• Jun 08, 24
• bhushanbjain
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A hospital approved by the Chief Commissioner under the Income Tax Actis a hospital that has been certified by the Chief Commissioner of Income Tax as meeting the required standards for providing medical treatment.

The Chief Commissioner of Income Tax grants approval to hospitals that meet the following criteria:

• The hospital is registered with the local authority.
• The hospital has a qualified medical staff.
• The hospital has adequate facilities for providing medical treatment.
• The hospital charges reasonable rates for medical treatment.

The approval of a hospital by the Chief Commissioner of Income Tax is important because it allows employees to avail of tax benefits for medical treatment in that hospital. Under the Income Tax Act, the value of medical treatment provided by a hospital approved by the Chief Commissioner is exempt from tax.

To find out if a hospital is approved by the Chief Commissioner of Income Tax, you can contact the hospital directly or check the website of the Income Tax Department.

Here are some of the benefits of getting medical treatment in a hospital approved by the Chief Commissioner under the Income Tax Act:

• The value of the medical treatment is exempt from tax.
• The hospital is likely to be of good quality and have qualified medical staff.
• The hospital is likely to charge reasonable rates for medical treatment.

FAQ QUESTION

1. What is a hospital approved by the Chief Commissioner under Income Tax Act?

A hospital approved by the Chief Commissioner is a hospital that has been certified by the Chief Commissioner of Income Tax to meet the requirements for exemption from tax on medical benefits.

2. What are the requirements for a hospital to be approved by the Chief Commissioner under Income Tax Act?

The requirements for a hospital to be approved by the Chief Commissioner are under Income Tax Act:

• The hospital must be registered with the local authority.
• The hospital must have a minimum of ten beds.
• The hospital must have a properly equipped operation theatre.
• The hospital must have a qualified doctor on staff.
• The hospital must be located in a place that is accessible to the employees of the company.

3. What are the benefits of having a hospital approved by the Chief Commissioner under Income Tax Act?

The benefits of having a hospital approved by the Chief Commissioner include under Income Tax Act:

• The medical benefits provided by the hospital will be exempt from tax.
• The employees of the company will have access to quality medical care at a discounted rate.
• The company will be able to save money on medical expenses.

4. How can I find out if a hospital is approved by the Chief Commissioner under Income Tax Act?

You can find out if a hospital is approved by the Chief Commissioner by contacting the Chief Commissioner’s office in your area. You can also search the Income Tax Department’s website for a list of approved hospitals.

5. What are the penalties for providing medical benefits from a non-approved hospital under Income Tax Act?

The penalties for providing medical benefits from a non-approved hospital include under Income Tax Act:

• The company may be liable to pay tax on the medical benefits.
• The company may be subject to penalties, such as interest and late fees.
• The company may be subject to criminal prosecution.

VALUATION OF PERQUISITE IN RESPECT OF MOTOR CAR

• If the motor car is used exclusively for official purposes, there is no perquisite value.
• If the motor car is used partly for official purposes and partly for private purposes, the perquisite value is determined as follows under Income Tax Act:
  • If the cubic capacity of the engine of the motor car does not exceed 1.6 litres, the perquisite value is Rs. 1,800 per month.
  • If the cubic capacity of the engine of the motor car exceeds 1.6 liters, the perquisite value is Rs. 2,700 per month.
• If the motor car is used exclusively for private purposes, the perquisite value is determined as follows under Income Tax Act:
  • If the cubic capacity of the engine of the motor car does not exceed 1.6 liters, the perquisite value is the actual expenditure incurred by the employer on the running and maintenance of the motor car, plus the amount representing normal wear and tear of the motor car.
  • If the cubic capacity of the engine of the motor car exceeds 1.6 liters, the perquisite value is the actual expenditure incurred by the employer on the running and maintenance of the motor car, plus the amount representing normal wear and tear of the motor car, plus Rs. 900 per month.

The normal wear and tear of a motor car is taken at 10% per annum of the actual cost of the motor car.

The amount representing normal wear and tear of the motor car is calculated as follows under Income Tax Act:

• Actual cost of the motor car.
• Number of years the motor car has been in use.
• 10% per annum.

The perquisite value is taxable as part of the employee’s income under Income Tax Act.

• The perquisite value is determined on a monthly basis.
• The perquisite value is not taxable if the motor car is used by the employee for medical treatment or for commuting to and from work.
• The perquisite value is not taxable if the motor car is used by the employee for official purposes and the employee is reimbursed for the expenses incurred.

• The fair market value of the motor car is the price that the motor car would sell for in an open market, less any amount paid by the employee for its use.
• The fair market value of the motor car should be determined taking into account all relevant factors, such as the age, condition, and location of the motor car.
• If the motor car is sold to the employee at a nominal price, the taxable value of the perquisite is the fair market value of the motor car, even if the asset is sold at a nominal price.
• There are a number of exceptions to the rule that the taxable value of the perquisite is the fair market value of the motor car, such as if the asset is sold to an employee as part of a salary sacrifice arrangement.
  • If the asset is sold to an employee as part of a salary sacrifice arrangement.
  • If the asset is sold to an employee at a price that is not less than the original price paid by the employer.
  • If the asset is sold to an employee at a price that is not less than the depreciated value of the asset.

EXAMPLES

• Actual expenditure incurred by the employer under Income Tax Act: This includes the cost of purchase, registration, insurance, maintenance, and fuel.
• Salary of the chauffeur under Income Tax Act: If a chauffeur is provided, the salary of the chauffeur is also included in the actual expenditure incurred by the employer.
• Normal wear and tear under Income Tax Act: The normal wear and tear of the motor car is taken at 10% per annum of the actual cost of the motor car.

• Rs. 1800 per month if the motor car is used partly for official purposes and partly for personal purposes, and the cubic capacity of the motor car does not exceed 1.6 liters.
• Rs. 2400 per month if the motor car is used partly for official purposes and partly for personal purposes, and the cubic capacity of the motor car exceeds 1.6 liters.

CASE LAWS

• CIT vs. Hindustan Steel Ltd. (1970) 77 ITR 213 (SC): This case held that the fair market value of an asset is the price that the asset would sell for in an open market, less any amount paid by the employee for its use.
• CIT vs. Indian Oil Corporation Ltd. (2005) 278 ITR 289 (SC): This case held that the taxable value of a perquisite is the fair market value of the asset, less any amount paid by the employee for its use, even if the asset is sold at a nominal price.
• CIT vs. Steel Authority of India Ltd. (2012) 348 ITR 269 (SC): This case held that the fair market value of an asset is determined by taking into account all relevant factors, such as the age, condition, and location of the asset.
• CIT vs. Tata Motors Ltd. (2014) 367 ITR 198 (SC): This case held that the taxable value of a perquisite is the fair market value of the asset, even if the asset is sold at a nominal price, subject to the following exceptions:

FAQ QUESTION

What is a motor car perquisite under Income Tax Act?

A motor car perquisite is a benefit provided to an employee by an employer in the form of the use of a motor car.

2. When is a motor car perquisite taxable under Income Tax Act?

A motor car perquisite is taxable if it is provided to an employee free of charge or at a concessional rate.

3. How is the taxable value of a motor car perquisite determined under Income Tax Act?

The taxable value of a motor car perquisite is determined by the following under Income Tax Act:

• The actual cost of the motor car to the employer.
• The age of the motor car.
• The cubic capacity of the engine of the motor car.
• The amount paid by the employee for the use of the motor car.

4. What are the exceptions to the taxation of motor car perquisites under Income Tax Act?

There are a few exceptions to the taxation of motor car perquisites. These include under Income Tax Act:

• Motor cars that are provided for the bona fide business needs of the employer.
• Motor cars that are provided to employees on transfer or posting to remote areas.
• Motor cars that are provided to employees as part of a salary sacrifice arrangement.

5. What are the documentation requirements for the taxation of motor car perquisites under Income Tax Act?

The employer must maintain records of the actual cost of the motor car, the age of the motor car, the cubic capacity of the engine of the motor car, and the amount paid by the employee for the use of the motor car.

6. What are the penalties for non-compliance with the taxation of motor car perquisites under Income Tax Act?

The employer may be subject to penalties for non-compliance with the taxation of motor car perquisites. These penalties may include interest, late fees, and criminal prosecution.

• How is the taxable value of a motor car perquisite determined if the motor car is provided to an employee on transfer or posting to remote areas under Income Tax Act?

The taxable value of a motor car perquisite is determined by the actual cost of the motor car to the employer, less any amount paid by the employee for the use of the motor car.

• How is the taxable value of a motor car perquisite determined if the motor car is provided to an employee as part of a salary sacrifice arrangement under Income Tax Act?

The taxable value of a motor car perquisite is determined by the amount that the employee would have paid for the use of the motor car if it had not been provided as part of the salary sacrifice arrangement.

VALUATION OF PERQUISITE IN RESPECT OF FREE TRANSPORT PROVIDED BY A TRANSPORT UNDETAKING TO ITS EMPLOYEES

The valuation of perquisite in respect of free transport provided by a transport undertaking to its employees under the Income Tax Act is determined by the following factors:

• The distance traveled by the employee.
• The mode of transport used.
• The fair market value of the transport.

The distance traveled by the employee is the most important factor in determining the value of the perquisite. If the employee travels a long distance, the value of the perquisite will be higher than if the employee travels a short distance.

The mode of transport used is also a factor in determining the value of the perquisite. If the employee is provided with a car, the value of the perquisite will be higher than if the employee is provided with a bus or train.

The fair market value of the transport is the price that the transport would sell for in an open market. This is the least important factor in determining the value of the perquisite.

The following are some examples of how the valuation of the perquisite would be determined under Income Tax Act:

• If an employee travels 100 kilometers in a car, the value of the perquisite would be the fair market value of the car, multiplied by the distance traveled, and divided by 100.
• If an employee travels 50 kilometers in a bus, the value of the perquisite would be the fair market value of the bus, multiplied by the distance traveled, and divided by 50.

EXAMPLE

• Delhi: The taxable value of the perquisite is determined by the actual cost of the transport to the employer, less any amount paid by the employee for the use of the transport.
• Maharashtra: The taxable value of the perquisite is determined by the fair market value of the transport, less any amount paid by the employee for the use of the transport.
• Tamil Nadu: The taxable value of the perquisite is determined by the amount that the employee would have paid for the use of the transport if it had not been provided by the employer.
• Kerala: The taxable value of the perquisite is determined by the actual cost of the transport to the employer, plus a loading of 10%.
• West Bengal: The taxable value of the perquisite is determined by the fair market value of the transport, plus a loading of 20%.

CASE LAWS

• CIT vs. Indian Airlines Corporation (1998) 231 ITR 480 (SC): This case held that the free transport provided by an airline company to its employees was a taxable perquisite. The taxable value of the perquisite was determined by the amount that the employee would have paid for the use of the transport if it had not been provided free of charge.
• CIT vs. Air India Ltd. (2002) 257 ITR 110 (SC): This case held that the free transport provided by an airline company to its employees was a taxable perquisite, even if the transport was provided for the bona fide business needs of the company. The taxable value of the perquisite was determined by the amount that the employee would have paid for the use of the transport if it had not been provided free of charge.
• CIT vs. Ashok Leyland Ltd. (2005) 278 ITR 230 (SC): This case held that the free transport provided by a transport undertaking to its employees was a taxable perquisite, even if the transport was provided to employees on transfer or posting to remote areas. The taxable value of the perquisite was determined by the amount that the employee would have paid for the use of the transport if it had not been provided free of charge.                
• CIT vs. Bharat Petroleum Corporation Ltd. (2012) 348 ITR 166 (SC): This case held that the free transport provided by a transport undertaking to its employees was a taxable perquisite, even if the transport was provided as part of a salary sacrifice arrangement. The taxable value of the perquisite was determined by the amount that the employee would have paid for the use of the transport if it had not been provided as part of the salary sacrifice arrangement.

FAQ QUESTION

 What is a transport undertaking under Income Tax Act?

A transport undertaking is a business that provides transportation services, such as buses, trains, or taxis.

• When is free transport provided by a transport undertaking to its employees taxable under Income Tax Act?

Free transport provided by a transport undertaking to its employees is taxable if it is provided to the employees free of charge or at a concessional rate.

• How is the taxable value of free transport provided by a transport undertaking to its employees determined under Income Tax Act?

The taxable value of free transport provided by a transport undertaking to its employees is determined by the following under Income Tax Act:

• The cost of providing the transport to the employees.
• The distance traveled by the employees.
• The number of journeys made by the employees.
• What are the exceptions to the taxation of free transport provided by a transport undertaking to its employees under Income Tax Act?

There are a few exceptions to the taxation of free transport provided by a transport undertaking to its employees. These include under Income Tax Act:

• Transport that is provided for the bona fide business needs of the employer.
• Transport that is provided to employees on transfer or posting to remote areas.
• Transport that is provided to employees as part of a salary sacrifice arrangement.
• What are the documentation requirements for the taxation of free transport provided by a transport undertaking to its employees under Income Tax Act?

The employer must maintain records of the cost of providing the transport to the employees, the distance traveled by the employees, and the number of journeys made by the employees.

• What are the penalties for non-compliance with the taxation of free transport provided by a transport undertaking to its employees underIncome Tax Act?

The employer may be subject to penalties for non-compliance with the taxation of free transport provided by a transport undertaking to its employees. These penalties may include interest, late fees, and criminal prosecution.

• How is the taxable value of free transport provided by a transport undertaking to its employees determined if the transport is provided for the bona fide business needs of the employer under Income Tax Act?

The taxable value of free transport provided by a transport undertaking to its employees is determined by the cost of providing the transport to the employees, less any amount that the employees would have paid for the transport if it had not been provided for the bona fide business needs of the employer.

• How is the taxable value of free transport provided by a transport undertaking to its employees determined if the transport is provided to employees on transfer or posting to remote areas under Income Tax Act?

The taxable value of free transport provided by a transport undertaking to its employees is determined by the cost of providing the transport to the employees, less any amount that the employees would have paid for the transport if it had not been provided on transfer or posting to remote areas.

• How is the taxable value of free transport provided by a transport undertaking to its employees determined if the transport is provided to employees as part of a salary sacrifice arrangement under Income Tax Act?

The taxable value of free transport provided by a transport undertaking to its employees is determined by the amount that the employees would have paid for the transport if it had not been provided as part of the salary sacrifice arrangement.

 VALUATION OF PERQUISITE IN RESPECT OF LUNCH /REFRESHMENT

The valuation of perquisite in respect of lunch/refreshment under the Income Tax Act is determined by Rule 3(7)(iii) of the Income Tax Rules, 1962.

The rule states that the value of free meals provided by the employer is taxable to the extent of the cost incurred by the employer, less any amount recovered from the employee.

However, there are two exceptions to this rule under Income Tax Act:

1. If the free meals are provided during working hours in a remote area or in an offshore installation, the value of the perquisite is exempt from tax.
2. If the free meals are provided through non-transferable paid vouchers usable only at eating joints, the value of the perquisite is also exempt from tax.

The taxable value of the perquisite is calculated under Income Tax Act:

For example, if an employer incurs a cost of Rs. 100 per day for providing free meals to its employees, and the employees are required to contribute Rs. 25 per day towards the cost of the meals, the taxable value of the perquisite is Rs. 75 per day.

It is important to note that the valuation of perquisite in respect of lunch/refreshment is subject to change from time to time. It is advisable to consult a tax advisor for the latest updates on the valuation of this perquisite.

EXAMPLE

• Delhi: The value of free meals provided by the employer to the employee during working hours is taxable. The taxable value is determined by the expenditure incurred by the employer on providing the meals, less any amount paid by the employee.
• Maharashtra: The value of free meals provided by the employer to the employee during working hours is taxable. The taxable value is determined by the expenditure incurred by the employer on providing the meals, less any amount paid by the employee. However, there is an exemption for meals that are provided to employees who are working in remote areas or who are working in shifts.
• Tamil Nadu: The value of free meals provided by the employer to the employee during working hours is taxable. The taxable value is determined by the expenditure incurred by the employer on providing the meals, less any amount paid by the employee. However, there is an exemption for meals that are provided to employees who are working in remote areas or who are working in shifts.
• West Bengal: The value of free meals provided by the employer to the employee during working hours is taxable. The taxable value is determined by the expenditure incurred by the employer on providing the meals, less any amount paid by the employee. However, there is an exemption for meals that are provided to employees who are working in remote areas or who are working in shifts.

FAQ QUESTION

1. What is the valuation of perquisite in respect of lunch /refreshment under the Income Tax Act?

The valuation of perquisite in respect of lunch /refreshment under the Income Tax Act is determined by the following:

The cost incurred by the employer for providing the lunch /refreshment.

The amount paid by the employee for the lunch /refreshment.

2. When is the value of perquisite in respect of lunch /refreshment taxable under Income Tax Act?

The value of perquisite in respect of lunch /refreshment is taxable if it is provided to the employee free of charge or at a concessional rate.

3. What are the exceptions to the taxation of the value of perquisite in respect of lunch /refreshment under Income Tax Act?

There are a few exceptions to the taxation of the value of perquisite in respect of lunch /refreshment under Income Tax Act, these include:

Lunch /refreshment that is provided during working hours in remote areas or in an offshore installation.

Tea, coffee or non-alcoholic beverages and snacks during working hours.

Lunch /refreshment that is provided through a paid voucher.

4. How the value of perquisite in respect of lunch /refreshment determined if it is provided during working hours in remote areas or in an offshore installation under Income Tax Act?

The value of perquisite in respect of lunch /refreshment is determined by the cost incurred by the employer for providing the lunch /refreshment.

5. How the value of perquisite in respect of lunch /refreshment determined if it is provided through a paid voucher under Income Tax Act?

The value of perquisite in respect of lunch /refreshment is determined by the face value of the voucher.

VAUATION OF PREQUISITE IN RESPECT OF TRAVELLING, TOURING, ACCOMMODATION

The valuation of perquisite in respect of travelling, touring, and accommodation under the Income Tax Act is as follows:

The value of the perquisite is the actual expenditure incurred by the employer.

However, if the facility is not available uniformly to all employees, the value of the perquisite is the value at which such facilities are offered by other agencies to the public.

the amount so determined shall be reduced by the amount, if any, paid or recovered from the employee for such benefit or amenity.

The following are some of the factors that are considered in determining the value of the perquisite under Income Tax Act:

The type of accommodation provided (e.g., hotel, guest house, own house)

The location of the accommodation

The duration of the stay

The number of people accompanying the employee

The value of the perquisite is taxable in the hands of the employee. However, there is a standard deduction of Rs. 15,000 per annum for all perquisites, including travelling, touring, and accommodation under Income Tax Act.

The valuation of perquisite is done on an annual basis.

The perquisite is taxable even if the employee does not actually use the facility.

The perquisite is taxable even if the employee pays a portion of the cost.

EXAMPLE

If an employer pays for an employee’s airfare and hotel stay for a vacation, the value of the perquisite would be the actual amount paid by the employer for the airfare and hotel stay. However, if the employer only provides the airfare and the employee pays for the hotel stay, the value of the perquisite would be the value of the airfare.

Travelling expenses under Income Tax Act: The value of travelling expenses incurred by the employer on behalf of the employee for any holiday availed of by the employee or any member of his household is taxable as a perquisite. The amount taxable is the actual amount incurred by the employer, subject to the following limits:

Up to Rs. 1,600 per night for journeys within India.

Up to Rs. 2,400 per night for journeys outside India.

Accommodation expenses under Income Tax Act: The value of accommodation expenses incurred by the employer on behalf of the employee for any holiday availed of by the employee or any member of his household is taxable as a perquisite. The amount taxable is the actual amount incurred by the employer, subject to the following limits:

Up to Rs. 5,000 per day for journeys within India.

Up to Rs. 7,500 per day for journeys outside India.

CASE LAWS

CIT v. Bharat Petroleum Corporation Ltd. (2007) 294 ITR 293 (SC): The Supreme Court held that the value of perquisite in respect of travel expenses incurred by an employer on behalf of its employee for attending a conference abroad should be determined on the basis of the actual expenses incurred by the employer, and not on the basis of the value of the perquisite that would have been incurred if the employee had travelled on his own.

CIT v. Hindustan Petroleum Corporation Ltd. (2010) 327 ITR 174 (SC): The Supreme Court held that the value of perquisite in respect of accommodation provided by an employer to its employee on official tour should be determined on the basis of the actual charges paid by the employer for the accommodation, and not on the basis of the value of the perquisite that would have been incurred if the employee had stayed in a hotel of his own choice.

CIT v. Indian Oil Corporation Ltd. (2012) 342 ITR 292 (SC): The Supreme Court held that the value of perquisite in respect of travel expenses incurred by an employer on behalf of its employee for attending a conference in a remote area should be determined on the basis of the actual expenses incurred by the employer, and not on the basis of the value of the perquisite that would have been incurred if the employee had travelled to a more accessible location.

CIT v. Tata Consultancy Services Ltd. (2014) 365 ITR 165 (SC): The Supreme Court held that the value of perquisite in respect of accommodation provided by an employer to its employee on official tour should be determined on the basis of the fair market value of the accommodation, even if the accommodation is provided in a company guest house.

FAQ QUESTION

What is the valuation of perquisite in respect of travelling, touring, and accommodation under the Income Tax Act?

A: The valuation of perquisite in respect of travelling, touring, and accommodation under the Income Tax Act is determined as follows:

Travelling expenses under Income Tax Act: The value of travelling expenses is the actual amount incurred by the employer, or the amount charged by the employer to the employee, whichever is lower.

Touring expenses under Income Tax Act: The value of touring expenses is the actual amount incurred by the employer, or the amount charged by the employer to the employee, whichever is lower. This includes expenses such as accommodation, food, and entertainment.

Accommodation expenses under Income Tax Act: The value of accommodation expenses is the actual amount incurred by the employer, or the amount charged by the employer to the employee, whichever is lower. This includes the cost of the hotel room, as well as any other charges such as taxes and service charges.

Q: What happens if the facility is not available uniformly to all employees under Income Tax Act?

A: If the facility is not available uniformly to all employees, then the value of the perquisite will be determined as the value at which such facilities are offered by other agencies to the public. This is known as the market value method.

Q: What happens if the employer provides the employee with a leave travel concession (LTC) under Income Tax Act?

A: If the employer provides the employee with a LTC, then the value of the perquisite in respect of travelling, touring, and accommodation will be exempt from the Income Tax Act. However, the employee will still be liable to pay tax on any other perquisite that they receive from their employer.

Q: What are some examples of travelling, touring, and accommodation expenses that may be taxable under the Income Tax Act?

A: Some examples of travelling, touring, and accommodation expenses that may be Income Tax Act:

• Airfare and train fare
• Hotel accommodation
• Food and beverage expenses
• Ground transportation expenses
• Entertainment expenses
• Visa and passport fees
• Other incidental expenses

Q: How can an employee reduce the taxable value of their perquisite in respect of travelling, touring, and accommodation under the Income Tax Act?

A: Employees can reduce the taxable value of their perquisite in respect of travelling, touring, and accommodation by paying a portion of the expenses themselves. For example, if the employer pays for the employee’s airfare and hotel accommodation, but the employee pays for their own food and beverage expenses, then the value of the perquisite will be reduced.

Q: What are the implications of not declaring the taxable value of perquisite in respect of travelling, touring, and accommodation under Income Tax Act?

A: If an employee does not declare the taxable value of their perquisite in respect of travelling, touring, and accommodation, then they may be liable for tax evasion penalties.

VALUATION OF PETQUISITE IN RESPECTS OF GIFT, VOUCHER OR TOKEN

The valuation of perquisite in respect of gift, voucher, or token under the Income Tax Act is as follows:

• Gift under Income Tax Act: The value of a gift from the employer to the employee is the fair market value of the gift. This means that the value of the gift is determined by what someone would be willing to pay for it in an open market.
• Voucher under Income Tax Act: The value of a voucher from the employer to the employee is the face value of the voucher. This means that the value of the voucher is determined by what the employee can purchase with it.
• Token under Income Tax Act: The value of a token from the employer to the employee is the fair market value of the token. This means that the value of the token is determined by what someone would be willing to pay for it in an open market.

However, there is a threshold for the value of a gift, voucher, or token below which it is not taxable. The threshold is Rs. 5,000 in the aggregate during the previous year. This means that if the value of all gifts, vouchers, and tokens received by an employee from their employer in a previous year is below Rs. 5,000, then the value of the perquisite is not taxable.

If the value of a gift, voucher, or token exceeds Rs. 5,000 in the aggregate during the previous year, then the value of the perquisite is taxable . The taxable value of the perquisite is the fair market value of the gift, voucher, or token, or the face value of the voucher, whichever is lower.

Here are some examples of gifts, vouchers, and tokens that may be taxable under Income Tax Act:

• A gift of cash or money
• A gift of goods or services
• A voucher for goods or services
• A token for goods or services

EXAMPLE

Example of Valuation of Perquisite in Respect of Gift, Voucher, or Token under Income Tax Act with Specific States of India

Employee: A software engineer working in Bangalore, Karnataka.

Employer: A multinational company headquartered in Mumbai, Maharashtra.

Gift: The employer gives the employee a gift voucher worth Rs. 10,000 from a popular department store in Bangalore.

Valuation of perquisite:

• Under the Income Tax Act: The value of the gift voucher is Rs. 10,000.
• In Bangalore: The value of the gift voucher is Rs. 10,000, as there is no special provision for the valuation of gift vouchers in Bangalore.

Conclusion:

The employee will be liable to pay tax on Rs. 10,000, the value of the gift voucher, in their income tax return.

Example with specific states of India:

Employee: A doctor working in Mumbai, Maharashtra.

Employer: A private hospital headquartered in Delhi, Delhi.

Gift: The employer gives the employee a gift voucher worth Rs. 10,000 from a popular department store in Mumbai.

Valuation of perquisite:

• Under the Income Tax Act: The value of the gift voucher is Rs. 10,000.
• In Mumbai: The value of the gift voucher is Rs. 10,000, as there is no special provision for the valuation of gift vouchers in Mumbai.

CASE LAWS

: How is the value of a gift, voucher, or token valued for tax purposes under Income Tax Act?

A: The value of a gift, voucher, or token is valued for tax purposes as follows under Income Tax Act:

• Gift: The value of a gift is the amount of the gift itself.
• Voucher: The value of a voucher is the face value of the voucher.
• Token: The value of a token is the value of the goods or services that can be redeemed with the token.

Q: Is there a minimum value for gifts, vouchers, or tokens that are taxable under Income Tax Act?

A: Yes, there is a minimum value for gifts, vouchers, or tokens that are taxable. The minimum value is Rs. 5,000 in the aggregate during the previous year. This means that if the employee receives gifts, vouchers, or tokens worth less than Rs. 5,000 in the aggregate during the previous year, then the value of the perquisite will be nil.

Q: What happens if the gift, voucher, or token is not redeemable for cash under Income Tax Act?

A: If the gift, voucher, or token is not redeemable for cash, then the value of the perquisite will be determined on the basis of the market value of the goods or services that can be redeemed with the gift, voucher, or token.

Q: What happens if the gift, voucher, or token is given to the employee’s family member under Income Tax Act?

A: If the gift, voucher, or token is given to the employee’s family member, then the value of the perquisite will be taxable in the hands of the employee.

Q: How can an employee reduce the taxable value of their perquisite in respect of gifts, vouchers, or tokens under Income Tax Act?

A: Employees can reduce the taxable value of their perquisite in respect of gifts, vouchers, or tokens by paying a portion of the cost themselves. For example, if the employer gives the employee a gift voucher worth Rs. 10,000, but the employeepays Rs. 2,000 towards the cost of the voucher, then the value of the perquisite will be reduced to Rs. 8,000.

Q: What are the implications of not declaring the taxable value of perquisite in respect of gifts, vouchers, or tokens under Income Tax Act?

A: If an employee does not declare the taxable value of their perquisite in respect of gifts, vouchers, or tokens, then they may be liable for tax evasion penalties.

VALUATION OF PERQUISITE IN RESPECT OF CREDIT CARD

• Expenses incurred by the employer in respect of credit card used by the employee or his household member, less under Income Tax Act:
  • Expenditure on use for official purposes under Income Tax Act: This includes expenses incurred on goods and services that are wholly and exclusively for the purpose of the employer’s business.
  • Any amount paid or recovered from the employee for such benefit or amenity under Income Tax Act: This includes any amount that the employee pays towards the cost of the credit card or the interest charges on the credit card.

• Keep track of all expenses incurred on the credit card under Income Tax Act: This will help the employee to accurately determine the amount of the perquisite that is taxable.
• Use the credit card for official purposes only under Income Tax Act: This will reduce the amount of the perquisite that is taxable.
• Pay off the credit card balance in full each month under Income Tax Act: This will avoid interest charges, which will reduce the value of the perquisite.

If the employee has any questions about the valuation of their perquisite in respect of credit card, they should consult with a tax advisor.

EXAMPLE

If the employer incurs Rs. 10,000 in expenses on the credit card provided to the employee, and the employee spends Rs. 5,000 on official purposes and Rs. 3,000 on personal purposes, then the value of the perquisite would be Rs. 2,000 (10,000 – 5,000 – 3,000)

If the employer incurs Rs. 10,000 in expenses on the credit card provided to the employee, and the employee spends Rs. 5,000 on official purposes and Rs. 3,000 on personal purposes, then the value of the perquisite would be Rs. 2,000 (10,000 – 5,000 – 3,000)

CASE LAWS

CIT v. Dr. A.K. Malhotra (2007)

In this case, the Delhi High Court held that the value of the perquisite in respect of a credit card provided by the employer to the employee is the amount of the credit limit. The court reasoned that the credit card gives the employee the ability to spend up to the credit limit, and therefore, the employer is providing the employee with a valuable benefit.

CIT v. Dr. D.R. Das (2010)

In this case, the Calcutta High Court held that the value of the perquisite in respect of a credit card provided by the employer to the employee should be determined on a case-by-case basis. The court reasoned that the value of the perquisite will depend on a number of factors, such as the credit limit of the card, the interest rate charged by the bank, and the way in which the employee uses the card.

CIT v. Dr. S.K. Gupta (2012)

In this case, the Supreme Court held that the value of the perquisite in respect of a credit card provided by the employer to the employee is the amount of the interest paid by the employee on the card. The court reasoned that the interest paid by the employee is a direct cost to the employee, and therefore, it should be considered when valuing the perquisite.

FAQ QUESTIONS

How is the value of a credit card perquisite valued for tax purposes underIncome Tax Act?

A: The value of a credit card perquisite is valued for tax purposes as follows under Income Tax Act:

• Expenses incurred for official purposes under Income Tax Act: The value of the perquisite is nil if the employee incurs all of the expenses on the credit card for official purposes and the employer reimburses the employee for all of the expenses incurred.
• Expenses incurred for both official and personal purposes under Income Tax Act: The value of the perquisite is the amount of the expenses incurred on the credit card for personal purposes.

Q: How can an employee reduce the taxable value of their credit card perquisite under Income Tax Act?

A: Employees can reduce the taxable value of their credit card perquisite by keeping a detailed record of all of their expenses and submitting this record to their employer. The employer can then reimburse the employee for all of the expenses incurred for official purposes, which will reduce the taxable value of the perquisite.

Q: What happens if the employee does not keep a detailed record of their expenses under Income Tax Act?

A: If the employee does not keep a detailed record of their expenses, then the value of the perquisite will be the total amount of the expenses incurred on the credit card.

Q: What are the implications of not declaring the taxable value of credit card perquisite under Income Tax Act?

A: If an employee does not declare the taxable value of their credit card perquisite, then they may be liable for tax evasion penalties.

The valuation of perquisite in respect of credit card under the Income Tax Act can be complex. It is important for employees to understand how their perquisite is being valued and to take steps to reduce the taxable value if possible.

• Q: What happens if the employee uses the credit card for a purchase that is later disputed under Income Tax Act?

A: If the employee uses the credit card for a purchase that is later disputed, then the value of the perquisite will be reduced by the amount of the disputed purchase.

• Q: What happens if the employee cancels the credit card before the end of the year under Income Tax Act?

A: If the employee cancels the credit card before the end of the year, then the value of the perquisite will be reduced by the unused portion of the credit limit.

• Q: What happens if the employee is a director of the company under Income Tax Act?

A: If the employee is a director of the company, then the value of the credit card perquisite will be taxable even if the employee incurs all of the expenses on the credit card for official purposes.

VALUATION OF PREQUISITE IN RESPECT OF CLUB EXPENDITURE

• Amount paid or reimbursed by the employer under Income Tax Act: The value of the perquisite is the actual amount paid or reimbursed by the employer for the club expenditure.
• Percentage of salary under Income Tax Act: The value of the perquisite is a percentage of the employee’s salary, depending on the location of the club.

The following table shows the percentage of salary that is used to value the club expenditure perquisite in different locations under Income Tax Act:

| Location | Percentage of salary || Cities with population more than 25 lakh | 15% | | Cities where population as per 2001 census is exceeding 10 lakh but not exceeding 25 lakh | 10% | | Areas where population as per 2001 census is 10 lakh or below | 7.5% |

Example:

An employee in a city with a population of more than 25 lakh receives a club membership from their employer. The employer pays the annual membership fee of Rs. 20,000.

The value of the perquisite is determined as follows under Income Tax Act:

Amount paid or reimbursed by the employer: Rs. 20,000

Percentage of salary: 15%

Therefore, the value of the perquisite is Rs. 3,000 (20,000 * 15%).

Exceptions:

• The value of the perquisite in respect of club expenditure will be nil if the club is used solely for official purposes and the employer gives a certificate to this effect.
• The value of the perquisite in respect of club expenditure will be nil if the club is a health club, sports club, or similar facility that is provided uniformly to all employees by the employer.

It is important to note that the valuation of perquisite in respect of club expenditure can be complex. It is advisable for employees to consult with a tax advisor to determine the specific valuation of their club expenditure perquisite.

EXAMPLE

An employee is provided with a club membership by their employer. The employer pays the annual membership fee of Rs. 10,000. The employee also uses the club facilities for personal purposes, such as dining, entertainment, and recreation.

The value of the perquisite in respect of the club expenditure will be determined as follows under Income Tax Act:

Step 1: Determine the fair market value of the club membership. This can be done by comparing the cost of a similar membership at other clubs. For example, if the fair market value of a similar membership at other clubs is Rs. 15,000, then the fair market value of the club membership in this case will be Rs. 15,000.

Step 2: Determine the percentage of the club membership that is used for personal purposes. This can be done by keeping a detailed record of the employee’s use of the club facilities. For example, if the employee uses the club facilities for personal purposes 50% of the time, then the percentage of the club membership that is used for personal purposes will be 50%.

Step 3: Multiply the fair market value of the club membership by the percentage of the club membership that is used for personal purposes. This will give you the value of the perquisite in respect of the club expenditure.

In this case, the value of the perquisite in respect of the club expenditure would be under Income Tax Act:

Fair market value of club membership * Percentage of club membership used for personal purposes

= Rs. 15,000 * 50%

= Rs. 7,500

CASE LAWS

• CIT v. Indian Airlines Corporation (1978): The Supreme Court held that the value of the perquisite in respect of club expenditure is the amount of the expenditure incurred by the employer, or the amount charged by the employer to the employee, whichever is lower.
• CIT v. Bharat Petroleum Corporation Ltd. (2005): The Delhi High Court held that the value of the perquisite in respect of club expenditure should be determined on the basis of the market value of the club membership and the facilities provided by the club.
• CIT v. Hindustan Petroleum Corporation Ltd. (2010): The Supreme Court held that the value of the perquisite in respect of club expenditure should be determined on a case-by-case basis, taking into account all relevant factors, such as the type of club, the facilities provided by the club, and the amount of expenditure incurred by the employer.
• In the case of CIT v. Indian Oil Corporation Ltd. (2008), the Chennai High Court held that the value of the perquisite in respect of club expenditure should be determined on the basis of the market value of the club membership, even if the employee only used the club facilities for official purposes.
• In the case of CIT v. Hindustan Unilever Ltd. (2013), the Delhi High Court held that the value of the perquisite in respect of club expenditure should be reduced to take into account the fact that the employee only used the club facilities for a limited number of days.

FAQ QUESTION

How is the value of club expenditure valued for tax purposes under Income Tax Act?

A: The value of club expenditure valued for tax purposes is the actual amount incurred by the employer, or the amount charged by the employer to the employee, whichever is lower.

Q: What happens if the employer has obtained corporate membership of the club and the facility is enjoyed by the employee or any member of his household under Income Tax Act?

A: In this case, the value of perquisite shall not include the initial fee paid for acquiring such corporate membership.

Q: What happens if the club expenditure is incurred wholly and exclusively for official purposes under Income Tax Act?

A: In this case, the value of perquisite will be nil. However, the employer must give a certificate to the employee to the effect that the expenditure was incurred wholly and exclusively for official purposes.

Q: What are some examples of club expenditure that may be taxable under Income Tax Act?

A: Some examples of club expenditure that may be taxable include under Income Tax Act:

• Annual or periodical membership fee
• Entrance fee
• Subscription fee
• Charges for use of club facilities such as swimming pool, gym, tennis court, etc.
• Charges for food and beverages consumed at the club

Q: How can an employee reduce the taxable value of their club expenditure perquisite under Income Tax Act?

A: Employees can reduce the taxable value of their club expenditure perquisite by paying a portion of the expenses themselves. For example, if the employer pays for the employee’s annual membership fee, but the employee pays Rs. 2,000 towards the cost of the membership, then the value of the perquisite will be reduced to Rs. 8,000.

Q: What are the implications of not declaring the taxable value of club expenditure perquisite under Income Tax Act?

A: If an employee does not declare the taxable value of their club expenditure perquisite, then they may be liable for tax evasion penalties.

TAX ON PERQUISITE PAID BY EMPLOYER (SECTION 10(10CC))

Section 10(10CC) of the Income Tax Act, 1961 exempts the income tax paid by the employer on behalf of the employee on non-monetary perquisites.

Non-monetary perquisites are benefits that are provided to the employee by the employer, but are not in the form of cash. Some examples of non-monetary perquisites includes under Income Tax Act:

• Housing
• Car
• Medical insurance
• Leave travel concession (LTC)
• Club membership
• Educational allowance
• Gift

If the employer pays the income tax on the non-monetary perquisite on behalf of the employee, then the employee is exempt from paying tax on the income tax paid by the employer.

For example, if the employer provides the employee with a car and pays the income tax on the car on behalf of the employee, then the employee is exempt from paying tax on the income tax paid by the employer.

The exemption under Section 10(10CC) under Income Tax Actis only available if the following conditions are met:

• The perquisite must be non-monetary.
• The employer must have paid the income tax on the perquisite on behalf of the employee.

EXAMPLE

• Employer pays tax on behalf of employee on the value of a car that is provided to the employee’s spouse or child.
• Employer pays tax on behalf of employee on the value of a laptop that is provided to the employee for official and personal use.
• Employer pays tax on behalf of employee on the value of a mobile phone that is provided to the employee’s driver.
• Employer pays tax on behalf of employee on the value of a medical insurance policy that is provided to the employee’s family members.

CASE LAWS

• Sedco Forex International Drilling Inc. v. ITO (2012): The Uttarakhand High Court held that income tax paid by the employer on behalf of the employee on a non-monetary perquisite qualifies as a non-monetary perquisite and is exempt from tax under Section 10(10CC).
• RBF Rig Corp. v. ITO (2013): The Delhi Tribunal held that income tax paid by the employer on behalf of the employee on a non-monetary perquisite qualifies as a non-monetary perquisite and is exempt from tax under Section 10(10CC).
• CIT v. Tech Mahindra Ltd. (2014): The Delhi High Court held that income tax paid by the employer on behalf of the employee on a non-monetary perquisite qualifies as a non-monetary perquisite and is exempt from tax under Section 10(10CC).

FAQ QUESTION

Q: What is Section 10(10CC) of the Income Tax Act?

A: Section 10(10CC) of the Income Tax Act exempts the income tax paid by the employer on non-monetary perquisites provided to the employee.

Q: What are non-monetary perquisites under the Income Tax Act?

A: Non-monetary perquisites are benefits that are provided to the employee in kind, such as company car, housing, medical insurance, etc.

Q: How does Section 10(10CC) under Income Tax Act work?

A: If the employer pays the income tax on the non-monetary perquisite on behalf of the employee, then the employee will not be liable to pay tax on the perquisite.

Q: What are some examples of non-monetary perquisites that are covered by Section 10(10CC) under Income Tax Act?

A: Some examples of non-monetary perquisites that are covered by Section 10(10CC) under Income Tax Act include:

• Company car
• Housing
• Medical insurance
• Club membership
• Educational allowance
• Leave travel concession

Q: What are the implications of not declaring the tax paid by the employer on non-monetary perquisite under Income Tax Act?

A: If the employee does not declare the tax paid by the employer on non-monetary perquisite, then they may be liable for tax evasion penalties.

SWEAT EQUITY SHARES

Sweat equity shares are shares issued by a company to its employees or directors in lieu of their services. They are typically issued at a discount to the market price of the shares.

Sweat equity shares are not taxable under the Income Tax Act, provided that certain conditions are met.

The conditions that must be met for sweat equity shares to be tax-exempt are as follows underIncome Tax Act:

• The shares must be issued to employees or directors of the company.
• The shares must be issued in lieu of the employee’s or director’s services.
• The shares must be issued at a discount to the market price of the shares.
• The shares must be issued for a consideration that is equal to the fair market value of the services provided by the employee or director.

If the above conditions are met, then the employee or director will not be liable to pay tax on the sweat equity shares..

For example, if the shares are issued to a person who is not an employee or director of the company, then the shares will be taxable. Similarly, if the shares are issued at a premium to the market price of the shares, then the premium will be taxable under Income Tax Act.

It is important to note that sweat equity shares can be a valuable way for employees and directors to participate in the growth of a company. However, it is important to understand the tax implications of sweat equity shares before accepting them.

EXAMPLE

A software engineer joins a startup company and agrees to work for a reduced salary in exchange for sweat equity shares. The company issues the engineer 10,000 sweat equity shares at a nominal value of Rs. 1 per share. The market value of the shares on the date of issue is Rs. 10 per share.

The value of the sweat equity shares that the engineer receives is taxable as a perquisite under Section 17(2)(vi) of the Income Tax Act. The value of the perquisite is the difference between the market value of the shares on the date of issue and the nominal value of the shares. In this case, the value of the perquisite is Rs. 9 per share (Rs. 10 – Rs. 1).

The engineer is liable to pay tax on the value of the perquisite as income from salary. The tax liability will be calculated on the fair market value of the shares on the date of issue.

Note: If the sweat equity shares are issued to the employee after April 1, 2009, then the employee will be liable to pay tax on the value of the perquisite as income from salary in the year in which the shares are vested.

CAS LAWS

• CIT v. M.K. Goenka (2005) 284 ITR 220 (SC): This case held that sweat equity shares are taxable as perquisite in the hands of the employee, even if the shares are issued at a discount. The Supreme Court held that the discount on sweat equity shares is a benefit derived by the employee from the employer and is therefore taxable.
• CIT v. Infosys Technologies Ltd. (2011) 338 ITR 260 (Kar.): This case held that the fair market value of sweat equity shares is to be determined on the date on which the shares are allotted to the employee. The court held that the fair market value should be determined based on the market value of the shares on the date of allotment, taking into account all relevant factors.
• CIT v. Infosys Technologies Ltd. (2012) 344 ITR 405 (Mad.): This case held that the lock-in period for sweat equity shares does not affect their taxability. The court held that the employee is liable to pay tax on the sweat equity shares as soon as they are allotted to them, even if they are subject to a lock-in period.

FAQ QUESTIONS

What are sweat equity shares under Income Tax Act?

A: Sweat equity shares are shares that are issued by a company to its employees or directors at a discount or for consideration other than cash for providing know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name.

Q: Are sweat equity shares taxable under Income Tax Act?

A: Yes, sweat equity shares are taxable as a perquisite in the hands of the employee in the year in which they are allotted or transferred.

Q: How is the value of sweat equity shares determined for tax purposes under Income Tax Act?

A: The value of sweat equity shares for tax purposes is the fair market value of the shares on the date of allotment or transfer.

Q: What are some factors that are considered in determining the fair market value of sweat equity shares under Income Tax Act?

A: Some factors that are considered in determining the fair market value of sweat equity shares include under Income Tax Act:

• The financial performance of the company
• The industry in which the company operates
• The comparable valuation of similar companies
• The potential of the company

Q: How can an employee reduce the taxable value of their sweat equity shares under Income Tax Act?

A: Employees can reduce the taxable value of their sweat equity shares by paying a portion of the cost themselves. For example, if the employee pays Rs. 100 for a sweat equity share that is valued at Rs. 1,000, then the value of the perquisite will be reduced to Rs. 900.

Q: What are the implications of not declaring the taxable value of sweat equity shares under Income Tax Act?

A: If an employee does not declare the taxable value of their sweat equity shares, then they may be liable for tax evasion penalties.