Interest on Salary Restructured to Include Perks? How to Report Non-Cash Benefits

Perquisites, also known as non-cash benefits, form a significant part of the compensation package for many employees. These benefits, though not directly paid in cash, can be substantial and impact an individual's overall tax liability. The treatment of such benefits under the Income Tax Act is critical for both employers and employees to understand. In the upcoming 2025-26 tax regime, there are several changes in the way perquisites are taxed, which can have a direct impact on salary structuring and tax planning. Let us explore what perquisites are, how they are taxed, and the recent changes in the tax treatment of perks under the new regime. We’ll also discuss how you can report non-cash benefits in your tax return and why salary restructuring to include perks can be beneficial.

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Table of Contents

• What Are Perquisites (Non-Cash Benefits)?

• Tax Treatment of Perquisites Under the Income Tax Act

• Changes in Tax Treatment for Perks in the 2025-26 Tax Regime

• How to Report Non-Cash Benefits in Your Tax Return

• Benefits of Salary Restructuring to Include Perks

• Conclusion

• FAQs

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What Are Perquisites (Non-Cash Benefits)?

Perquisites refer to non-cash benefits or services that an employer provides to an employee in addition to their regular salary or wages. These benefits can vary greatly in nature, including things like company cars, housing allowances, medical reimbursements, stock options, and more. Essentially, they are any form of compensation given by the employer that is not in the form of direct monetary payment. For example, if an employer provides a car for personal use or a rent-free accommodation, these would be considered perquisites. While these benefits may not always involve immediate cash inflow, they are still valuable and can significantly contribute to the employee's financial well-being.

Tax Treatment of Perquisites Under the Income Tax Act

Under the Income Tax Act, perquisites are considered a part of the employee’s income and are therefore subject to tax. The taxation of perquisites varies depending on the nature of the benefit provided. Certain perquisites are taxed based on their value, while others have specific rules for valuation.

For example:

• Free or concessional rent: If an employer provides accommodation to an employee, the taxable value is calculated based on factors such as the location, whether the house is owned or rented by the employer, and the salary of the employee.
  

• Car provided by the employer: If an employer provides a company car for personal use, the taxable value is calculated based on the engine capacity and the number of kilometers traveled.
  

• Medical reimbursements: If the employer reimburses medical expenses, these are generally not taxable up to a certain limit. However, the reimbursement of expenses exceeding the set limits may attract tax.

The employer is responsible for determining the value of these perquisites, reporting them to the Income Tax Department, and deducting the appropriate taxes. Employees must include the value of these perquisites in their taxable income when filing their income tax returns.

Changes in Tax Treatment for Perks in the 2025-26 Tax Regime

With the introduction of the 2025-26 tax regime, the tax treatment of perquisites has undergone some changes, impacting how these benefits are valued and taxed. The primary changes include:

• Revised Valuation Methods: The government has introduced more transparent and standardized methods for calculating the taxable value of certain perks, such as employer-provided housing or vehicles. This aims to reduce ambiguity and ensure consistency across the taxation process.
  

• Taxable Allowances and Deductions: The new tax regime has also altered the deductions available for certain allowances and perquisites. Some allowances that were previously non-taxable have now become taxable under the revised rules, and employees need to adjust their tax filings accordingly.
  

• Exemption Limits: Some perquisites, such as medical reimbursements or gratuity payments, have revised exemption limits. This change could increase the taxable amount for those receiving significant non-cash benefits.

Employees should pay close attention to these changes to ensure they’re reporting their perquisites accurately and taking full advantage of any exemptions or deductions available under the new regime.

How to Report Non-Cash Benefits in Your Tax Return

Reporting non-cash benefits or perquisites in your tax return is a crucial step in ensuring that you comply with the Income Tax Act. Here's how you can go about it:

• Determine the Value of Perquisites: Start by reviewing your Form 16 (issued by your employer) or the salary slip to understand the perquisites provided to you. Ensure that the employer has correctly calculated and added the value of the perquisites to your taxable income.
  

• Check for Exemptions: Some perquisites, like medical reimbursements or allowances for travel, may have specific exemptions. Make sure to check the applicable exemptions and deduct the relevant amounts from your total income.
  

• Declare the Taxable Value in ITR: Once you have determined the taxable value of perquisites, include it under the appropriate section of your Income Tax Return (ITR) form. The income from perquisites will typically fall under "Income from Salaries" and should be reported accordingly.
  

• Include any Necessary Supporting Documents: In case of deductions or exemptions, attach the necessary supporting documents or proofs to validate the claims made in your tax return.
  

• Use Software or Tax Professionals for Help: Given the complexity of perquisites and their tax implications, using tax filing software like TaxBuddy or consulting a tax professional can help you ensure accurate reporting.

Benefits of Salary Restructuring to Include Perks

Salary restructuring is a strategy that many employees and employers use to optimize the overall compensation package while minimizing tax liabilities. By restructuring the salary to include more perquisites instead of cash, both employees and employers can benefit. Here's how:

• Tax Efficiency: Many non-cash benefits, such as rent-free accommodation, medical reimbursements, or company cars, are either partially exempt from tax or taxed at a lower rate compared to cash salary. By incorporating more perks into the compensation structure, employees can reduce their taxable income, leading to lower tax liabilities.
  

• Increased Take-Home Salary: Perks like meal vouchers, transport allowances, or housing benefits are typically more cost-efficient for employers and can increase an employee’s take-home pay without increasing the gross salary. This makes salary restructuring an attractive option for both parties.
  

• Flexibility: Employees can tailor their benefits to match personal preferences, such as opting for insurance coverage, professional development allowances, or fitness memberships, making their overall compensation package more valuable.
  

• Attractive to Employers: Employers can offer competitive compensation packages without increasing base salary costs. This is particularly useful for businesses looking to manage their payroll expenses effectively while still attracting top talent.

Conclusion

Understanding perquisites and their tax treatment is essential for both employees and employers. With the changes to the tax regime in 2025-26, it’s crucial to stay updated on how these non-cash benefits are taxed and ensure they are reported accurately in the tax return. Salary restructuring to include more perks can be an effective way to optimize tax liabilities and increase take-home income. By taking advantage of the available tax exemptions and planning your compensation structure carefully, you can ensure tax efficiency while benefiting from a well-rounded compensation package.

For anyone looking for assistance in tax filing, it is highly recommended to download theTaxBuddy mobile app for a simplified, secure, and hassle-free experience.

FAQs

Q1: What are the most common types of perquisites that employers provide?

Employers often provide several types of perquisites (also known as fringe benefits) that can have tax implications. Common perquisites include company-provided vehicles, housing (company accommodations or rent-free housing), meal vouchers or subsidies, medical reimbursements, and travel allowances. These benefits are provided in addition to regular salaries and can significantly affect a person’s tax liability, depending on their taxable value and applicable exemptions.

Q2: Are all perquisites taxable?

No, not all perquisites are taxable in full. Some benefits are partially taxable, while others are fully exempt from tax. For example, medical reimbursements up to a certain limit are exempt, while other benefits, such as free housing (if it exceeds a certain value) or company-provided cars, are taxable. The exact tax treatment depends on the specific nature of each perquisite and the limits set by tax laws. Employers must correctly calculate the taxable value of these perquisites and report them in the employee's salary details.

Q3: Can I claim exemptions for all non-cash benefits?

Not all non-cash benefits (perquisites) are eligible for tax exemptions. The extent to which you can claim exemptions depends on the nature of the perquisite. For example, house rent allowance (HRA) is exempt from tax to a certain extent, but only if it meets specific criteria such as the amount of rent paid, the city of residence, and your salary. Similarly, certain transportation or meal benefits may be partially exempt from tax, subject to specific conditions. It’s essential to understand the specific exemptions that apply to each type of perquisite under current tax laws.

Q4: How can I restructure my salary to include more perks?

To restructure your salary and include more perks, you should have a discussion with your employer or HR department. Many employers offer options such as meal vouchers, transport allowances, or health insurance benefits that are more tax-efficient than higher cash salaries. Salary restructuring typically happens during the annual appraisal process or at the beginning of a new financial year. A well-planned salary structure can help reduce taxable income and maximize exemptions, ultimately leading to a lower overall tax liability.

Q5: Is it better to have more perquisites or a higher cash salary?

The decision between higher perquisites or a higher cash salary depends on your personal financial goals and tax situation. Perquisites like health insurance, company-provided cars, and housing allowances often come with tax exemptions, which can lower your taxable income. On the other hand, a higher cash salary provides more liquidity and flexibility, but it will be taxed at your applicable income tax rate. A balanced approach is generally ideal, where a combination of perquisites and cash salary is used to optimize your tax liabilities while meeting your financial needs.

Q6: Do I need to report perquisites separately in my tax return?

Yes, perquisites need to be reported separately in your Income Tax Return (ITR). The taxable value of perquisites is included under the section "Income from Salaries" in your return. Employers generally calculate the taxable value of the perquisites and include it in your Form 16, which should be used to file your taxes. Ensure that all perquisites, both cash and non-cash, are accurately reflected in your ITR to avoid discrepancies and potential penalties.

Q7: What happens if I don’t report perquisites in my ITR?

Failure to report perquisites in your ITR can result in significant consequences, including penalties and interest on any unpaid taxes. The Income Tax Department may treat the omission as an attempt at tax evasion, leading to scrutiny and possible penalties. To avoid such issues, it is crucial to ensure that all perquisites are reported correctly in your tax return. Accurate reporting not only ensures compliance but also helps prevent delays in refund processing.

Q8: Are there any specific perks that are fully exempt from tax?

Yes, there are certain perks that are entirely exempt from tax under specific conditions. For instance, employer-provided medical insurance premiums may be fully exempt within certain limits. Similarly, reimbursements for medical expenses up to a specified limit are exempt from tax. Some perks like travel allowances for official purposes and employer-provided meals for employees working on-site may also be exempt. The exemption limits and criteria for each perk can vary, so it’s essential to be aware of the specific rules and thresholds set by tax laws.

Q9: How does salary restructuring affect my overall income tax?

Salary restructuring can help reduce your overall income tax liability by optimizing tax-exempt allowances and perks. By restructuring your salary to include tax-saving perks like meal vouchers, transport allowances, or health insurance benefits, you can lower your taxable income. This is because certain perquisites are either fully or partially exempt from tax, reducing the amount that is subject to taxation. A well-structured salary package can also increase the benefits of allowances such as House Rent Allowance (HRA) or contribute to the National Pension Scheme (NPS) for additional tax deductions.

Q10: Can I change my salary structure during the year to include more perks?

Typically, salary restructuring to include more perks can be done at the start of the financial year or as part of your annual performance review. Employers may be open to making changes to your salary structure during mid-year, but this depends on company policies. It's important to discuss your options with your employer or HR department to see what perquisites can be included and how they will affect your tax liabilities. The earlier in the year that changes are made, the easier it is to optimize your tax position for the entire year.

Q11: Are there any perquisites that are entirely taxable?

Yes, some perquisites are fully taxable, depending on the nature of the benefit and whether it meets specific exemption criteria. For example, personal use of a company-provided car, or accommodations that do not meet the required conditions for exemption, are fully taxable. Certain other benefits, like vouchers or bonuses that are not linked to specific exemptions, will also be taxed as part of your salary income. It's important to check with your employer about how these are valued and ensure they are correctly reported in your tax return.

Q12: How can TaxBuddy help in reporting non-cash benefits?

TaxBuddy helps you accurately report all perquisites and non-cash benefits in your tax return. The platform ensures that these benefits are properly valued, taking into account exemptions and deductions available. TaxBuddy’s user-friendly interface guides you through the process of including perquisites under “Income from Salaries,” while ensuring compliance with tax laws. The platform also provides assistance in calculating the taxable value of various benefits, allowing you to maximize exemptions and minimize tax liabilities, all while keeping you on track for timely filing.