What Is Perquisites

Introduction

Perquisites, commonly known as perks, are non-monetary benefits provided by an employer to an employee in addition to their salary or wages. These benefits are not included in the employee’s taxable income, but they are subject to income tax under certain conditions. Some common examples of perquisites include:

1. Company Car: If an employer provides a car to an employee for personal use, it is considered a perquisite and is subject to income tax under Section 17(2) of the Income Tax Act. The taxable value of the perquisite is calculated based on the fair market value of the car and the number of days it is used for personal purposes.

2. Rent-Free Accommodation: If an employer provides rent-free accommodation to an employee, it is considered a perquisite and is subject to income tax under Section 17(1) of the Income Tax Act. The taxable value of the perquisite is calculated based on the fair market value of the accommodation and the number of days it is used by the employee.

3. Health Insurance: If an employer provides health insurance coverage to an employee, it is considered a perquisite and is subject to income tax under Section 17(2) of the Income Tax Act. The taxable value of the perquisite is calculated based on the premium paid by the employer for the insurance coverage.

What Are the Different Types of Perquisites?

There are different types of perquisites that an employee can receive from their employer. Some of them are:

Accommodation: This is the benefit of living in a house or flat provided by the employer or rented by the employer on behalf of the employee. The taxability of this perquisite depends on the ownership, location, and value of the accommodation.
Transportation: This is the benefit of using a car or other vehicle owned or hired by the employer for personal or official purposes. The taxability of this perquisite depends on the ownership, cubic capacity, and usage of the vehicle.
Stock options: This is the benefit of getting the right to buy or sell shares of the employer company at a predetermined price. The taxability of this perquisite depends on the fair market value, exercise price, and vesting period of the options.
Medical facilities: This is the benefit of getting reimbursement or free treatment for medical expenses incurred by the employee or their family members. The taxability of this perquisite depends on the amount, nature, and place of the medical facilities.
Club memberships: This is the benefit of getting membership of a social, sporting, or recreational club paid by the employer. The taxability of this perquisite depends on the type, usage, and payment of the club membership.
Other benefits: These include benefits such as interest-free or concessional loans, credit cards, education facilities, leave travel concession, gifts, etc. The taxability of these perquisites depends on the amount, frequency, and purpose of the benefits.

These are some of the common types of perquisites that an employee can receive from their employer. However, there are also some perquisites that are exempt from tax, such as:

Refreshment: This is the benefit of getting free or subsidized food and beverages at the workplace or through vouchers.
Telephone: This is the benefit of getting free or concessional telephone or mobile facility at the residence or office of the employee.
Recreation: This is the benefit of getting free or subsidized recreational facilities provided by the employer within the premises or sponsored by the employer outside the premises.
Uniform: This is the benefit of getting free or subsidized uniform or attire required for the performance of duties by the employee.
Insurance: This is the benefit of getting free or subsidized group insurance or health insurance cover for the employee or their family members.

Why is Form 16 required?

While both allowances and perquisites are non-monetary benefits provided by an employer to an employee, there are some key differences between the two:

1. Taxability: Allowances are generally taxable, while perquisites are not always taxable. Allowances are included in the employee’s taxable income, while perquisites are subject to income tax under certain conditions.

2. Purpose: Allowances are provided to an employee to meet specific expenses related to their job, such as travel allowance or medical allowance. Perquisites, on the other hand, are provided as a non-monetary benefit to an employee, such as a company car or rent-free accommodation.

3. Calculation: Allowances are generally calculated based on the actual expenses incurred by the employee, while perquisites are calculated based on the fair market value of the benefit provided by the employer.

4. Reporting: Allowances are reported in the employee’s Form 16 (TDS certificate), while perquisites may or may not be reported depending on their taxability.

5. Employee Choice: Allowances are typically provided at the discretion of the employee, while perquisites are generally provided at the discretion of the employer.

The Benefit of Perquisites

Perquisites, or perks, are non-monetary benefits provided by an employer to an employee in addition to their salary or wages. While perks are not included in the employee’s taxable income, they can still provide significant benefits to both the employee and the employer. Here are some benefits of perquisites:

1. Employee Attraction and Retention: Perks can be a powerful tool for attracting and retaining top talent. By offering perks such as a company car, rent-free accommodation, or health insurance, employers can make their company more attractive to potential employees and reduce turnover rates.

2. Employee Motivation: Perks can also be used to motivate employees to perform at a high level. For example, an employer may offer a bonus or a gift certificate for achieving certain performance targets.

3. Employee Satisfaction: Perks can improve employee satisfaction and morale. By providing perks such as meal coupons, club memberships, or education and training expenses, employers can show their employees that they value their well-being and professional development.

4. Employer Branding: Perks can also enhance an employer’s brand reputation. By offering unique and innovative perks, employers can differentiate themselves from their competitors and attract media attention.

5. Tax Savings: While perks are not included in the employee’s taxable income, they are subject to income tax under certain conditions. However, by offering perks that are not taxable or that have a lower taxable value, employers can reduce their employees’ overall tax liability and provide a more attractive compensation package.

Tax-Exempt Perquisites

While most perquisites are subject to income tax, there are some tax-exempt perquisites that employers can provide to their employees without any tax implications. Here are some examples:

1. Employee Provident Fund (EPF) Contributions: Employers are required to contribute 12% of an employee’s salary to their EPF account. This contribution is not subject to income tax for the employee.

2. Employee State Insurance (ESI) Contributions: Employers are required to contribute 4.75% of an employee’s salary to their ESI account. This contribution is not subject to income tax for the employee.

3. House Rent Allowance (HRA): If an employer provides HRA to an employee, the amount is not subject to income tax up to a certain limit, provided the employee provides proof of rent payment.

4. Leave Travel Allowance (LTA): If an employer provides LTA to an employee, the amount is not subject to income tax up to a certain limit, provided the travel is for personal purposes and within India.

5. Professional Tax: Employers are required to deduct professional tax from their employees’ salaries at a rate of 0.5% to 2% of their salary, depending on the state. However, this deduction is not subject to income tax for the employee.