1. Taxability of Perquisites - Under Income Tax Act

1. Perquisites are fringe benefits that are received over and above the salary as a result of their official position. This is taxed separately for accountability and taxability. There are both taxable and exempted perquisites.
2. Similar to how all income generating individuals and business houses are liable to pay income tax, certain fringe benefits or perquisites are attached to all earning individuals. Provision of medical facilities, housing allowance, provision of official vehicle are some of the most popular examples of perks or perquisites offered by employers to their employees.

Using a car offered by your employer or a house provided by your employer could attract perquisite tax since these amenities are made available to you by your company over and above your salary.

2. What are Perquisites?

Perquisites are benefits received by a person as a result of his/her official position and are over and above the salary or wages. These fringe benefits or perquisites can be taxable or nontaxable depending upon their nature.

A lot of benefits and perks which come in addition to an individual’s salary are grouped under fringe benefits or perks. These components are taxed separately from the employer’s account so as to maintain transparency and accountability.

3. Taxable Perquisites:

Some of the perquisites that are taxable in nature are rent-free accommodation, supply of gas, water and electricity, professional tax of employee, reimbursement of medical expense, and salary of servant employed by employee. Taxable perquisites also include any other fringe benefit provided by employer to employee like free meals, gifts exceeding Rs.5000, club and gym facilities etc.

4. Exempted Perquisites:

Non-taxable fringe benefits include travel allowance, computer or laptop provided by the company for official use, refreshment provided by employer during office hours, provision of medical aid, use of health club, sports club, telephone lines, interest free salary loan provided by employer to employees, contribution to provident fund by employers, free medical and recreational facilities and so on.

5. How are Perquisites taxed and who pays that Tax?

According to the Finance Act, 2005, perquisites are taxed by the government in case these perks are provided or are deemed to be provided to employees by employers. The rate at which perquisites are taxed is 30% of the value of fringe benefits. The perquisite tax is paid by the employer who furnishes these fringe benefits to employees. It can be a company, a firm, an association of persons or body of individuals.

6. Company provided Accommodation:

A lot of employees are provided leased accommodation option by their employers. This cost of accommodation is taxable and is a perk offered by the company. The tax will however depend upon whether the place is rented, owned or leased by the employer.