Published on January 24, 2014
PERQUISITES AND ALLOWANCE
Meaning: Fixed monetary payments for a specific purpose is known as allowance. Employer provides to employee a fixed sum of money and also specifies the purpose for which it has to be used.
TYPES OF ALLOWANCES 1. Fully exempted allowances These i. allowance are not at all taxable. Foreign allowance given by govt. to employees posted abroad ii. House rent Allowance given to judges of high court and supreme court iii.Sumptuary allowance given to judges of high court and supreme court.
2. Fully taxable allowances It i. is fully taxable Dearness allowance ii. City/capital /compensatory allowance iii.Lunch/Tiffin/marriage/family/deputation/wardship/non practising/project/overtime/medical allowance iv. Entertainment allowances: least of the following statutory limit Rs5000 1/5th of basic salary only Actual entertainment allowance received during the year.
3. Partially taxable allowances a) House rent allowance Allowance paid to meet the cost of accommodation is known as HRA . The minimum of the following exempt Actual HRA received Excess of rent paid over 10% of salary 50% of salary if the accommodation is in metropolitan cities and 40% in case of other cities Taxable HRA= actual HRA received – exempted amount
b)Allowance covered under section 10(14) Helper allowance :exempted up to actual amount spent on engaging a helper to perform the official duties. Uniform allowance : exempted upto the actual amount incurred on acquiring and maintaining. Excess will be taxable Academic research allowance: exempted upto actual amount Conveyance allowance : exempted upto actual amount Travelling . Transfer or daily allowance : exempted upto actual amount incurred for purpose of employment.
Any special allowance in the nature of composite Hill Compensatory allowance/ high Altitude Allowance/ Uncongenial climate allowance/ snow bound area / avalanche allowance : exemption allowed upto Rs 300 p.m to Rs 7000 p.m Compensatory field area allowance : exemption upto Rs 2600 p.m Any special compensatory allowance in the nature of border area allowance/ remote area allowance/ difficult area allowance/ disturbed area allowance: exemption allowed upto Rs 200 p.m to Rs 1,300 p.m Compensatory modified field area allowance : exemption upto Rs 1000 p.m Counter insurgency allowance/ compensatory field area allowance : expemtion upto Rs 3900 p.m Highly active field area allowance : exemption upto Rs 4200 p.m Underground allowance given to coal mine workeRs : exemption allowed upto Rs 800 p.m Island duty allowance given to armed forces posted in andaman and nicobar and lakshdweep group of islands :exepmtion upto rx 3200 p.m
Transport allowance : exempted upto Rs 800 p.m Tribal area allowance : exempted upto Rs 200 p.m in stated of MP, TN, UP, KARNATAKA, TRIPURA, ASSAM, WEST BENGA;, BIHAR, ORISSA Any running flight allowance : exempted upto 70% of such allowance or Rs 10,000 p.m whichever is less. Children education allowance : exempted upto Rs 100 per child for two children only Hostel expenditure allowance: exempted upto Rs 300 p.m for per child, max two children only Domestic servant allowance : fully taxable Any special allowance : exempted upto Rs 1,300 p.m
MEANING OF SALARY FOR DIFFERENT PURPOSES 1. For H.R.A./PF/Gratuity and leave encashment Pay +D.P +D.A (which enters) +commission on turnover achieved by him 2. For specified cases All what he gets in cash less exemptions ,if any, less deductions u/s 16,must be more than Rs.50,000 Only basic salary 3. 4. For deduction u/s 16(ii) For gratuity under payment of Gratuity Act For rent free house Pay +D.P +D.A(Which enters)+any fee, commission, bonus(except gratutious bonus)+all fully taxable allowances + Taxable portion of other allowances+ Taxable E.A+ Leave encashment pertaining to current year.
PERQUISITE Meaning: It is defined as any casual emolument, free or profit attached to an office or position, in additional to salaries or wages. It is simply known as non- monetary benefits provided by an employer to an employee.
TYPES OF PERKS Perks can be divided into three categories: Perks exempted for all employees. Perks taxable for all employees. Perks taxable only for specified employees.
1. EXEMPTED FROMTAX (FULLY EXEMPTED) Free medical facilities or reimbursement of medical expenditure: exempted upto Rs 15000 p.a Free refreshment supplied Free meals given at remote area or offshore Free recreational facilities Provision for telephone including mobile phones Free education : should not exceed Rs 1000 per child Cost of refresher course Any rent free residential Good sold by employer to employee Free ration received by members Perquisite allowed by govt to employees posted abroad Rent free house given to officer of parliament
Conveyance facilities to judges Any amount contributed by employee towards pension Computers, laptops given to employee for office use Transfer of movable assets Accident insurance premium Interest free loan: does not exceed Rs 20,000
B. PERKS TAXABLE FOR ALL EMPLOYEES B1 .Rent Free house Nature of employment: gov, semi govt or any other Place where rent free house is provided: all cities, towns having population exceeding Rs 25,00,00. all cities and town having population exceeding Rs 10,00,000 but not exceeding Rs 25,00,000 all other cities and towns having population of 10,00,000 or less than 10,00,000 Meaning of accommodation: it includes house, farm house, flat, hotel accommodation, guest house, caravan , mobile home or ship etc
it excludes: a remote areas, mining site or project execution site offshore area Value of rent free accommodation if provided to supreme court ,high court judges ,union minister, leader of opposition and official of parliament 1.more than one accommodation: if a person retain more than accommodation for first three months value of one such house having lower value shall be taxable. If such accommodation is retained for more than three months value of both such houses shall be taxable.
Hotel accommodation : a. If hotel accommodation is provided for period not exceeding in aggregate 15 days in previous year it is fully exempted b. If period exceeds 15 days the perks shall be calculated as follows: calculated salary for rent free house as given in note computed salary for number of days he stayed in hotel calculate 24 % o his salary Compare actual bill payable by employer to the hotel, whichever is less. NOTE: if accommodation in hotel is more than 15 days, perquisite is not taxable for first 15 days and taxable for remaining days (IV) Nature of accommodation: owned by employer/ hired or leased by employer
(V) Meaning of salary: Basic pay or wages Dearness pay Commission Bonus Fees Value of all taxable allowances Any other monetary business Leave encashment of salary
B II – IN CASE ACCOMMODATION IS PROVIDED AS concessional accommodation Means employer has given a house to his employee for which he is charging a part of rent . First calculate the value of house as if accommodation provided is totally free. Deduct any amount charged by employer Balance amount is treated as concessional accommodation value of rent ***** less: rent paid by employee or charged by employer ***** -------------value of concessional accommodation ******* --------------B III OBLIGATION OF EMPLOYEE MET BY EMPLOYER (a) Gas and electricity bill : actual expenses are taxable (b) Education of children bills : actual expenses are taxable (c) Income tax, professional tax: actual expenses are taxable
(d) Salary of domestic servants: actual amount is taxable B IV sum payable by the employer directly or through a fund to effect an assurance/ an annuity: (a) The sum so payable may be either directly or through a fund (b) If the sum is payable through a recognized provident fund or an approved superannuation fund, it shall not be treated as taxable per for employee. B V any specified security or sweat equity shares allotted or transferred to employee Value of any shares etc allotted or transferred by the employer to the employee either free of cost or at concessional rate shall be treated as perk to employee. Value of perk = (FMV of specified security or sweat equity shares on the date on which option is exercised by employee) --- (amount charged or recovered from employee)
B V1 contribution to an approved superannuation fund by the employer : taxable as perk to employee to the extent it exceeds Rs 1,00,000. B VII value of any other prescribed fringe benefits or amenities: prescribed under section 17 (2)(viii) BVII Interest free or concessional loan from employer : Interest is to be calculated at rate charged by the state bank of India Interest is to be calculated for each month previous year Interest paid by employee if any is to be deducted out of total interest Maximum outstanding balance , any amount of loan has been repaid in any month same is to be deducted only balance amount due to the employer . For the assessment year 2013-2014 interest rates charged by state bank of India as on 1-4-2012 shall be applicable Perquisite not chargeable: (a) Total amount of loan given by employer does not exceed Rs 20,000. (b) Where the loan is given for medical treatment of diseases.
B VII (ii) valuation of perk in respect of travelling, touring, accommodation (a) Where these facilities are provided to all employees: find out the amount spent, deduct any amount recoverable and balance is taxable (b) Where these facilities are no provided to all employees: find out value at which these facilities are provided by other agencies, deduct any recovered amount and balance is taxable B VII(iii) FOOD OR BEVERAGES FACILITY Value of perk= (amt spent by employer) - ( amt charged recovered by employer from employee) Exemptions: Free food or non-alcoholic beverages provided by employer during working hours provided in a remote area or an off shore installation. Tea and snacks provided during working hours Food or non alcoholic beverages provided by employer during working hours at office or business premises or through paid vouchers which are non transferable and usable only at eating joints, shall be exempted upto Rs 50 per meal.
B VII (iv) VALUATION OF PERQUISITE IN RESPECT OF GIFT VOUCHER OR TOKEN Gift from an employer of an aggregate amount of Rs 5000 in the previous year shall be exempted, if excess its payable. Gift received in cash or convertible to cash is fully taxable Cash gift may be less than Rs 5000 or more its fully taxable If an employee gets a gift of Rs 20,000 in kind only 5000 shall be chargeable to tax BVIII (v) VALUATION PERQUISITE IN RESPECT OF CREDIT CARD: Taxable value is the amount spent by the employer. expenses include membership fee and annual fee. Expenditure incurred by employer Less expense on its official purpose Less any amount received or recovered from the employee B VII (vi) VALUATION OF PERQUISITE IN RESPECT OF CLUB FACILITIES: Amount shall be equal to amount spent or reimbursed by employer. Expenses include: annual or periodical fees paid or payable to club In case of health club, sports facilities have been provided to all employees at employer’s premises, then such benefit shall be exempt
B VII (vii) USE OF MOVABLE ASSETS: movable asset owned by the employer except computers and laptop –actual benefit is derived is taxable movable asset does not include: (10 % of cost of asset X number of days asset is used/ number of days of the financial year) valuation of perk is determined as: (a) If asset is owned by employer- 10 % of the original cost of such asset (b) If the asset is hired by employer- charges paid or payable by the employer.
B VII (VII)TRANSFER OF MOVABLE ASSETS Where any assets owned by the employer is transferred to the employee then it will be regarded as perquisites. Perquisites value is as follows: Nature of asset Computers and other Electronic equipments. Motor car Other assets perquisite value original cost of the asset –depreciation at 50%for every completed year from the date of purchase.(WDV) original cost of the asset- depreciation at 20% for every completed year from the date of purchase.(WDV) original cost of asset-depreciation at 10% for every completed year from the date of purchase.(SLM)
C. TAXABLE IN SPECIFIED CASES (SEC 17(2)(III) Meaning of specified employee: He is director of company He has substantial interest in affairs of the company His monetary annual salary income is more than Rs 50,000 p.a C1 –VALUATION OF PERQUISITE OF MOTOR CAR OR ANY OTHER AUTOMATIVE CONVEYANCE: Employer had provided vehicle for private use of employee, it is a perquisite which is taxable in the hands of the employee provided they are in specified category: (A) Motor car is owned or hired by employer and its running expenses are meant or reimbursed by employer (1) Car is fully used in the performance of official duties: value of per is NILL.
(2) Car is fully used for the private, personal, or family purposes of the employee: Value of perk= actual expenses salary of normal wear & any amount charge incurred on running + chauffeur +tear of car (10% - by employer from &maintenance of actual cost) employee (3) Car is used in the performance of duties and partly for private or personal purposes: He expenses on maintenance and running are meant or reimbursed by the employer: (a) where the cubic capacity of engine does not exceed 1.6 liters Rs 1800p.m (b) where the cubic capacity of engine exceed 1.6 liters Rs 2400p.m The expenses on running and maintenance for private or personal use are fully met by employee himself: (a) where cubic capacity of engine does not exceed 1.6 ltr Rs 600 p.m (b) where cubic capacity of engine exceed 1.6 ltr Rs 900 p.m Facility of chauffeur: if it is provide Rs 900p.m shall be added in the above mentioned amounts in (1 and 2) above
(B) Car is owned by employee but its running and maintenance expenses are met or reimbursed by the employer: (i) Car is being used wholly and exclusively for official purposes- No value taxed (ii) Car is being used partly for official purposes and partly for personal or private purposes : value calculated as: actual amount of expenses Less: Rs 1800 pm for small car & Rs2400 for big car Rs 900 pm for driver or a higher sum for official purposes subject to certain condition ( c ) where the employee owns any other automotive conveyance but the actual running or maintenance expensive are met or reimbursed by the employer: (1) employee’s conveyance is being used only for official purposes: no value to be taxed (2) Employee’s conveyance used partly for official purpose and partly for personal or private purpose - actual amt of expenses as reduced by Rs900 p.m
C II PERQUISITE OF FREE DOMESTIC SERVANTS Actual cost of the employer Value of perk= (amount charged/recovered by employer from employee) – (amount spent by employer) CIII PERQUISITE IN RESPECT OF FREE SUPPLY OF GAS . ELECTRIC ENERGY , WATER SUPPLY : The taxable value of this perk shall be equal to the amount paid by employer to the outside agency. where the employer owns these services and provides free to its employees the taxable value shall be the actual cost of these services. in case employee pays some part of the cost to employer or recover cost, amount so paid by employee shall be deducted and only balance is taxable .
C IV – FREE EDUCATIONAL FACILIIES TO CHILDREN OF EMPLOYEE’S HOUSEHOLD (1) payment or reimbursed of fees of school, college, etc: if the amount is directly paid by employer to school, colleges etc and reimbursed by employee is taxable, whether the employee is a specified or non specified type. (2) educational facilities in a school or college maintained by employer: (a) free educational facilities to employee’s own children: • if the cost does not exceed Rs 1000 p.m the taxable value is nil • The cost exceeds Rs 1000 p.m , the taxable value of perk shall be the employer (-) 1000 (-) any amt paid or received from employee. (3) the value of perk is taxable only to secified catgory of employee. C-V FACILITY OF FREE OR CONCESSIONAL PRIVATE JOURNEY TO AN EMPLOYER ENGAGED IN THE CARRIAGE OF PASSENGERS OR GOODS: Value of perk = (normal freight or fare chargeable from public)- (amount charged / recovered from employee)
C V1 MEDICAL FACILITIES: taxable only in case of specified employee. if medical bills are in name of employee and payment is made /reimbursed by employer then it is a perk taxable in case of all employees
PAYMENT EXEMPTED U/S 10 1.Leave travel concession/Assistance[section 10(5)] 1.If journey is performed by air (i) Economy class air fare of the national carrier by the shortest route (ii) Actual amount spent by the employee on journey by air travel 2. If journey is performed by rail (i) Air-conditioned first class rail fare by the shortest route (ii) Actual amount spent by the employee on journey by rail 3. I f place of origin of journey and place of destination is connected by rail. (i) Air conditioned first class rail fare by the shortest route (ii) Actual amount spent by the employee on that journey
4. If place origin of journey and place of destination is not connected by rail (a) If a recognised public transport system is operating (i) First class or delux class fare by the shortest route (ii) Actual amount spent by the employee on that journey (b) If a recognised public transport does not exist (i) Air conditioned first class rail fare by the shortest route (ii) Actual amount spent by the employee on this journey Other points (a) Block of 4 years (b) carry over clause (c) Rail/Air/Bus fare only (d) Exemption only regarding actual expenditure (e) Family (f) Not more than 2 children
2. Perquisites and allowance paid by government to its employees posted outside India ( sec 10(7) Fully exempt from tax Motor car provided or house rent allowance is exempted. 3. DEATH- CUM- RETIREMENT GRTUITY: I. In this case, gratuity is received by employee on leaving job either due to voluntary retirement or due to statutory retirement on reaching the superannuation age. Gratuity so received is taxable after claiming the exemption under sec 10(10) II. Gratuity can also be received by legal heirs of an exemployee in the event of death of such person. it is taxable in the hands of legal heirs under head ‘income from other source’
(a) Government employee. Any death-cum-retirement gratuity received by government employee is ‘fully exempt’ meaning of govt employee : include employees of central government employees of state government employees of local authority employees working in defence employees of statutory corporations (b) Non – government employees B1 non government employees receiving gratuity under payment of gratuity act, 1972 Any gratuity received by such an employee shall be exempt to the extent of the least of following 3 amounts:
(a) (b) (c) 15 days salary (7 Days in case of employees working in seasonal factories) for such completed year of service or part therefore in excess of six months on the basis of monthly salary last drawn. Notified limit Rs 10,00,000 (Rs 350000 upto 24-5-2010) Gratuity actually received by the employee and balance shall be taxable. Taxable gratuity = gratuity received by the employee
IMPORTANT POINTS: Employees covered under payment of gratuity act, 1972: applies to the employees or workers covered under this act. Calculation of length of service/ service period: period exceeding 6 moths is taken as a full year. How to calculate 15 days salary: (a) in case of monthly rated employees: 15 days salary= monthly salary last drawn * 15 days ------------------------------------26 days (b) in case of piece rated employees: on the basis of avg of the total wages/salary of a period of 3 months immediately preceding his retirement wages for overtime period are to be ignored
Meaning of salary: salary= basic salary+ DA (whether enters or not) Whole life exemption: Rs 10,00,000 is the exemption limit for an employee: (a) if employee receives gratuity for the 1st time in his life: limit of Rs 10,00,000 shall be applicable. (b) if employee receive gratuity for the second/ third or subsequent times: maximum limit 10,00,000 (less) exemption claimed in past. Gratuity received during service: fully taxable Reciept of gratuity simultaneously from two or more employers : maximum limt of exemption Rs 10,00,000 Gratuity exemption only in case of employer- employee realtionship ‘or’ employer decreased employee relationship: exemption available for following cases:
(a) (b) If gratuity received on leaving the job By the legal heirs of an employee after the death of such employee Relief u/s 89(1) : employee receiving gratuity after completing service for 5 years
B – 2 NON-GOVERNMENT EMPLOYEES RECEIVING GRATUITY ( Not covered under payment of gratuity Act). Least of the following 3 shall be exempt: ½ month salary for every completed year of service on the basis of average salary drawn during 10 months immediately preceding the month of retirement. Maximum notified limit Rs. 10,00,000. Gratuity actually received by the employee and balance shall be taxable. Taxable gratuity = Actual gratuity received – Exempt
Important notes: Employees not covered under POGA, 1972: Employees working in any shop or establishment in which less than 10 persons are employed or were employed on any day of the preceding 12 months. Calculation of length of service/ service period: While calculating length of service, only completed years are to be counted. Thus, any fraction or part of the year is to be igorned. How to calculate ½ month’s salary? ½ month’s salary is to be calculated on the basis of average salary drawn during the 10 months immediately preceeding the month of retirement. Meaning of salary: The word “salary” here has the same meaning as is assigned to it for provident fund purposes. Thus, Salary = Basic salary + D.A (Enters) + Commission on turnover Whole life limit: Same as discussed in case of employees covered under Payment of Gratuity Act, 1972. Relief U/S 89 (1): Same as discussed in case of employees covered under Payment of Gratuity Act, 1972.
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