Layman’s Guide for Valuation of Perks – Part I

A perquisite is defined (in the Oxford English Dictionary) as any casual emolument, fee or profit, attached to an office or position in addition to the salary or wages.  In other words perquisites are benefits in addition to normal salary to which employee has a right by virtue of his employment.  To put it simply perquisites or ‘perks’ as they are called colloquially, are benefits generally in kind, received by an employee by virtue of his employment.

Now at last Perks tax rules replace Fringe Benefit Tax (FBT) in India w.e.f… 1.4.2009. The taxability of perks is almost same as was existed before introduction of FBT i.e. around 2005. Only change is that employees provided with car will now have to pay tax on increased monthly valuation.  Now the employees have to pay taxes on perks given tot hem by their employers.

Now we will discuss about some of the perks:

Valuation of Accommodation (Rule3 (1))

Valuation of Unfurnished Accommodation

    1. Provided by Central/State Govt: License fee determined by Govt less rent recovered.
    2. Provided by Employer other than Central/State Govt:

i.            Owned by employer: In cities having population exceeding 10 lakhs but not exceeding 25 lakhs as per 2001 census: 10% of salary (less) rent actually paid by employee. In other places where population is exceeding 25 lakhs, it is 7.5% of salary less rent actually paid by employee.
ii.            Taken on lease by employer: Rent paid by employer or 15% of salary whichever is lower less rent actually recovered from employee.
iii.            Accommodation in hotel by employer: 24% of salary paid or payable or actual charges paid to hotel or payable which ever is less. From this amount, the amount recovered or recoverable from employee is to be deducted. If period of accommodation is only 15 days or less, it is not taxable provided the stay is due to transfer from one place to another. For the first 90 days of transfer accommodation is provided both at existing place of work and in new place, the accommodation which has lower value shall be taxable. After 90 days, both will be taxable.

Non-Applicability of this valuation

The above valuation is not applicable if the accommodation provided is in a mining site, project execution site, onshore oil exploration site, dam site, offshore site, power generation site subject to following conditions:

  1. The accommodation should be of temporary nature and
  2. Plinth area should not exceed 800sqft.
  3. Accommodation should be located at least 8 kms away from local limits of municipality/ cantonment
  4. Located in a remote area which is located at least 40 kms away from a town having a population of not exceeding 20000 based on latest census.

Valuation of Furnished Accommodation

With the valuation of unfurnished accommodation, we have to add value of furniture (if owned by employer, then 10% p.a. of original cost of furniture or if it is hired from third party, then actual hire charges). From the total of the two, deduct any actual charges paid for accommodation and furniture)

Furniture includes television sets, radio, refrigerator, A/C or other household appliances.

Note: ‘Salary’ for the purpose of this section includes basic salary, DA which enters in retirement computation, all taxable allowances, bonus or commission or ex-gratia, any other monetary payment. But it does not include any other D.A., employer’s contribution to PF, exempted allowances, value of perks.


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