th
e value of perquisite in such a case shall be the actual amount of charges met o
r reimbursed by the employer as reduced by such higher amount attributable to of
ficial use of the vehicle provided that the following conditions are fulfilled.
the employer has maintained complete details of the journey undertaken for offic
ial purpose, which may include date of journey, destination, mileage, and the am
ount of expenditure incurred thereon;
the employee gives a certificate that the expenditure was incurred wholly and ex
clusively for the performance of his official duty;
the supervising authority of the employee, wherever applicable, gives a certific
ate to the effect that the expenditure was incurred wholly and exclusively for t
he performance of official duties.
Explanation: For the purposes of this sub-rule, the normal wear and tear of a mo
torcar shall be taken at 10% per annum of the actual cost of the motor-car or ca
rs.
Is the facility of a car, provided by the employer for use between the residence
and office, a perquisite?
The use of a vehicle of an employer for the journey from his residence to his of
fice or, from any other place of work to his residence will not be taxable as pe
rquisite provided the following conditions are satisfied:
(i) The employer has maintained complete details of the journey undertaken for o
fficial purpose, which may include date of journey, destination, mileage, and th
e amount of expenditure incurred thereon;
(ii) The employee gives a certificate that the expenditure was incurred wholly a
nd exclusively for the performance of his official duty;
(iii) The supervising authority of the employee, wherever applicable, gives a ce
rtificate to the effect that the expenditure was incurred wholly and exclusively
for the performance of official duties.
What is the perquisite value of gas, electricity or water supply, provided free
of cost to the employee?
The value of benefit to the employee or any member of his household, resulting f
rom the supply of gas, electric energy or water for his household consumption sh
all be determined as the sum equal to the amount paid on that account by the emp
loyer to the agency supplying the gas, electric energy or water. Where such supp
ly is made from resources, owned by the employer, without purchasing them from a
ny other outside agency, the value of perquisite would be the manufacturing cost
per unit incurred by the employer. Where the employee is paying any amount in r
espect of such services, the amount so paid shall be deducted from the value so
arrived at.
Can the reimbursement of actual expenses be treated as a perquisite?
No. Reimbursement of actual expenses cannot be treated as a perquisite.
What is the perquisite value of rent-free unfurnished accommodation that is prov
ided by an employer to an employee?
Rule 3: The value of the residential accommodation, provided by the employer dur
ing the previous year, shall be determined as below.
Where the accommodation is provided by Union or State Government to their employ
ees, either holding office or post in connection with the affairs of Union or St
ate or, serving with any body or undertaking under the control of such Governmen
t on deputation: Licence fee, as determined by Union or State Government in acco
rdance with the rules framed by that Government as reduced by the rent, actually
paid by the employee. It is to be noted that the value of the rent-free officia
l residence, provided to officers of Parliament, Union Ministers and the leader
of the Opposition Party in Parliament, is also exempt from tax.
Where the accommodation is provided by any other employer and
Where the accommodation is owned by the employer: 10% of salary in cities having
population exceeding 4 lakhs as per 1991 census;
Where the accommodation is taken on lease or rent by the employer: 7.5 % of sala
ry in other cities, in respect of the period during which the said accommodation
was occupied by the employee during the previous year as reduced by the rent, i
f any, actually paid by the employee. Actual amount to lease rental, paid or pay
able by the employer or 10% of salary whichever is lower as reduced by the rent,
if any, actually paid by the employee.