Tax Perquisites: What Are They?

Perquisites or fringe benefits are tied to every income earner in the same way that income tax is to every firm and income earner. The supply of official cars, housing allowances, and medical facilities are just a few examples of the many perks and perquisites that firms provide their workers. Let’s take a closer look at the requirements for filing income tax returns:

What Does “Perquisites” Mean in Tax Law?

Privileged earnings or profits derived from a regular pay are referred to as perquisites. Exemption and taxation of perquisites are both possible. Fuel reimbursement, company vehicle, etc., may be straightforward, but they may also include employer-sponsored housing, interest-free loans, credit cards, and other forms of financial assistance.

The perquisites are classified as follows:

Perks that are only deductible by employees

There are a number of perquisites that fall under this category: domestic helper, child education facility, employee usage of company-owned automobile

Perquisites that are taxed:

Perquisites like gym memberships, gifts over Rs. 5,000, clubs, the salary of a servant the employee employs, reimbursement of medical expenses, professional tax refunds, free electricity, water, and gas, free housing, and free meals are all examples of perquisites that employees receive on top of their basic compensation.

Non-Exempted Perks

Non-taxable fringe benefits include free medical and recreational facilities, employer contributions to the provident fund, interest-free salary loans, phone lines, sports club, health club, provision of medical aid, refreshment offered 

Please let me know if you have any more questions about the definition of perquisites in the income tax system.

Perks granted under the Internal Revenue Code

When a company gives an employee a non-monetary perk, it’s called a perquisite. Income tax law defines a perquisite as a benefit an employee receives or is entitled to because of their position in the workplace. The employee’s tax situation might be significantly impacted by receiving perquisites. For example, a perquisite that an employee receives from his or her employer is taxed as part of the employee’s assessment. Perks obtained by employees are included against their yearly wage. The basic exemption limit may be exceeded because of the employee’s perquisites. It becomes necessary to deduct tax at source (TDS) when taxable income exceeds the basic exemption threshold. The TDS on the employee’s wage is a cash withholding, while perquisites are a non-monetary consideration. When a taxpayer’s income exceeds the basic exemption threshold and TDS withholding is required, he or she must submit an income tax return. Perquisites, on the other hand, give tax advantages to the taxpayer, but they also have tax consequences. As a result, the taxpayer must weigh the tax consequences of different perquisites before making a final decision.

List of Perquisite Classifications

In terms of taxation, the following are considered Perquisites:

Only if the employee falls into a certain category are these benefits taxed.

Perks that are taxed in the hands of workers of all classifications.

Transferred or assigned to the assessee by the employer are specified security or sweat equity shares

Contribution by the employer to the authorised pension fund, up to a maximum of Rs.1,50,000.

Perquisites that are not subject to tax

All Employees Are Taxed on Perquisites

Regardless of the employee’s classification, the following benefits are subject to taxation:

The assessee’s employer furnished him with housing at no cost to him.

Value of any rent discount offered by the assessee’s employer in relation to any accommodation.

Concessional rates, freebies, and other perks that are offered to the general public

From a firm to a director-employee

By a corporation to a worker is a person with a significant financial stake in the business.

Amount paid by any employer, including a corporation, to any employee who earns more than 50,000 rupees in’salaries,’ excluding any non-monetary incentives or amenities.

As a benefit or amenity, the use of a vehicle for the assessee’s travel from his home to his workplace or other place of employment and return will not be treated as a free or discounted service.

Employer’s share of any obligation that would have been due to the assessee but for the payment made by the employer.

Payment made to a designated or authorised fund to ensure the life of the assessee or to contract for an annuity in any other way.

Sweat equity shares or employee stock options that are given to or transferred to employees for free or at a reduced rate.

Contribution to the pension fund by the employer, not to exceed Rs. 1,50,000.

Fringe Benefits that are subject to tax

Fringe benefits are perquisites for which the taxpayer is required to pay tax separately, up-front. The Act covers the following extraneous benefits:

The value of the employee’s accommodations.

Cost-benefit analysis of giving employees free use of an automobile.

The value of the services provided by a janitor, watchman, gardener, and personal aide. ‘

For the employee’s residential usage of gas, electricity, and/or water, the cost

The value of educational resources offered to the employee’s family for free or at a reduced cost.

Expenses incurred by an employer in the transportation of products or passengers for the benefit of an employee’s family members.

Phillip Armstrong

The author Phillip Armstrong