Perquisites as defined under Section 17(2) of the Act

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Employer Employee Relationship

Basis of Charge under Section 15 of the Income Tax Act (the Act)

Definition of Salary under Section 17(1) of the Act


Perquisites as defined under Section 17(2) of the Act

Valuation of Perquisites under Rule 3 of Income Tax Rules

Fringe Benefit Tax under Chapter – XII - H




Any income can be taxed under the head Salary only if there is employer and employee relationship.

Basis of Charge (Section – 15)

Due or Paid – whichever is earlier

Arrear of Salary – tax in the year when paid if not taxed in the past

Section 145(Method of Accounting) does not apply

to Salary Income



Salary includes:

1. Wages

2. Any annuity or

pension Exemption provided under Section – 10(10A)

3. Gratuity Exemption provided under Section -10(10)

4. Fee, Commission

5 Perquisites Defined under Section – 17(2) 6 Profit in lieu or in

addition to Salary Defined under Section – 17(3) 7. Advance Salary

8 Unavailed earned

leaves Exemption provided under

Section -10 (10AA)


9 Annual Accretion to the balance of Recognised PF to the extent to

which it is chargeable to tax 10 Transferred Balance of

Recognised PF to the extent to which it is chargeable to tax.


 Section – 17 gives inclusive definition

 Scope of inclusive definition can be extended to

many other things which are not mention in it like

allowances etc.



 Allowances are the sum provided to employees to meet expenses whether personal or official.

 Allowances are taxable unless specific exemption has been provided for such allowance.

 Exemption provided for the following:

1. HRA – Section 10(13A) read with Rule 2A 2. Specific or notified special Allowances –

Section 10(14) read with Rule 2BB

3. Entertainment Allowance to be included in the

Salary first and then deduction to be given as

provided in Section 16(ii)


PERQUISITES (Section – 17(2))


Benefits in addition to Salary to which employee has right by virtue of his employment

Perquisites include:

 Value of Rent Free Accommodation provided to employee

 Accommodation provided at concession rent provided to employee

 Value of any benefit or amenity granted or provided free of cost or at concessional rate to Specified Employee as defined under Section 17(2)(iii)

 Any sum paid by employer in respect of any obligation which would have been payable by employee

 Any sum payable by employer to effect an assurance on the

life of assessee or to effect a contract for an annuity


PERQUISITES (Section – 17(2))

 Value of any other fringe benefit or amenity as may be prescribed (excluding fringe benefits chargeable to tax provided in chapter XII – H)

Nothing contain above shall apply to:

 Use of Vehicle provided by employer for journey from residence to place of work or from place of work to residence

 Expenditure on Medical treatment subject to conditions

as mentioned in Provisio to Section 17(2)(ii)



Rule –3 determine the value of following perks:

• Value of free/ concessional rent accommodation provided by employer to employee

• Sweeper, gardner, watchmen or personal attendent provided to employee

• Supply of gas, electric energy or water

• Free or concessional education facility provided to member of household

• Interest free or concessional loan

• Use of movable assets belonging to employer, by employee

• Transfer of any movable assets belonging to employer, by




Following Perquisites are omitted because of introduction of Fringe Benefit Tax under Chapter XII – H

• Provision of Car and Chauffer

• Concessional travel

• Provision for holiday home facility

• Provision for free/ concessional meal

• Gifts

• Credit card facility

• Club facility

• Telephone facility

• Any other benefit provided by the employer


FRINGE BENEFIT TAX UNDER CHAPTER XII - H Rationale behind Fringe Benefit Tax (FBT)

• Directly attributable benefits are taxable as perk in the hand of employee

• Collective enjoyment of benefits which may involve a personal benefit, are taxable in the hand of employer Meaning of Fringe Benefit (FB)

Side benefits that accompany or are in addition to a person’s regular compensation

Amendment in Section 17(2)(vi) to exclude fringe benefits provided in chapter XII – H

 There will be no change in the tax treatment of elements chargeable under Salary except Perquisites

 Perquisites provided under Rule - 3 may be taken as exempt

in the hands of Employer


Definitions (Section – 115W)

(a) “Employer” includes –

 a company;

 a firm;

 An AOP/ BOI, excluding fund/ trust/ institution(s) eligible for exemption under Section 10(23C) or registered under Section 12AA

 A local authority and

 every artificial judicial person

( b) “Fringe benefit tax” or “tax” means the tax

chargeable under section 115WA.


Charge of FBT (Section – 115WA)

1. A fringe benefit tax be charged in respect of the fringe benefits

provided or

deemed to have been provided by an employer to his employees

At the rate of thirty per cent on value of such fringe benefits.

2. The tax on fringe benefits shall be payable even if no tax is payable by employer under the Act.

Fringe Benefits have been divided into two parts

1. Fringe Benefits – defined under section 115WB(1)

2. Deemed Fringe Benefits (Presumptive nature of FBT i.e.

there need not be any benefit to employee except in case of employees welfare ) – defined under section



FRINGE BENEFIT – Meaning & Valuation

Fringe Benefit - Section – 115WB(1)

a Any privilege, service, facility or amenity, directly or indirectly, provided by an

employer to his employees whether by way of reimbursement or otherwise (including former employee or employees) by reason of their employment

Since no basis provided, it is presumed that the entire amount paid for provision of privilege etc is taxable

b Any free or concessional ticket provided by the employer for private journeys of the employees and their family members; and

Price charged by employer from public minus any price recovered from employee.

c Any contribution by the employer to an

approved superannuation fund in excess of Rs.1,00,000 per employee per year

100% of the actual contribution

d Any specific security or sweat Equity Shares allotted or transferred , directly or indirectly, by employer free of cost or at concessional rate to its employee(s) (including its former employee(s))

Fair Market Value (FMV), as determined by the method prescribed the Board, of the Security on the date of excise of option as reduced by amount recovered from



FRINGE BENEFIT – Meaning & Valuation

Deemed Fringe Benefit - Section – 115WB(2)

Nature of Expenditure Valuation

(%age of total Expenditure)

a Entertainment 20%

Entertainment may include – cocktail parties, staff social functions etc.

b Provision of hospitability of every kind excluding

a. foods and beverage provided in office or factory and

b. food vouchers redeemable at eating joints.

Employer being in business of hotel or carriage of passengers or goods by aircraft or ship - 5%

Others - 20%

Hospitality means entertaining guests or strangers in a kind and generous way

Hotel means a place which is accessible by public or particular section thereof and where meals say breakfast/ lunch/ dinner, are provided.

 Food and Beverages provided at Training Centre not owned by Employer c Conference excluding fee for

participation by employee in any conference



FRINGE BENEFIT – Meaning & Valuation

Conference means a formal meeting for discussion or debate

All expenditure on conveyance, tour and travel (incl. foreign travel), hotel, boarding and lodging in connection with conference except fee for participation, shall be included

In house employee conference – covered under FBT d Sale promotion including publicity excluding

i) Expenditure on advertisement

ii) Expenditure on Distribution of samples either free or at concessional rates

iii) Expenditure by way of payment to any person of repute for promoting sales of goods or services


Sale Promotion is a form of promotion which encourage customers to buy

products by offering incentives such as contests, coupons, samples, free gifts etc.

Publicity means brand related communication between entity and public.

Selling Expenditure – not covered

e Employee welfare excluding expenditure to fulfill statutory obligation or mitigate occupational hazards or provide first aid facilities in the hospital or dispensary run by employer



FRINGE BENEFIT – Meaning & Valuation

Deemed Fringe Benefit - Section – 115WB(2)

Employee Welfare may include:

Waiver of Loan given to employees

Transport facility to Children of employees

Group health insurance scheme

 Medical Reimbursement to be included upto Rs.15,000 per employee per year

f Conveyance Employer being in business of

construction or software development or pharmaceuticals - 5%,

Others - 20%

It cover local conveyance paid to employee for visiting other place of work g use of hotel, boarding and lodging

facilities Employer being in business of

software development or

pharmaceuticals or carriage of passengers or goods by aircraft or ship - 5%,

Others - 20%


FRINGE BENEFIT – Meaning & Valuation

h Repair, running including fuel and maintenance of motor cars including depreciation thereon

If employer being in business of carriage of passengers by Motor Car - 5%

others 20%

It covers – repair, running, fuel, maintenance and depreciation thereon

Expenditure on commercial vehicle – not covered

Lease rental, insurance, petrol bill reimbursement - covered i Repair, running including fuel and

maintenance of aircrafts including depreciation thereon

If employer being in business of carriage of passengers by Aircraft - NIL

Others 20%

j Use of telephone including cell phone

excluding leased telephone lines 20%

Leased Line means dedicated line for office use and used for transfer of data.

Office telephone, telephone provided at the residence, mobile phone – covered under FBT

k Maintenance of guest house other than

used for training purposes 20%

It does not include – repair, depreciation on Guest House and interest paid to acquire Guest House


FRINGE BENEFIT – Meaning & Valuation

l Festival Celebrations 50%

m Use of Health club and similar facilities 50%

n Use of other club facilities 50%

O Gifts 50%

p Scholarships 50%

Q Tour and Travel including Foreign Travel 5%

SECTION – 115WB(3)

For the purpose of Section – 115WB(1), any privilege, service, facility or amenity does not include perquisites in respect of which tax is paid or payable by the employee or any benefit or amenity in the nature of free or subsidies transport or any other allowance provided by

Employer to his Employees on to or from journey from residence to office of the Employees.



- For Companies and other entities whose accounts are to be audited – 31st October

- For others - 31 July

One Month from the date of issue of notice where AO issues notice to a defaulting employer.

 A defaulting employer may file return up to one year from the end of relevant assessment year or before the completion of assessment whichever is earlier.

 A revise return can be filed up to one year from the end of assessment year

Same proportion, same due dates and same method of computing interest for delay in payment of advance tax on Income - will apply to advance FBT.

Interest @ 1% per month or part of the month, is to be paid for short fall in tax for the period for which the short fall continues




1. Assessment (Section – 115WE)

2. Best Judgment Assessment (Section – 115WF)

3. Fringe Benefit Escaping Assessment (Section – 115WG) 4. Issue of notice where Fringe Benefits have escaped

assessment (Section – 115WH)

5. Payment of Fringe Benefit Tax (Section – 115WI)

6. Advance Tax in respect of Fringe Benefits (Section – 115WJ)

7. Interest for default in furnishing return (Section – 115WK) 8. Application of other provisions of this Act (Section –