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Draft rules on valuation of perks cause concern in corporate circles

Mohan Padmanabhan

KOLKATA, July 6

THE proposed Draft Rules for valuation of perquisites -- for the purpose of computing the income chargeable under the head ``Salaries'' -- released recently by the Central Board of Direct Taxes, has caused widespread concern among employees of top compan ies, chambers of commerce and taxation experts.

The consensual view is that the new Rules, if and when given effect to, would put enormous pressure on employers to raise salaries, as the take home pay of all TDS returnees would be severely affected.

According to Mr Pallav Gupta, General Manger, Taxation, ITC Ltd, the revised Rules for valuation of perks would pose problems when the next revision of salaries falls due. Pointing out that the move would affect all companies across the board, he said th e take-home pay for all employees in the middle and high-income brackets would be reduced substantially, putting pressure on companies to raise the affected salaries.

Many companies, he felt, would be forced to effect a proportionately higher pay to retain the take-home packet at the existing level. In the UK, for instance, when such Rules are introduced, employers ensure that the existing take-home pay packets are le ft intact.

Mr Sushil Dhandhania, President of the Merchants Chamber of Commerce and Chairman of Rubber Reclaim Co of India Ltd, said pressure would mount on employers to raise salaries across the board to offset the negative impact of the new Rules on valuation of perks.

He said MCC was already planning to submit a detailed memorandum to the Finance Ministry seeking a rethink on many aspects of the new Rules which, he said, were iniquitous and unjust. Other chambers too share the same view, and are planning to seek a rev iew of the Draft Rules.

Citing some of the irksome clauses of the revised Rules, Mr Gupta said it was unfair that the fees paid annually and periodically to a club by the employers should be chargeable as perquisite. Among other things, professional executives use club premises for key office meetings on a fairly regular basis, he pointed out.

He also criticised the low exemption limit for childrens' education (at Rs 500 per child per month), especially when employers were willing to provide large allowances for this purpose. He said setting Rs 50 as the value of free meals (per meal) during w orking hours in an office, either by way of subsidised meals or lunch vouchers, was too low.

Mr Narayan Jain, advocate and tax consultant, and Director of incometaxinfo.com, said that if the ill effects of the new Rules governing valuation of perquisites have to be countered effectively, the benefit of standard deduction should be extended to al l assessees.

This benefit is now not available to those whose annual income exceeds Rs 5 lakh. His logic was that if perquisites like club fees, which are necessary for top executives, are going to be taxed as per valuation, then they must get the benefit of standard deduction to offset the drop in take-home pay.

Section 295 of the I-T Act empowers the Government to make Rules, which provide ``ascertainment and determination of any class of income, and the manner in which, and the procedure by which, the income shall be arrived at .... and determination of the va lue of any perquisite chargeable to tax under this Act in such manner and on such basis as appears to the Board to be proper and reasonable.''