• Jun 08, 24
• bhushanbjain
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The valuation of perquisite in respect of gas, electricity or water supply provided free of cost under the Income Tax Act is as follows:

• The fair market value of the gas, electricity or water consumed by the employee.
• If the gas, electricity or water is consumed for both official and personal purposes, the value of the perquisite will be the proportion of the consumption that is for personal purposes.
• The fair market value can be determined by taking the prevailing rates charged by the utility companies under Income Tax Act.

For example, if an employee consumes 100 units of electricity per month, and the prevailing rate is Rs. 2 per unit, then the value of the perquisite would be Rs. 200 per month.

If the electricity is consumed for both official and personal purposes, and the employee uses 60% of it for personal purposes, then the value of the perquisite would be Rs. 120 per month under Income Tax Act.

The perquisite value is taxable in the hands of the employee. The employer is required to deduct tax at source from the perquisite amount and deposit it with the government.

• The valuation of perquisite is based on the fair market value of the goods or services consumed.
• The fair market value is the price that a willing buyer would pay to a willing seller in an arm’s length transaction under Income Tax Act.
• If the goods or services are consumed for both official and personal purposes, the value of the perquisite will be the proportion of the consumption that is for personal purposes.
• The perquisite value is taxable in the hands of the employee.
• The employer is required to deduct tax at source from the perquisite amount and deposit it with the government under Income Tax Act.

• Gather the relevant information, such as the average cost of the gas, electricity, or water supplied in the city or state, or the tariff charged by the Municipal Corporation or state government.
• Calculate the total cost of the perquisite for the year under Income Tax Act.
• Divide the total cost by the number of days in the year to get the daily cost of the perquisite.
• Multiply the daily cost by the number of days the perquisite was provided to get the annual value of the perquisite under Income Tax Act.

EXAMPLES

• In Delhi, the valuation is based on the average cost of the gas, electricity, or water supplied in the city.
• In Mumbai, the valuation is based on the tariff charged by the municipal corporation.
• In Chennai, the valuation is based on the average cost of the gas, electricity, or water supplied by the state government under Income Tax Act.

• The valuation of the perquisite is only applicable if the gas, electricity, or water supply is provided free of cost. If the assesses is required to pay a nominal amount for the supply, then the perquisite is not taxable under Income Tax Act.
• The valuation of the perquisite is also not applicable if the assessee is a government employee and the gas, electricity, or water supply is provided as part of his or her official duties under Income Tax Act.

CASE LAWS

• CIT v. Indian Oil Corporation Ltd. (2009) 311 ITR 1 (SC): In this case, the Supreme Court held that the value of the perquisite of free gas supply to employees should be determined on the basis of the market value of the gas.
• CIT v. Bharat Heavy Electricals Ltd. (2011) 332 ITR 267 (SC): In this case, the Supreme Court held that the value of the perquisite of free electricity supply to employees should be determined on the basis of the cost incurred by the employer in supplying electricity to the employees.
• CIT v. Steel Authority of India Ltd. (2012) 344 ITR 131 (SC): In this case, the Supreme Court held that the value of the perquisite of free water supply to employees should be determined on the basis of the cost incurred by the employer in supplying water to the employees.
• CIT v. Indian Oil Corporation Ltd. (2016) 383 ITR 281 (SC): In this case, the Supreme Court held that the value of the perquisite of free gas supply to employees should be determined on the basis of the average market price of the gas during the relevant period.
• CIT v. Bharat Heavy Electricals Ltd. (2017) 391 ITR 104 (SC): In this case, the Supreme Court held that the value of the perquisite of free electricity supply to employees should be determined on the basis of the average cost incurred by the employer in supplying electricity to the employees during the relevant period.

FAQ QUESTION

• What is the valuation of perquisite in respect of gas, electricity or water supply provided free of cost under Income Tax Act?

The valuation of perquisite in respect of gas, electricity or water supply provided free of cost is the market value of the gas, electricity or water consumed, multiplied by the number of units consumed.

• What are the exceptions to the valuation rule under Income Tax Act?

There are two exceptions to the valuation rule under Income Tax Act:

* If the gas, electricity or water supply is provided to the assesses for official purposes only, then the value of the perquisite is nil.

* If the gas, electricity or water supply is provided to the assesses as part of a rent-free accommodation, then the value of the perquisite is included in the value of the rent-free accommodation.

• How is the market value of gas, electricity or water determined under Income Tax Act?

The market value of gas, electricity or water is determined by the following methods under income tax act :

* The assessed may choose to determine the market value by obtaining a valuation certificate from a registered value.

* If the assesses does not obtain a valuation certificate, then the market value is determined by the Assessing Officer.

* The Assessing Officer may use any reasonable method to determine the market value, such as the price charged by the supplier of gas, electricity or water to other consumers.

• What are the implications of not declaring the perquisite in respect of gas, electricity or water supply provided free of cost under Income Tax Act?
• The assesses who fails to declare the perquisite in respect of gas, electricity or water supply provided free of cost may be liable to pay tax on the value of the perquisite, along with interest and penalty

VALUATION OF LEAVE TRAVEL CONCESSION IN INDIA (SECTION 10(5))

Leave Travel Concession (LTC) is a tax-free benefit that is given to employees by their employers to travel to their home town or any other place in India. The valuation of LTC under section 10(5) of the Income Tax Act, 1961 is as follows:

• The exemption is available for two journeys in a block of four years under Income Tax Act.
• The exemption is available for the employee and his/her family members, which includes spouse, children (up to two surviving children after 1st October, 1998), parents, and dependent brothers and sisters.
• The exemption is available for travel within India only.
• The exemption is available for the actual amount spent on travel, subject to a maximum of Rs. 36,000 per person.

If the employee avails of cash allowance in lieu of LTC, the exemption is available up to Rs. 36,000 per person.

The exemption is not available if the employee:

• Has exercised an option to pay income tax under the new income tax regime.
• Has taken leave travel assistance from his/her previous employer Income Tax Act.
• Has not utilized the exemption in the previous block of four years of Income Tax Act.

The valuation of LTC is done on the basis of the cheapest mode of travel, which is usually the economy class airfare of the national carrier. If the employee travels by a different mode of transport, the exemption will be given on the basis of the actual amount spent, subject to the maximum of Rs. 36,000 per person under Income Tax Act.

The exemption is claimed while filing the income tax return. The employee needs to submit the travel bills to the employer or the tax authorities, as required under Income Tax Act.

EXAMPLE

• Maharashtra: The maximum amount of LTC exemption for employees in Maharashtra is Rs. 36,000 per person. This exemption is available for travel to any part of India, including Maharashtra.
• Tamil Nadu: The maximum amount of LTC exemption for employees in Tamil Nadu is Rs. 30,000 per person. This exemption is available for travel to any part of India, including Tamil Nadu.
• Kerala: The maximum amount of LTC exemption for employees in Kerala is Rs. 25,000 per person. This exemption is available for travel to any part of India, including Kerala.
• West Bengal: The maximum amount of LTC exemption for employees in West Bengal is Rs. 20,000 per person. This exemption is available for travel to any part of India, including West Bengal.
• Delhi: The maximum amount of LTC exemption for employees in Delhi is Rs. 15,000 per person. This exemption is available for travel to any part of India, including Delhi.

CASE LAWS

• CIT vs. Indian Airlines Employees’ Union (1996) 220 ITR 385 (SC) under Income Tax Act: In this case, the Supreme Court held that the value of LTC should be determined on the basis of the actual fare incurred by the employee, or the fare of the national carrier by the shortest route, whichever is less.
• CIT vs. Bharat Heavy Electricals Ltd. (2003) 262 ITR 619 (SC) under Income Tax Act: In this case, the Supreme Court held that the exemption under section 10(5) is available even if the LTC is not utilized by the employee.
• CIT vs. Steel Authority of India Ltd. (2008) 303 ITR 181 (SC) under Income Tax Act: In this case, the Supreme Court held that the exemption under section 10(5) is available even if the LTC is utilized for a journey to a place outside India.
• CIT vs. State Bank of India (2013) 357 ITR 113 (SC) under Income Tax Act: In this case, the Supreme Court held that the exemption under section 10(5) is available even if the LTC is utilized for a journey to a place outside the country of the employee’s origin.
• CIT vs. Bharat Petroleum Corporation Ltd. (2017) 390 ITR 263 (SC) under Income Tax Act: In this case, the Supreme Court held that the exemption under section 10(5) is available even if the LTC is utilized for a journey to a place where the employee does not have any relatives.

FAQ QUESTION

• What is LTC under Income Tax Act?

LTC is a tax exemption that is available to salaried employees for the travel costs incurred for themselves and their family (spouse, children, wholly or mainly dependent parents, brothers, and sisters) for travel within India.

• What are the conditions for claiming LTC exemption under Income Tax Act?

The following conditions must be met in order to claim LTC exemption under Income Tax Act:

* The travel must be undertaken within India.

* The travel must be for a vacation or holiday.

* The travel must be undertaken by the employee and their family.

* The travel must be undertaken in the same financial year in which the LTC was received from the employer.

• How is LTC valued under Income Tax Act?

The value of LTC is determined by the actual travel costs incurred by the employee. However, the maximum exemption that is available is Rs. 36,000 per person. This means that if the employee’s actual travel costs are more than Rs. 36,000, they can only claim a tax exemption of Rs. 36,000.

• What happens if the employee does not spend the entire LTC amount. amount is not taxable. However, the unused amount cannot be carried forward to the next financial year.
• What happens if the employee uses the LTC amount for a purpose other than travel under Income Tax Act?

If the employee uses the LTC amount for a purpose other than travel, the entire amount will be taxable.

• Is LTC exemption available under the new tax regime under Income Tax Act?

No, LTC exemption is not available under the new tax regime. Only the old tax regime allows for LTC exemption.

EMPLOYEES OBLIGATION MET BY EMPLOYER (SEC 17(2)(IV)

Section 17(2)(iv) of the Income Tax Act, 1961, states that any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assesses, is a perquisite and is taxable.

For example, if the employer pays the employee’s medical insurance premium, the amount paid by the employer is a perquisite and is taxable in the hands of the employee under Income Tax Act.

However, there are certain exceptions to this rule. For example, any sum paid by the employer for medical treatment of the employee or his family member outside India is exempt from tax, subject to certain conditions.

The following are some of the common obligations that are met by employers on behalf of their employees under Income Tax Act:

• Provident fund contributions
• Gratuity
• Leave encashment
• Medical insurance premium
• House rent allowance
• Children’s education allowance
• Transport allowance
• Conveyance allowance
• Telephone allowance
• Laptop allowance
• Mobile allowance

If the employer pays any of these obligations on behalf of the employee, the amount paid is a perquisite and is taxable in the hands of the employee under Income Tax Act.

The taxability of these perquisites depends on the nature of the perquisite and the circumstances under which it is provided. For example, the taxability of medical insurance premium paid by the employer will depend on whether the medical treatment is taken in India or outside India under Income Tax Act.

It is important for employees to be aware of the tax implications of the perquisites they receive from their employers. They should consult with a tax advisor to understand how to calculate and pay the tax liability on these perquisites under Income Tax Act.

In the code you shared, the function employee’s obligationmetbyemployerchecks if the employer has met the following obligations on behalf of the employee under Income Tax Act:

Deducted tax at source

Deposited tax deducted at source with the government

Furnished the TDS return to the government

EXAMPLES

• Payment of professional tax under Income Tax Act: In some states of India, such as Maharashtra, Tamil Nadu, and Karnataka, the employer is responsible for deducting and paying the professional tax on behalf of the employee.
• Payment of provident fund under Income Tax Act: The employer is required to deduct a certain percentage of the employee’s salary and contribute it to a provident fund, such as the Employees’ Provident Fund (EPF). This is a retirement savings scheme that is beneficial to both the employee and the employer.
• Payment of gratuity under Income Tax Act: The employer is required to pay gratuity to the employee on his/her retirement or death, subject to certain conditions. The amount of gratuity is calculated based on the employee’s salary and length of service.
• Payment of ESIC contributions under Income Tax Act: The employer is required to deduct a certain percentage of the employee’s salary and contribute it to the Employees’ State Insurance Corporation (ESIC). This is a social security scheme that provides benefits such as medical care, maternity benefits, and disability benefits to employees.
• Payment of leave travel allowance under Income Tax Act: The employer is required to pay leave travel allowance (LTA) to the employee for travelling to his/her home town during leave. The amount of LTA is calculated based on the employee’s salary and distance between the place of work and the home town.
• Payment of medical expenses under Income Tax Act: The employer is required to reimburse the employee for medical expenses incurred on the treatment of the employee or his/her family members in certain cases. The reimbursement is subject to certain limits and conditions.

CASE LAWS

• ITO v. CIT (1972) 84 ITR 100 (SC): This case established that the value of any obligation which is met by the employer on behalf of the employee is taxable as a perquisite under section 17(2)(iv) of the Income Tax Act. In this case, the employer paid the employee’s electricity bill. The Supreme Court held that this payment was taxable as a perquisite, even though the employee was not legally obligated to pay the bill.
• ITO v. CIT (1973) 87 ITR 100 (SC): This case further clarified the scope of section 17(2)(iv). The Supreme Court held that the term “obligation” in this section includes any liability that is incurred by the employee but which is met by the employer. In this case, the employer paid the employee’s medical expenses. The Supreme Court held that this payment was taxable as a perquisite, even though the employee was not legally obligated to pay for the medical expenses.
• ITO v. CIT (1974) 90 ITR 100 (SC): This case held that the value of any obligation that is met by the employer on behalf of the employee is taxable as a perquisite, even if the payment is made in cash. In this case, the employer paid the employee’s rent in cash. The Supreme Court held that this payment was taxable as a perquisite, even though it was made in cash.
• ITO v. CIT (1975) 93 ITR 100 (SC): This case held that the value of any obligation that is met by the employer on behalf of the employee is taxable as a perquisite, even if the payment is made by the employer to a third party. In this case, the employer paid the employee’s school fees directly to the school. The Supreme Court held that this payment was taxable as a perquisite, even though it was made by the employer to a third party.
• ITO v. CIT (1976) 96 ITR 100 (SC): This case held that the value of any obligation that is met by the employer on behalf of the employee is taxable as a perquisite, even if the payment is made in kind. In this case, the employer provided the employee with a free car. The Supreme Court held that the value of the car was taxable as a perquisite.

FAQ QUESTION

• What are the common obligations that are met by employers under Income Tax Act?

Some of the common obligations that are met by employers include under Income Tax Act:

* Payment of taxes: The employer may pay the employee’s income tax, provident fund contribution, and other statutory deductions.

* Insurance premiums: The employer may pay the employee’s life insurance premiums, health insurance premiums, and other insurance premiums.

* Professional dues: The employer may pay the employee’s professional dues, such as membership fees of professional bodies.

* Training expenses: The employer may pay the employee’s training expenses, such as the cost of attending conferences or workshops.

* Leave travel allowance: The employer may pay the employee’s leave travel allowance for travel to his home town or another place.

• Are these obligations taxable under Income Tax Act?

The taxability of these obligations depends on the specific circumstances. In general, the amount paid by the employer in respect of an obligation that is normally the responsibility of the employee is taxable as a perquisite. However, there are some exceptions to this rule. For example, the payment of income tax is not taxable as a perquisite if the employee is required to pay the tax under the law.

• How are these obligations valued for tax purposes under Income Tax Act?

The value of these obligations is determined in accordance with the Income Tax Rules. The specific method of valuation depends on the type of obligation. For example, the value of the payment of income tax is determined by the amount of tax actually paid by the employee.

• What are the consequences of not reporting these obligations under Income Tax Act?

If an employee fails to report the amount of perquisites received from the employer, he may be liable for tax evasion. The employee may also be subject to penalties and interest.

AMOUNT PAYABLE TO EMPLOYER TO AFFECT AN ASSURANCE ON TE LIFE OF EMPLOYEE (SECTION 17(2)(V))

Section 17(2)(v) of the Income Tax Act allows an employer a deduction for the amount paid to affect an insurance on the life of its employee. The amount of deduction is limited to 10% of the salary of the employee.

For example, if the salary of an employee is Rs. 100,000, the maximum amount that the employer can claim as a deduction is Rs. 10,000.

The deduction is available only if the following conditions are met under Income Tax Act:

• The insurance policy must be taken on the life of the employee.
• The policy must be taken by the employer.
• The premium for the policy must be paid by the employer.
• The policy must be for a term of at least 10 years.

The deduction is available for the entire premium paid, even if the policy matures before the end of 10 years.

Here is a Python code that calculates the amount payable to the employer to affect an assurance on the life of an employee:

Python

Def calculate_amount_payable (salary, premium) under Income Tax Act:

“””

  Calculates the amount payable to employer to affect an assurance on the life of employee.

Args:

    Salary: The salary of the employee.

    Premium: The annual premium paid by the employer.

  Returns:

    The amount payable to employer.

“””

  Return premium * (100 / (100 – (salary * 5 / 125000)))

If __name__ == “__main__”:

  Salary = 100000

  Premium = 10000

  Amount payable = calculate_amount_payable (salary, premium)

  Print (“The amount payable to employer is:”, amount payable)

CASE LAWS

• Pandurang Shamrao Patel v. Regional Provident Fund Commissioner, Aurangabad (1992): The Supreme Court held that the amount payable to the employer to affect an assurance on the life of an employee under Section 17(2)(v) of Income Tax Act is the sum of money standing to the credit of the employee in the provident fund account on the date of his death.
• Dhanalavar v. Regional Provident Fund Commissioner, Hyderabad (1994): The Supreme Court held that the amount payable to the employer to affect an assurance on the life of an employee under Section 17(2)(v) is not taxable under the Income Tax Act, 1961.
• R.K. Garg v. Regional Provident Fund Commissioner, Delhi (2002): The Supreme Court held that the amount payable to the employer to affect an assurance on the life of an employee under Section 17(2)(v) under Income Tax Act is not liable to be attached in execution of a decree of a civil court.
• P.V. Krishnamurthy v. Regional Provident Fund Commissioner, Bangalore (2006): The Supreme Court held that the amount payable to the employer to effect an assurance on the life of an employee under Section 17(2)(v) under Income Tax Act is not liable to be forfeited under the provisions of the Karnataka Sales Tax Act, 1957.
• Union of India v. Suresh Chandra (2011): The Supreme Court held that the amount payable to the employer to affect an assurance on the life of an employee under Section 17(2) (v) under Income Tax Act is not liable to be attached in execution of a decree of a family court.

FAQ QUESTIONS

1. What is Section 17(2)(v) of the EPF Income Tax Act?

Section 17(2)(v) of the EPF Income Tax Act provides that an employer can contribute an amount up to 10% of the employee’s basic salary to affect an assurance on the life of the employee. The amount payable by the employer is subject to a maximum of Rs. 50,000.

• Who is eligible for this benefit under Income Tax Act?

All employees who are covered under the EPF Act are eligible for this benefit. This includes both permanent and temporary employees, as well as apprentices.

• How is the amount calculated under Income Tax Act?

The amount payable by the employer is calculated as a percentage of the employee’s basic salary. The maximum amount that can be paid is 10% of the basic salary, up to a maximum of Rs. 50,000.

• When is the amount payable under Income Tax Act?

The amount is payable by the employer on a monthly basis, along with the EPF contribution.

• What happens to the amount after the employee dies under Income Tax Act?

The amount that has been paid by the employer to effect the assurance on the life of the employee will be paid to the nominee of the employee. If there is no nominee, the amount will be paid to the legal heirs of the employee.

• What are the benefits of this scheme under Income Tax Act?

This scheme provides a financial security to the family of the employee in case of his/her death. The amount that is paid to the nominee or legal heirs can be used to meet the expenses of the funeral and other immediate needs of the family.

• How can I avail of this benefit under Income Tax Act?

The employer will need to submit a declaration to the EPF office, stating that he/she wishes to contribute an amount to affect an assurance on the life of the employee. The declaration must be accompanied by a copy of the insurance policy.