Perquisites: Meaning, Types, Taxability and Exemption
Updated: Oct 1
In today’s competitive job market, compensation extends beyond a mere paycheck. Employers increasingly recognize the importance of providing additional benefits that enhance job satisfaction and employee well-being. These benefits, commonly referred to as perquisites or "perks," play a crucial role in attracting and retaining talent. But what exactly are perquisites? They encompass a range of benefits offered to employees, including both monetary and non-monetary forms, that supplement their regular salaries.
Understanding the different types of perquisites, their tax implications, and potential exemptions is essential for both employees and employers. This blog will delve into the meaning of perquisites, explore various types available in the workplace, and clarify how they are taxed under the Income Tax Act. By gaining insight into these aspects, employees can better appreciate their total compensation package, while employers can craft attractive offerings that promote a positive work environment.
Table of Contents
What are Perquisites?
Perquisites, commonly known as "perks," are benefits provided by an employer to employees in addition to their regular salary. These can be either monetary or non-monetary in nature and are intended to enhance the overall compensation package. Examples of perquisites include housing, company cars, and medical insurance, which contribute to the employee's well-being and job satisfaction. According to the Income Tax Act, perquisites are classified as either taxable or non-taxable, depending on their nature.
What Are Perquisites in Salary?
Perquisites in a salary package refer to additional benefits and privileges an employee receives from their employer, beyond the basic salary. These perks can be either taxable or exempt from tax, depending on their classification under tax laws. Common examples include fuel reimbursements, company-provided vehicles, accommodation, and other allowances.
Other forms of perquisites may include access to medical facilities, interest-free loans, and credit cards, among others. As per Section 17(2) of the Income Tax Act, perquisites encompass a wide range of benefits designed to improve the overall compensation and well-being of employees.
Difference Between Salary and Perquisites
Following are the points of differences between salary and perquisites:
Types of Perquisites
Following are the types of perquisites:
Monetary Perquisites
These are perquisites given to employees in the form of money in addition to their salary. Such benefits enhance the total earnings of the employee's income and are allowed to be spent according to his own will.
Examples:
Housing Allowance: Extra providence for renting or owning a house.
Car Allowance: Allowances or subsidies for using or purchasing a vehicle.
Meal Vouchers: Provision of money for meals.
Performance Bonuses: Extra money paid with regard to employee performance.
Non-Monetary Perquisites
Non-monetary perquisites are those facilities provided to employees that are not in terms of direct cash but would work toward the welfare and satisfaction of the employee. Many times these fringes provide a lot of convenience and add value to the employee's life.
Examples:
Club Memberships: Membership fees for recreational or professional clubs are paid by the employer.
Company-owned vehicles: The occurrence of events involving the use of a company car for private and business purposes.
Accommodation: This is company-provided housing or lodging facilities.
Free or Subsidized Meals: Meals are provided at work or are availed of through meal coupons.
Fringe Benefits
Fringe benefits are a variety of non-salary compensations provided to employees. These benefits are designed to assist with specific needs and improve the overall quality of life for employees and their families.
Examples:
Medical Facilities: Health insurance, medical check-ups, and other healthcare-related benefits.
Education for Children: Financial support for the education of employees' children, including tuition fees and school expenses.
Retirement Benefits: Contributions to pension plans or retirement savings accounts.
Relocation Assistance: Financial or logistical support provided to employees who need to relocate for their job.
Taxability of Perquisites
According to the Income Tax Act, 1961, perquisites given by an employer to an employee are taxable. The taxability of these perquisites depends on their nature and provisions in the taxation laws. Generally, perquisites may be classified as taxable or non-taxable based on the benefits they provide. Employers are required to include the value of taxable perquisites in the salary and accordingly deduct tax at source.
Taxable Perquisites
Certain perquisites are fully taxable and must, therefore, form part of the income of the employee for tax purposes. Following will be the detailed list of common taxable perquisites:
Rent-Free Accommodation: The value of rent-free or concessional accommodation provided by the employer.
Company-Owned Vehicle: The benefit of using a company-owned car for personal purposes.
Interest-Free or Concessional Loans: Loans provided by the employer at below-market interest rates.
Club Membership Fees: Fees paid by the Employer for joining clubs for recreation.
Gifts: Gifts of any type provided by the employer, except those received up to ₹5,000 per annum.
Salary Paid by Employer on Behalf of Employee: Any amount spent by the employer on behalf of the employee, like utility bills.
Educational Expenses: Payment or reimbursement of education expenses of the children or dependents of an employee.
Free or Concessional Travel: value of free or concessional tickets given for personal travel.
Sweat Equity Shares: Shares allotted or transferred by the employer to the employee at a discount or free of cost.
Non-Taxable Perquisites
Some perquisites are exempt from tax, subject to certain conditions. Following is the list of common non-taxable perquisites:
Reimbursement on Medical Expenses: Reimbursement on medical expenditure incurred up to ₹15,000 per annum.
Health Insurance Premium: Premiums incurred by the employer in respect of health insurance coverage taken for the employee and his family.
LTA (Leave Travel Allowance): Expenditure incurred on travel undertaken during leave within India, subject to certain conditions.
Food Coupons: Meal vouchers provided by the employer, subject to ₹50 per meal.
Mobile and Internet Bills: Reimbursement of mobile phone bills and internet expenses incurred on account of official work.
Work-Related Travel Expenses: The amount spent by the employee on travels for official reasons.
Gratuity: Gratuity received by the employee, subject to the limit under the Gratuity Act.
Retirement Benefits: The contributions made by the employer to recognized provident funds, superannuation funds, and to the National Pension Scheme.
Uniform Allowance: Allowance given for the maintenance of official uniforms.
Housing Loan Subsidy: Subsidies provided for housing loans up to a specified limit.
Exemptions on Perquisites
Some of the perquisites provided by employers which are exempt from tax subject to some conditions. Following are the most common exemptions:
Medical Reimbursement: Exemption up to ₹15,000 per annum if supported by actual medical bills.
Health Insurance Premium: Premium paid by employer on health insurance covering employee and his family is fully exempt.
LTA: Leave travel allowance is exempt twice in a block of four years, to the extent of actual expenditure incurred on travel within India.
Food Coupons: Meal Coupons up to INR 50 per meal are exempt.
Mobile and Internet Reimbursement: The official usage of mobile and the internet gets reimbursed.
Business Travel Reimbursement: There is an exemption in the case of business travel expenses that are reimbursed.
Gratuity: Gratuity received up to ₹20 lakh is exempt under the Gratuity Act.
Retirement Benefits: Contributions made by the employer to recognized provident funds, superannuation funds, and the National Pension Scheme (NPS) are exempt within some limits.
Uniform Allowance: An exempt allowance paid for the purpose of meeting the expenditure on the maintenance and upkeep of official uniforms.
Housing Loan Subsidy: The subsidies paid for housing loans up to specified amounts are exempt.
How to Claim Exemptions on Perquisites?
Documentation: Proper documentation and receipts of all expenses incurred should be maintained. Submit bills, vouchers, and receipts when requirement arises.
Responsibility of Employer: The employer has to verify the documents submitted by an employee and ensure that the same are in compliance with the tax laws. The employer should include eligible exemptions in the Form 16 of an employee whilst employees' responsibility discharge.
Employee's Responsibility: Ensure all eligible perquisites and exemption claimed in the income tax return. The relevant documents shall be maintained to support such claims in case of scrutiny.
Income Tax Return Filing: The exemption perquisites will have to be correctly represented under the proper head in the ITR form. The correctness is to be checked in Form 16 before filing the return.
Benefits of Perquisites
The benefits of perquisites in a salary package extend beyond immediate financial gains, offering both tangible and intangible advantages as outlined below:
Enhanced Compensation PackagePerquisites significantly enhance the overall compensation package without increasing taxable income. Non-monetary perks such as housing, company cars, and subsidized meals add value to the employee's life. This holistic approach to compensation can be more tax-efficient than a direct salary increase, providing additional benefits without the burden of higher taxes.
Increased Job SatisfactionPerquisites play a key role in improving job satisfaction and boosting employee morale. Benefits such as flexible working hours, wellness programs, and paid time off contribute to a better work-life balance, leading to greater employee well-being and productivity.
Attraction and Retention of Top TalentOffering perquisites is a strategic tool for employers to attract and retain top talent. In competitive job markets, a comprehensive benefits package sets an employer apart from competitors. Tailored perquisites reflect the organization's commitment to employee well-being and foster a positive work culture.
Increased Employee LoyaltyProviding perquisites can strengthen employee loyalty by making employees feel valued and appreciated. These additional benefits demonstrate the company's care for its employees, creating a deeper emotional connection. As a result, employees are more likely to remain committed and engaged, contributing to long-term organizational growth and success.
Calculating Tax on Perquisites
Methods for valuing perquisites for tax purposes are as follows:
FAQ
Q1. What are perquisites?
Perquisites, more commonly known as "perks," are those facilities given by an employer to an employee along with their usual salary. These can be either in monetary or non-monetary form and are given to make the compensation package more attractive.
Q2. What are typical forms of perquisites?
Regular forms of perquisites include rent-free accommodation, company cars, club membership, meal vouchers, health insurance, educational allowance for children, and so on.
Q3. How does a perquisite differ from salary?
Salary is the fixed periodic payment by an employer to an employee; perquisites are, however, additional incentives given to enhance the overall emolument. Salary is always monetary; perquisites can be both monetary and non-monetary.
Q4. Are all perquisites taxable?
Not all perquisites are taxable. Some perquisites, depending on specific provisions in the Income-tax Act, are fully taxable, some are partly taxable, and others are fully exempt from tax.
Q5. What are some examples of taxable perquisites?
Examples of taxable perquisites include rent-free accommodation, company-owned vehicles used for personal purposes, interest-free or concessional loans, and gifts exceeding ₹5,000 per year.
Q6. What are some examples of non-taxable perquisites?
Illustrative list of exemption from tax in respect of perquisites includes the following: medical reimbursement up to ₹15,000 per annum, health insurance premiums related to insurance taken by the employer, meal vouchers up to ₹50 per meal, leave travel allowance under stipulated conditions.
Q7. How is the value of taxable perquisites determined?
The taxable value of perquisites has to be arrived at based on specific rules prescribed by the Income Tax Department, which may be based either on the market value or on the actual cost to the employer or standard valuation methods, as prescribed under the tax laws.
Q8. What is the employer’s responsibility regarding perquisite taxation?
The duty of correctly valuing the perquisites lies with the employer, and making proper value part of an employee's total salary at the time of TDS, keeping all records, providing Form 16 with perquisite details, and compliance under tax laws.
Q9. What is the obligation on the part of an employee in perquisite reporting?
The employees have to go through the Form 16 given by the employer, correctly declare the value of perquisites in the returns of income tax, maintain a record of all perquisites received by them, claim their eligible exemption, and file their tax returns in time.
Q10. Can any exemptions on perquisites be claimed by employees?
Yes, these exemptions are allowed to employees only if proper documentation is maintained by showing eligibility based on certain conditions specified in the tax laws and these exemptions have to be correctly reported in the income tax return of the employee. Some of the common exemptions include medical reimbursement, LTA, health insurance premiums, etc., paid by the employer.
Q11. How are perquisites taxed?
Perquisites are taxed by including their value in the employee’s gross total income, after which they are taxed according to the applicable income tax slab rates. In some cases, exemptions or concessions may be available based on specific provisions under the Income Tax Act, subject to certain conditions.
Q12. What are perquisites in CTC?
Perquisites refer to additional benefits or amenities provided by an employer, such as accommodation, vehicles, or loans at a concessional rate, which form part of the employee’s compensation package. These benefits are factored into the employee’s Cost to Company (CTC).
Q13. What are the taxable perquisites in salary?
Taxable perquisites include benefits such as rent-free accommodation, concessional rent, interest-free or low-interest loans, the value of sweat equity shares, and other fringe benefits provided by the employer. These are added to the employee's salary for taxation purposes.
Q14. What are the consequences of improper reporting of perquisites for tax purposes?
Failure to accurately report perquisites can lead to penalties, fines, and potential legal consequences for both the employer and the employee. It is crucial to correctly declare all taxable benefits to comply with tax regulations and avoid such issues.
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