How to take an exemption of the perquisites in case of salary and also what is the limit of exemption
Salary is the remuneration which is received by or by accruing to an individual, periodically, for the services that are rendered as a result of an express or an implied contract. The actual receipt of the salary in the previous year which is not material as far as its taxability is concerned. The existence of the employer-employee relationship is the sine-qua-non for taxing a particular receipt under the head ‘salaries.’ For instance, the salary which is received by a partner from his partnership firm who is carrying on a business is not chargeable as the “Salaries” but as the “Profits & Gains from the Business or the Profession”. Similarly, the salary which is received by a person as an MP or as an MLA is taxable as the “Income from the other sources”, but if a person has received the salary as a Minister of the State/ Central Government, the same shall be charged to tax under the head which is “Salaries”. The pension which is received by an assessee from his former employer is taxable as “Salaries” whereas the pension which is received on his death by the members of his family (Family Pension) is taxed as “Income from other sources”.
Section 17(1) of the Income-tax Act also gives an inclusive and also a nonexhaustive definition of the “Salaries” including therein the:
- Annuity or pension
- Fees, Commission, perquisites or profits in lieu of salary
- Advance of Salary
- Amount which is transferred from an unrecognized provident fund to the recognized provident fund
- Contribution of the employer to a Recognised Provident Fund which is in excess of the prescribed limit
- Leave Encashment
- Compensation as a result of variation in Service contract etc.
- The contribution which is made by the Central Government to the account of an employee who is under a notified pension scheme.
The Purpose of this article is to make the reader aware of the fact as to how to claim an exemption on perquisites in the case of salary and also what is the limit of exemption.
Broadly, in this system, the perquisites which are taxable in the hands of the employee which as a part of salary income include:
1) The value of the rent-free or the concessional rent accommodation which is provided by the employer.
2) The value of any benefit/amenity which is granted free or at the concessional rate to the specified employees, etc. Specified employees are the company directors, the employees with the substantial interest in the company and also any other employee whose salary income is exclusive of the non-monetary benefits and the amenities exceed Rs.50,000/-.
3) Any sum which is paid by the employer in respect of an obligation, which was actually payable by the assessee.
4) Any sum which payable by the employer, directly or either through a fund for the assurance on the life of the employee or to the effect which is a contract for an annuity, the sums payable to the recognized provident funds or the approved superannuation funds, and also certain other specified funds are exempted.
5) The value of any other fringe benefit as may be prescribed (excluding the fringe benefits which is subjected to the Fringe Benefits Tax).
Besides the rent-free or the concessional rent accommodation, also the other perquisites that are is taxable in the hands of the employee which is included in the provision of the services of a sweeper, a gardener, etc., supply of gas, electricity or water for the household consumption, provision of the free or either concessional educational facilities for any member of the employee’s household, provision of the interest free or a concessional loan, and benefit resulting from the use of any movable asset.
It has been also clarified that the value of any leaves travels concession or an assistance which is received by an employee who normally falls within the meaning of the salary. It is, therefore, which is taxable in the hands of the employee which is subject to the exemption which under clause (5) of section 10 of the Income-tax Act. , the leave travel concession is not included in the salary will be classified as an expense for the purposes of the Fringe Benefits Tax and it is also taxable in the hands of the employer. The Other allowances which are also falling within the meaning of the salary such as a children education allowance and also the transport allowance, which area exempt and it is also subject to the certain conditions are also to be considered part of the salary income of the employee. The Salary income for the purposes of the taxation and the valuation of the perquisites also includes the pay, allowances, bonus or the commission which is also payable either monthly or it is also otherwise or any monetary payment, by whatever name which are called, from one or either more employers, as the case may be, but it also does not include the following, namely:
1) the Dearness Allowance or the Dearness which is paid unless it enters into the computation of the superannuation or the retirement benefits of the employee concerned;
2) the Employer’s Contribution to the Provident Fund account of the employee;
3) the Allowances which are exempted from payment of tax;
4) Value of perquisites which are also specified in the concerned provision;
5) Any payment or expenditure that is specifically excluded.
This article has been contributed by Simmi Setia, content writer, LegalRaasta – an online platform for legal services such as GST software, GST return filing, TDS return filing, etc