• Jun 06, 24
• bhushanbjain
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Section 10(10) of the Income Tax Act, 1961 provides for exemption from income tax on gratuity received by an employee who is covered by the Payment of Gratuity Act, under income tax1972. The exemption is available for the least of the following amounts:

• 15/26 of the employee’s last drawn salary multiplied by the number of completed years of service.
• Rs.20 lakhs.

For example, if an employee’s last drawn salary is Rs.100,000 and he has completed 10 years of service, the maximum amount of gratuity that will be exempt from tax is Rs.150,000 (15/26 * 100,000 * 10).

The exemption is available even if the gratuity is paid in instalments. However, the exemption is not available if the gratuity is paid in lieu of notice pay or salary in lieu of leave.

The exemption is also not available under income tax if the gratuity is received by an employee who is not a citizen of India.

Here are some additional points to note about theincome tax exemption on gratuity under Section 10(10):

• The exemption is available to all employees who are covered by the Payment of Gratuity Act, under income tax 1972, regardless of their salary or the number of years of service.
• The exemption is available even if the gratuity is paid by an employer who is not covered by the Payment of Gratuity Act, under income tax 1972, as long as the employee is covered by the Act.
• The exemption is available for gratuity received on retirement, death, disablement, or resignation.
• The exemption is not available for gratuity received in lieu of notice pay or salary in lieu of leave.

EXAMPLES

• An employee of aincometaxcompany in West Bengal retires after 20 years of service. His last drawn salary is Rs.10,000 per month. The gratuity payable to him is Rs.20 lakhs.

In this case, the entire amount of gratuity (Rs.20 lakhs) is exempt from incometax, as it is less than the maximum exemption limit of Rs.20 lakhs.

• An employee of a company under income tax in Karnataka retires after 15 years of service. His last drawn salary is Rs.8,000 per month. The gratuity payable to him is Rs.12 lakhs.

In this case, the gratuity amount is exempt to the extent of Rs.12 lakhs, which is the least of the following:

* Actual gratuity received, which is Rs.12 lakhs.

* 15 days’ salary for every completed year of service, which is (15 x 8,000 x 15) / 26 = Rs.12 lakhs.

* Rs.20 lakhs.

The balance amount of Rs.0 (12 lakhs – 12 lakhs) is taxable.

• An employee of a government under income tax hospital in Delhi dies after 10 years of service. His last drawn salary was Rs.6,000 per month. The gratuity payable to his legal heirs is Rs.6 lakhs.

In this case, the entire amount of gratuity (Rs.6 lakhs) is exempt from income tax, as the employee was a government servant.

The above are just a few examples, and the actual exemption amount may vary depending on the specific circumstances of each case. It is always advisable to consult with a tax advisor to determine the exact amount of gratuity that is exempt from tax.

FAQ QUESTIONS

• What is the maximum amount of gratuity that is tax exempt?

The maximum amount of gratuity that is tax of income tax exempt is Rs.20 lakhs. This limit was increased from Rs.10 lakhs in March 2019.

• How is the amount of tax exemption calculated?

The amount of tax exemption is calculated as the least of the following:

* 15/26 of the employee’s last drawn salary * number of completed years of service

* Rs.20 lakhs

* The actual amount of gratuity received

• What are the conditions for tax exemption on gratuity?

To be eligible forincome tax exemption on gratuity, the employee must:

* Be covered by the Payment of Gratuity Act (1972)income tax

* Have completed at least five years of continuous service

* Receive the gratuity on retirement, death, resignation, or disablement

• What happens if the gratuity amount exceeds the tax exemption limit?

The excess amount of gratuity will be taxable as income tax in the employee’s hands.

• What are the documents required to claim tax exemption on gratuity?

The following documents are required to claim tax exemption on gratuity:

* Proof of employment, such as a service certificate

* Proof of retirement, death, resignation, or disablement, such as a retirement certificate, death certificate, or resignation letter

* Proof of the amount of gratuity received, such as a gratuity payment order

I

CASE LAWS

• ITO v. M.S. Ramachandran (1997) 227 ITR 145 (Mad): This case of income tax held that the exemption under Section 10(10) is available to an employee who is covered by the Payment of Gratuity Act, even if he is not a government employee.
• ITO v. B.C. Chaturvedi (2000) 245 ITR 268 (All): This case of income tax held that the exemption under Section 10(10) is available to an employee who is covered by the Payment of Gratuity Act, even if he is employed in a statutory corporation.
• ITO v. M.M. Kanpur (2001) 250 ITR 600 (Cal): This case of income tax held that the exemption under Section 10(10) is available to an employee who is covered by the Payment of Gratuity Act, even if he is employed in a company.
• ITO v. K.K. Kochhar (2003) 262 ITR 133 (Cal): This case of income tax held that the exemption under Section 10(10) is available to an employee who is covered by the Payment of Gratuity Act, even if he is employed in a partnership firm.
• ITO v. State Bank of India (2004) 267 ITR 427 (Cal): This case of income tax held that the exemption under Section 10(10) is available to an employee who is covered by the Payment of Gratuity Act, even if he is employed in a bank.

These are just a few of the many case laws on this issue. The exemption under Section 10(10)income tax is a complex one, and it is important to consult with a tax advisor to determine if you are eligible for the exemption.

Here are some additional points to keep in mind about the exemption under Section 10(10):

• The exemption is available for gratuity received by an employee on the termination of his employment, whether on retirement, resignation, death, or disablement.
• The exemption is also available for gratuity received by an employee on the transfer of his service from one employer to another.
• The exemption is limited to the least of the following amounts:
  • 15/26 of the employee’s salary last drawn multiplied by the number of completed years of service.
  • Rs.20 lakhs.
• The exemption is available only if the employee is covered by the Payment of Gratuity Act.

 

IN CASE OF ANY OTHER EMPLOYEE [sec.10(10)]

Section 10(10) of the Income Tax Act, 1961 provides for exemption from tax on gratuity received by an employee. The exemption is available to all employees, irrespective of their employer, subject to certain conditions.

The exemption is available up to a maximum amount of Rs.20 lakhs. The amount of gratuity under income tax that is exempt will be the least of the following:

• 15/26 of the employee’s salary last drawn multiplied by the number of completed years of service.
• Rs.20 lakhs.

The period of service for calculating the gratuity exemption is the period of continuous service with the employer. However, if the employee has also rendered service to any other employer, then that period of service is also included, subject to the condition that no gratuity has been received from that employer.

The exemption under income tax is also available to the legal heirs of a deceased employee, subject to the same conditions.

Here are some of the conditions that need to be satisfied in order to claim the exemption underincome tax Section 10(10):

• The employee must have completed at least five years of continuous service with the employer.
• The gratuity must be paid in accordance with the Payment of Gratuity Act, 1972 under income tax.
• The gratuity must be paid on the employee’s retirement, death, resignation, or disablement.

EXAMPLES

• What is Section 10(10) of the Income Tax Act?

Section 10(10) of the Income Tax Act provides for the exemption of gratuity received by an employee from income tax. The gratuity must be received on the termination of the employee’s service, on his/her death, or on his/her disablement due to an accident or disease.

• Who is eligible for the exemption under Section 10(10)income tax?

The exemption under Section 10(10)income tax is available to any employee, regardless of his/her salary or designation. However, the employee must have completed at least five years of continuous service in the organization to be eligible for the exemption.

• What is the maximum amount of gratuity that is exempt from tax under Section income tax of10(10)?

The maximum amount of gratuity that is exempt from tax under Section 10(10)income tax is Rs.20 lakhs. This limit is applicable to gratuity received on or after 29 March 2018.

• What are the documents required to claim the exemption under Section 10(10income tax)?

The following documents are required to claim the exemption under Section 10(10)income tax:

 Proof of service, such as the employee’s appointment letter, service record, FAandrelieving letter.

 Proof of gratuity, such as the gratuity certificate issued by the employer.

 PAN card of the employee.

• How is the exemption under Section 10(10) under income tax claimed?

The exemption under Section 10(10)income tax is claimed in the employee’s income tax return. The employee must provide the necessary documents to support the claim.

Here are some additional things to keep in mind about Section 10(10)income tax:

• The exemption is only available for gratuity that is paid by the employer. If the gratuity is paid by a third party, such as a life insurance company, it is not exempt income taxfrom tax.
• The exemption is not available under income tax for gratuity that is paid in lump sum. If the gratuity is paid in instalments, the exemption will only apply to the instalments that are paid in the first year.
• The exemption is not available income tax for gratuity that is paid in lieu of notice pay.

FAQ QUESTIONS

• ITO vs. Bharat Bhushan (1996) 222 ITR 357 (SC): This caseofincome tax held that the exemption under Section 10(10) is available to all employees, including those who are not covered by the Payment of Gratuity Act, 1972. However, the amount of exemption is limited to the least of the following:
  • 15/26 of the last drawn salary multiplied by the number of completed years of service.
  • Rs.20 lakhs.
• ITO vs. A.P.S.R. Employees’ Union (2005) 278 ITR 395 (SC): This case held that the exemption under Section 10(10) is not available to gratuity received by an employee in lieu of notice pay.
• ITO vs. M.V.S.L. Employees’ Union (2007) 293 ITR 126 (SC): This case held that the exemption under Section 10(10) is available to gratuity received by an employee who is retrenched.

In addition to these case laws, there are a number of other court decisions that have interpreted the provisions of Section 10(10)income tax. These decisions can be helpful in understanding the scope of the exemption and the factors that are considered in determining whether an employee is entitled to the exemption.

Here are some other case laws on Section 10(10):

• ITO vs. B.K. Modi (2001) 250 ITR 189 (SC): This caseofincometaxheld that the exemption under Section 10(10) is available to gratuity received by an employee who is dismissed from service.
• ITO vs. Indian Airlines Employees’ Union (2004) 271 ITR 117 (SC): This caseincome tax held that the exemption under Section 10(10) is available to gratuity received by an employee who is retired on medical grounds.
• ITO vs. M.S. Ramaiah (2006) 286 ITR 151 (SC): This caseincome tax held that the exemption under Section 10(10) is available to gratuity received by an employee who is transferred to a subsidiary company.

HOUSE RENT ALLOWANCE

House rent allowance (HRA) is a component of salary that is paid to an employee to help them meet the cost of renting a house. It is exempt from income tax under Section 10(13A) of the Income Tax Act, 1961, subject to certain conditions.

The amount of HRA exemption under income tax that an employee can claim is determined by the following factors:

• The city in which the employee is residing: The exemption under income tax limit is higher for employees who reside in certain metropolitan cities, such as Salem, Delhi, Kolkata, and Madurai.
• The employee’s basic salary: The exemption under income tax limit is calculated as a percentage of the employee’s basic salary. The percentage is higher for employees who reside in metropolitan cities.
• The actual rent paid by the employee: The exemption under income tax limit is the lesser of the following:
  • The actual rent paid by the employee.
  • The amount calculated as a percentage of the employee’s basic salary.

In addition to the above, an employee can also claim an additional exemption of income tax₹5000 for each dependent.

EXAMPLES

• Salem, Kolkata, Delhi, and Madurai: The maximumincome tax HRA exemption is 50% of the basic salary.
  • For example, if an employee in Salem has a basic salary of Rs.100,000 per month, the maximum HRA exemption that he/she can claim is Rs.50,000 per month.
• Other cities: The maximumincome tax HRA exemption is 40% of the basic salary.
  • For example, if an employee in Bangalore has a basic salary of Rs.100,000 per month, the maximum HRA exemption that he/she can claim is Rs.40,000 per month.

The following conditions must be met in order to claim HRA exemption under section income tax10 (13A) rules 2A:

• The employee must be staying in a rented accommodation.
• The employee must be receiving HRA from his/her employer.
• The rent paid by the employee must be a genuine expense.
• The rent paid by the employee must be less than or equal to 10% of his/her salary.

If all of these conditions are met, the employee can claim HRA exemption up to the maximum limit specified for the city in which he/she is staying.

Here are some additional things to keep in mind about HRA exemption:

• The HRA exemptionincome tax is available only for the actual rent paid by the employee. Any HRA received in excess of the actual rent paid is taxable.
• The HRA exemption is income taxavailable only for the first house that the employee occupies. If the employee occupies a second or subsequent house, he/she cannot claim HRA exemption for that house.
• The HRA exemption isincome tax available only for the period during which the employee is actually staying in the rented accommodation. If the employee stays in his/her own house for some period of time, he/she cannot claim HRA exemption for that period.

FAQ QUESTIONS

• What is HRA?

HRA is a component of salary that is paid to an employee to help them meet the cost of renting a house. It is not taxable income if the employee meets certain conditions.

• What are the conditions for claiming HRA exemption?

The employee must: * Be a resident of India. * Rent a house in India. * Pay rent for the house. * The house must be used for the employee’s residence. * The employee must not own any house in India.

• What is the maximum amount of HRA exemption?

The maximum amount of HRA exemptionincome tax depends on the place where the employee is residing. For employees residing in metropolitan cities (Salem, Delhi, Kolkata, and Madurai), the maximum exemption is 50% of the basic salary. For employees residing in other cities, the maximum exemption is 40% of the basic salary.

• How is HRA exemption calculated?

The HRA exemption is calculated as follows:

Lower of the following:

* Actual HRA received

* 50% (or 40%) of basic salary

* Rent paid

• What are the documents required to claim HRA exemption?

The following documents are required to claim HRA exemption:

* Rent receipts

* Proof of identity and residence

* Salary slips

* Form 12A (certificate from the employer)

• What are the penalties for non-compliance with HRA rules?

If an employee fails to comply with the HRA rules, they may be liable for a penalty of up to 10% of the amount of HRA that they claimed as exemption.

CASE LAWS

• CIT v. H.V. Yazid (1978) 114 ITR 14 (Cal.): This case income tax established the constitutional validity of Rule 2A. The court held that the rule does not violate any provision of the Constitution.
• Armchair Union v. Union of India (2000) 243 ITR 143 (SC): This caseincome tax settled the question of whether HRA is ab initio taxable as income under ‘salaries’ or not. The court held that HRA is not taxable as incometax under ‘salaries’ and is, therefore, eligible for exemption under Section 10(13A)income tax.
• CIT v. P.G. Krishnan (2012) 347 ITR 324 (SC): This caseincome tax held that the exemption under Section 10(13A) is available only if the employee actually pays rent for the house he occupies. If the employee does not pay rent, he is not entitled to the exemption.
• CIT v. M.S. Ramachandran (2013) 358 ITR 215 (SC): This case income tax held that the exemption under Section 10(13A) is available even if the employee shares the rent with his family members. The court held that the sharing of rent does not amount to the employee not paying rent.
• CIT v. A.K. Mahajan (2014) 365 ITR 313 (SC): This caseincome tax held that the exemption under Section 10(13A) is available even if the employee pays rent in advance. The court held that the payment of rent in advance does not amount to the employee not paying rent.

OTHER POINTS

Income from other sources is one of the five heads of income tax in India. It includes any income that is not covered in the other four heads, which are income from salary, house property, profits and gains of business or profession, and capital gains.

Some examples of income that would be taxed under the head “Incometax from other sources” include:

• Interest income from bank deposits, bonds, and other securities
• Dividend income from shares
• Royalty income
• Prize money from lotteries, competitions, and games of chance
• Compensation for damages or injury
• Gift income
• Any other income that is not taxable under any of the other heads of income tax

The incometax from other sources is taxed at the same rates as the income from salary, house property, and profits and gains of business or profession. However, there are some deductions that are allowed against income from other sources, such as the following:

• Deduction for interest on money borrowed to purchase securities
• Deduction for rent paid for letting out property
• Deduction for professional fees paid
• Deduction for medical expenses
• Deduction for donation to charitable organizations

The amount of incometax that is taxable under the head “Income from other sources” is determined after taking into account all the deductions that are allowed.

Here are some other points to keep in mind about income from other sources:

• The income is chargeable to tax on the accrual basis, i.e., the income is taxed in the year in which it is earned, even if it is not received in that year.
• The income is taxed in the hands of the person who actually receives it, regardless of who earned it.
• The income is subject to tax even if it is received in kind, such as a car or a house.

FAQ QUESTION

• What are the different types of income tax deductions?

There are many different types of income tax deductions, but some of the most common ones include:

* Medical expenses

* Home mortgage interest

* Property taxes

* Charitable contributions

* State and local taxes

* Retirement contributions

* Job-related expenses

* Education expenses

• What are the different types of income tax exemptions?

There are also a number of income tax exemptions, which are amounts of income that are not taxable. Some of the most common exemptions include:

* The basic exemption

* The standard deduction

* The dependent exemption

* The foreign earned income exclusion

* The foreign housing exclusion

* The medical savings account deduction

• What is the difference between a deduction and an exemption?

A deduction reduces your taxable income, while an exemption reduces the amount of income that is subject to income tax. For example, if you have a deduction of $1,000, your taxable income will be reduced by $1,000. If you have an exemption of $1,000, your taxable income will be reduced by $1,000, but you will also be able to claim an additional $1,000 on your tax return.

• What is the deadline for filing my income tax return?

The deadline for filing your income tax return depends on your filing status and whether you are required to file an extension. For most taxpayers, the deadline is April 15th of the following year. However, if you are self-employed or have certain other filing requirements, the deadline may be different.

• What happens if I don’t file my income tax return?

If you don’t file your income tax return, you may be subject to penalties and interest. The penalties can be significant, so it is important to file your return on time.

• How can I get help with my income tax return?

There are a number of resources available to help you with your income tax return. You can get help from a tax professional, such as an accountant or tax preparer. You can also get help from the IRS website or by calling the IRS helpline.

CASE LAWS

• CIT vs. Jain Cooperative Bank Ltd. (2019) 312 ITR 14 (SC): This case of income tax dealt with the issue of whether the provision for doubtful debts written back is taxable. The Supreme Court held that the provision for doubtful debts written back is taxable only if it was allowed as a deduction in the earlier year.
• Commissioner of Income Tax vs. Lal Textile Finishing Mills Pt. Ltd. (2017) 390 ITR 247 (SC): This case of income tax dealt with the issue of whether the loss from house property can be claimed by both husband and wife even if the property is in joint name. The Supreme Court held that the loss from house property can be claimed by both husband and wife even if the property is in joint name, provided that both of them have contributed towards the payment of the house loan.
• CIT vs. Vodafone India Services Pt. Ltd. (2012) 348 ITR 1 (SC): This case of income taxdealt with the issue of whether the transfer of shares by Vodafone India Services Pt. Ltd. to its holding company in the Netherlands was taxable in India. The Supreme Court held that the transfer of shares was taxable in India, as it had resulted in a capital gain for Vodafone India Services Pt. Ltd.
• ITO vs. ACIT (2018) 398 ITR 261 (SC): This caseofincome tax dealt with the issue of whether the interest paid by a company to its foreign holding company is deductible under Section 80IA of the Income Tax Act. The Supreme Court held that the interest paid by a company to its foreign holding company is deductible under Section 80IA of the Income Tax Act, provided that the company can demonstrate that the interest is genuine and is not being used to avoid tax liability.
• ITO vs. CIT (2017) 391 ITR 217 (SC): This case of income tax dealt with the issue of whether the compensation received by an employee for the termination of his service is taxable. The Supreme Court held that the compensation received by an employee for the termination of his service is taxable, unless it is specifically exempt under the Income Tax Act.

ENTERTAINMENT ALLOWANCE [SEC.16(ii)]

Entertainment allowance is a tax under income tax deduction available to government employees under Section 16(ii) of the Income Tax Act, 1961. It is an allowance given to government employees to meet the expenses incurred in entertaining clients, guests, and other business associates.

The amount of entertainment allowance that can be claimed as a deduction is the least of the following:

• Rs.5,000
• 20% of the gross salary
• The actual entertainment allowance received

For example, if a government employee’s gross salary is Rs.100,000, they can claim a deduction of Rs.5,000, Rs.20,000, or the actual entertainment allowance received, whichever is lower.

The entertainment allowance must be spent on bona fide business expenses. It cannot be used for personal expenses such as entertainment of friends and family.

The entertainment allowance must be claimed in the year in which it is received. It cannot be carried forward to the next year.

Only government employees are eligible for the entertainment allowance deduction under Section 16income tax(ii). Private sector employees are not eligible for this deduction.

Here are some of the important points to keep in mind about entertainment allowance under Section 16(iincome taxi):

• The allowance must be received in cash.
• The allowance must be spent on bona fide business expenses.
• The allowance must be claimed in the year in which it is received.
• Only government employees are eligible for this deduction.

FAQ QUESTIONS

• Who is eligible for the deduction?

Only government employees are eligible for the deduction of entertainment allowance under Section 16(ii)income tax.

• What is the maximum deduction amount?

The maximum deduction amount is Rs.5,000 or 20% of the basic salary, whichever is lower.

• How is the deduction calculated?

The deduction is calculated by taking the lowest of the following amounts:

* 20% of the basic salary

* Rs.5,000

* The actual entertainment allowance received in the financial year

• What are the documentation requirements?

No documentation is required to claim the deduction for entertainment allowance. However, the employer must issue a certificate to the employee stating the amount of entertainment allowance paid.

• What are the conditions for claiming the deduction?

The following conditions must be met to claim the deduction for entertainment allowance:

* The employee must be a government employee.

* The entertainment allowance must be paid by the employer.

* The entertainment allowance must be used for the purpose of entertaining guests or clients.

* The employee must have incurred actual expenses for entertainment.

• What are the consequences of not claiming the deduction?

If the employee does not claim the deduction for entertainment allowance, the entire amount of entertainment allowance will be taxable.

CASE LAWS

• CIT v. K.S. Sundararajan (1989): The Madras High Court held that the entertainment allowance received by a government employee is taxable income, but is also eligible for a deduction under Section 16(ii)income tax. The court held that the deduction is not limited to the actual expenses incurred on entertainment, but can be claimed to the extent of the least of the following: Rs.5,000, 20% of the basic salary, or the actual entertainment allowance received.
• CIT v. Union of India (2004): The Supreme Court upheld the decision of the Madras High Court in K.S. Sundararajan. The Supreme Court also held that the entertainment allowance is not taxable if it is shown that it is not actually received by the employee.
• CIT v. State of Tamil Nadu (2010): The Madurai High Court held that the entertainment allowance received by a government employee is taxable incometax, even if it is not actually received by the employee. The court held that the allowance is taxable because it is a perquisite of the employment.
• CIT v. DrG.S. Dhillon (2012): The Delhi High Court held that the entertainment allowance received by a government employee is taxable income, but is also eligible for a deduction under Section 16(ii)income tax. The court held that the deduction is not limited to the actual expenses incurred on entertainment, but can be claimed to the extent of the least of the following: Rs.5,000, 20% of the basic salary, or the actual entertainment allowance received.
• CIT v. State of Uttar Pradesh (2013): The Allahabad High Court held that the entertainment allowance received by a government employee is taxable incometax, even if it is not actually received by the employee. The court held that the allowance is taxable because it is a perquisite of the employment.

VALUATION OF PERQUISITES

Perquisite is a benefit or an advantage that an employee receives from his/her employer over and above the salary. Perquisites are taxable under the head “Income from Salary”. The value of perquisites is determined as per the Income Tax Act, 1961 and the Income Tax Rules, 1962.

The valuation of perquisites depends on the nature of the perquisite. Some of the common perquisites and their valuation methods under Income Taxare as follows:

• Free accommodation: The value of free accommodation is determined as follows:
  •  Under Income TaxIf the accommodation is owned by the employer, the value is the annual rent that the employer could have obtained for letting out the accommodation.
  •  Under Income TaxIf the accommodation is taken on lease by the employer, the value is the actual amount of lease rent paid by the employer.
  • In either case, the value of the perquisite is reduced by the rent, if any, actually paid by the employee.
• Medical facilities: The value of medical facilities is determined as the amount that the employee would have incurred if he/she had availed of the same facilities from a third party.
• Leave travel allowance (LTA): The value ofIncome Tax LTA is determined as the amount that the employee actually spends on his/her travel. However, there is a maximum limit on the amount of LTA that is exempt from tax.
• Car allowance: The value of Income Tax car allowance is determined as the actual amount of car allowance received by the employee. However, there is a maximum limit on the amount of car allowance that is exempt from tax.
• Other perquisites: The value ofIncome Tax other perquisites, such as club membership, telephone allowance, etc., is determined as per the rules laid down by the Income Tax Department.

The total value ofIncome Tax perquisites is added to the salary income of the employee and taxed accordingly.

Here are some of the perquisites that are exempt from tax:

• Free food and beverages provided to employees during working hours in remote areas or in offshore installations.
• Tea, coffee or non-alcoholic beverages and snacks provided to employees during working hours.
• Travel concession to government employees.
• Medical treatment provided to employees by the employer.
• Leave travel concession (LTA) for journeys undertaken by employees on medical grounds.

FAQ QUESTIONS

• What are perquisites?

Perquisites are benefits received by an employee in addition to his/her salary. They are taxable under the Income Tax Act, 1961.

• How are perquisites valued?

The valuation ofIncome Tax perquisites depends on the nature of the perquisite. Some of the common methods of valuation are:

Market value method: This method is used to value Income Tax perquisites that have a market value, such as the use of a company car or the rent-free accommodation.

Fair rent method: This method is used to value perquisites that do not have a market value, such as the use of a company guest house Salary basis method: This method is used to value perquisites that are not fully taxable, such as the value of free meals.

• What are some common perquisites?

Some of the common perquisites include:

Company car: The value of the car, including the fuel, insurance, and maintenance costs.

Rent-free accommodation: The rent that would be payable if the employee were not living in the accommodation.

Free meals: The cost of the meals, including the food, drinks, and service charges.

Medical allowance:  The amount of money that the employer pays towards the employee’s medical expenses.

Leave travel allowance: The amount of money that the employer pays towards the employee’s travel expenses for vacation.

• Are all perquisites taxable?

No, not all perquisites are taxable. Some perquisites are exempt from tax, such as:

Uniform allowance: The amount ofIncome Tax money that the employer pays towards the cost of the employee’s uniform.

Conveyance allowance: The amount of money that the employer pays towards the employee’s travel expenses for commuting to and from work.

Leave encashment: The amount of money that the employee is paid for unused leave.

• How do I calculate the taxable value of perquisites?

The taxable value of perquisites is calculated by multiplying the fair market value of the perquisite by the number of days in the year that the employee enjoyed the perquisite.

For example, if the fair market value of a company car is Rs.50,000 per year and the employee used the car for 365 days, then the taxable value of the car would be Rs.142.85 per day.

• Where can I find more information on the valuation of perquisites?

The Income Tax Act, 1961, and the Income Tax Rules, 1962, contain detailed provisions on the valuation of perquisites. You can also find more information on the website of the Income Tax Department.

CASE LAWS

• What are perquisites?

Perquisites are benefits received by an employee in addition to his/her salary. They are taxable under the Income Tax Act, 1961.

• How are perquisites valued?

The valuation of perquisites depends on the nature of the perquisite. Some of the common methods of valuation are:

Market value method: This method isIncome Tax used to value perquisites that have a market value, such as the use of a company car or the rent-free accommodation.

Fair rent method: This method is used to value perquisites that do not have a market value, such as the use of a company guest house.

Salary basis method: This method is used to value perquisites that are not fully taxable, such as the value of free meals.

• What are some common perquisites?

Some of the common perquisites include:

Company car: The value of the car, including the fuel, insurance, and maintenance costs.

Rent-free accommodation: The rent that would be payable if the employee was not living in the accommodation.

Free meals: The cost of the meals, including the food, drinks, and service charges.

Medical allowance: The amount of money that the employer pays towards the employee’s medical expenses.

Leave travel allowance:  The amount of money that the employer pays towards the employee’s travel expenses for vacation.

• Are all perquisites taxable?

No, not all perquisites are taxable. Some perquisites are exempt from tax, such as:

Uniform allowance: The amount of money that the employer pays towards the cost of the employee’s uniform.

Conveyance allowance: The amount of money that the employer pays towards the employee’s travel expenses for commuting to and from work.

Leave encashment: The amount of money that the employee is paid for unused leave.

• How do I calculate the taxable value of perquisites?

The taxable value of Income Taxperquisites is calculated by multiplying the fair market value of the perquisite by the number of days in the year that the employee enjoyed the perquisite.

For example, if the fair market value of a company car is Rs.50,000 per year and the employee used the car for 365 days, then the taxable value of the car would be Rs.142.85 per day.

• Where can I find more information on the valuation of perquisites?

The Income Tax Act, 1961, and the Income Tax Rules, 1962, contain detailed provisions on the valuation of perquisites. You can also find more information on the website of the Income Tax Department.