- Date : 30/09/2023
- Read: 3 mins
An understanding of what is perquisite, what is their tax liability, and how they differ from allowances.
My salary is 12 lakh, excluding perks, you may have heard your friend say. Perquisites are the benefits that your friend is entitled to because of his job.
Just as his salary of 12 lakh would be subject to income tax, the perks earned by your friend would have tax implications, too. Let us understand more about the perquisites of the Income Tax Act.
- Income Tax Act has defined perquisites and their taxability
- Perquisites in salary can be concessional or free amenities, benefits and advantages
- Perquisites have been an effective tool to attract, motivate and retain employees
- Tax on taxable perquisites is calculated based on the average tax rate
What Is Perquisites In Income Tax?
It can be any other benefit or advantage that you enjoy on top of your salary or wage. It is a part of your pay structure and your cost to the company.
Section 17(2) has defined perquisites in the Income Tax Act as –
- Payment made by your employer for a product or service that you are liable to pay
- Amenities provided by the employer to you at subsidised or nil rate
- Free or concessional accommodation
- Security or sweat equity share provided by the employer at a low rate or for free
- Cost of any other perquisite
Perquisites are a preferred choice among employers to attract and retain talented employees and improve their productivity. Benefits of perquisites also include the job satisfaction of the employees and tax savings.
Also Read: Don’t Miss These Important Advance Tax Rules And Guidelines
Tax-Exempt Perquisites in Income Tax
Not all perquisites are taxable as part of your salary. Perquisites like travel allowance, refreshments during office hours, telecom bills, employer’s contribution to EPF, medical and recreational facilities, computers and laptops provided by the company, etc.
Taxable Perquisites in Income Tax Act
Examples of perquisites taxable in the hand of the employee include utility supply, medical reimbursement, rent-free accommodation, servant’s salary, gifts above Rs 5,000, free meals, gym and club membership, etc.
Taxation on Perquisites
The average tax rate is used to calculate the income tax on perquisites. Going back to your friend’s salary, let's assume that the tax liability on his salary is Rs 1.8 lakh. This amounts to 15% of his taxable income.
This average tax rate is used to tax the value of the non-cash perquisites. If the value of the non-cash perquisites is Rs 1 lakh, the tax thereon will be Rs 15,000, based on the average tax rate of 15%.
Conclusion
One of the key differences between allowances and perquisites is that allowances are part of your in-hand salary while perquisites are not. However, unlike allowances, perquisites are mostly in kind.
With these differences in mind, you must identify the perquisites in your salary, update yourself with the latest amendments and prepare for the tax liability.
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Also Read: Section 44ADA Presumptive Taxation Scheme: How It Could Help In ITR Filing For Professionals
