Perquisites in Income Tax: Types, Valuation & Taxability

Aman is an employee earning a salary of ₹50,000 per month. His boss also provides him with a free car to use on personal matters, a rent-free house, and his mobile phone bill.

( Such non-salary benefits are referred to as perquisites (or "perks"). Other perks are untaxed, and others do have them.

Types of Perks
 

• Taxable Perks: Free car, rent-free house, club membership.
• Exempt Perks: Mobile bill (if for work), medical allowance (up to ₹15,000/year).

How Perks Are Valued (Taxable Amount)
 

Taxability

• Aman must pay tax on ₹5,000 (house) + ₹2,400 (car) = ₹7,400 per month as extra income.
• Mobile bills are tax-free if used for work.

Simple Rule: When the benefit is to be spent on oneself, then there is a probability of taxability. In case of a working reason, it can be exempted.

What Are Perquisites?

Aman works at a tech company with a salary of ₹60,000 per month. He had a free car given to him by his employer too, and he has been taken to the gym where he is paying membership fees as well, and a rented apartment, which he is being charged at a very low rate. These additional advantages on top of his salary are referred to as perquisites (or simply: the "perks").

Key Points About Perquisites
 

• Perks are non-salary benefits given by employers to employees.
• They can be taxable or tax-free, depending on the type and usage.
• Taxable perks increase your total income, meaning you pay more tax.

Common Perks Aman Gets
 

How Perks Affect Aman’s Taxes
 

• Aman’s salary: ₹60,000/month
• Taxable perks (car + rent discount + gym): ₹5,000/month
• Total taxable income = ₹65,000/month
• The office laptop and medical allowance are not taxed.

Simple Rule
 

• If the perk is for personal enjoyment, it’s likely taxable.
• If it’s strictly for work, it’s usually tax-free.

Any taxable perks that he gets should be reflected on the income tax return that Aman must submit to the government authorities to prevent penalties. These will be reflected by his employer in Form 16.

Types of Perquisites

Aman receives a salary of ₹60,000 per month. The free car, house rent allowance and health insurance given to him by the company are additional benefits. Such advantages are referred to as perquisites and are classified into three categories as far as taxes are concerned.

1. Taxable Perquisites (Fully Taxable)

• Benefits you use personally
• Added to your salary for tax calculation
   

2. Exempt Perquisites (Tax-Free)

• Benefits with no tax if conditions are met
   

3. Perks Taxable Only for Senior Employees

• Directors or high-salary employees (>₹50,000/month)
   

Aman's Case:
 

• His free car (personal use) = Taxable
• Office laptop = Tax-free
• Since he earns ₹60,000, some perks may have extra tax rules

Remember: Personal perks usually mean more tax and work perks are often tax-free.

Valuation of Perquisites

Aman earns a ₹60,000 salary, inclusive of benefits, in his firm. In order to figure out his tax, we must assign a dollar amount to each of his benefits. That is how various perks are appreciated:

How Perks Are Valued for Tax:
 

Key Points:
 

• House Valuation: Aman lives in Mumbai (metro), so 15% of his salary counts as taxable rent value.
• Car Rules: Smaller cars have lower taxable values.
• Loans: Only taxable if over ₹20,000 and the interest saved is significant.
• Servants: The entire maid's salary paid by the company is taxable for Aman.

Aman's Taxable Perks Total:
 

• House: ₹12,000
• Car: ₹2,400
• Maid: ₹8,000
• Total = ₹22,400/month added to his taxable income

Remember: The government determines certain techniques to compute the value of perks - it is not the actual cost that is utilised. The employers should incorporate such values in Form 16.

Conclusion 

Aman's case shows how perquisites can significantly impact your taxes. While his ₹80,000 salary seems straightforward, the additional perks like his company-provided apartment (₹12,000/month), car (₹2,400/month), and maid (₹8,000/month) add ₹22,400 to his taxable income every month. This means his actual taxable income becomes ₹1,02,400 monthly, not just his basic salary. 

Some perks, like his work laptop or medical allowance up to ₹15,000, remain tax-free because they're either work-related or specifically exempted. The key lesson is that not all benefits are equal in the eyes of tax authorities - personal perks usually increase your tax bill, while work-related ones often don't. 

Aman should carefully review his Form 16 each year to understand exactly how his perks affect his taxes and consider discussing with his HR or a tax advisor if he wants to optimise his benefits package to be more tax-efficient. A proper understanding helps avoid surprises during tax filing.

FAQs on Perquisites (Perks) in Income Tax

1. What exactly are perquisites?

Perquisites (or perks) are extra benefits your employer gives you besides salary, like a free car, house, or health insurance. These can be taxable or tax-free depending on their type and how you use them.

2. Are all perks taxable?

No, only perks used for personal enjoyment are taxable. Work-related benefits like office laptops or official phone bills are usually tax-free.

3. How is rent-free accommodation taxed?

If your company provides free housing, 10-15% of your salary gets added to your taxable income (15% in big cities, 10% elsewhere).

4. Is a company car always taxable?

Only if you use it personally. If it’s strictly for work, it’s tax-free. For personal use, fixed rates apply based on the car’s engine size.

5. Are medical reimbursements taxable?

No, up to ₹15,000 per year is tax-free. Anything beyond that gets added to your taxable income.

6. What if my employer pays for my gym membership?

Since it’s for personal use, the full amount is taxable as income.

7. Do I pay tax on gifts from my employer?

Yes, if gifts (like vouchers or gadgets) exceed ₹5,000 in value per year, the entire amount becomes taxable.

8. Are loans from my employer taxable?

Only if the loan is over ₹20,000 and has low or no interest. The interest you save (compared to bank rates) gets added to your taxable income.

9. Is work-from-home allowance taxable?

If your employer gives a fixed WFH allowance, it’s taxable. But reimbursements for internet or office supplies (with bills) are tax-free.

10. How do I know which perks are in my taxable income?

Your employer will list all taxable perks in Form 16. Check this document carefully before filing your tax return.

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