Valuation of perquisites

T. Banusekar

IN computing income chargeable under the head, `salaries', perquisites are to be valued based on the mode prescribed by the Income-Tax rules.

In exercise of the powers vested in the Central Board of Direct Taxes (CBDT), the CBDT has amended the I-T Rules to prescribe the mode of valuing perquisites through Notification No. S.0. 940 (E), dated September 25, 2001. These rules are deemed to have come into force on April 1, 2001.

Motor vehicle

The value of perquisite in respect of motor cars will be determined in the manner as explained in Table 1. Where a chauffeur is provided by the employer, the value of perquisite computed in accordance with this Table is to be increased by Rs 600 a month. Where two or more motor cars are allowed to be used, the second and subsequent motor cars are to be treated as `used only for private purposes' and valued in accordance with Table 1.

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Where the employer/employee claims that the motor vehicle is used wholly and exclusively for official purposes, or that the actual expenses of maintaining the motor car owned by the employee for official purposes is more than the amounts stated in the table as deductible in respect of such reimbursement, he may claim the higher amount as a deduction, but subject to the following conditions:

* The employer has maintained complete details of the journey undertaken for official purposes that may include date of journey, destination, mileage and the amount of expenditure incurred thereon.

* The employee gives a certificate that the expenditure was incurred wholly and exclusively for the performance of his official duties.

* The supervising authority, wherever applicable, gives a certificate that the expenditure was incurred wholly and exclusively for official duties.

The normal wear and tear of a motor car shall be taken at 10 per cent per annum of the actual cost of the motor car.

Where motor cars are provided at a value below the sums stated in Table 1, the difference between the value stated in that table and the sum at which the benefit is provided, shall be treated as a perquisite.

Where any other motor vehicle is owned by the employee, and where the maintenance expenditure is met by the employer, the value of perquisite shall be the actual expenditure incurred by the employee as reduced by a sum of Rs 600. This will be so only if the motor vehicle is used partly for personal and partly for official purposes.

Movable assets

In respect of movable assets being computers and electronic gadgets given for use to the employee, the value of perquisite is to be taken at 50 per cent on the reducing balance method. In respect of motor cars, given for use to the employee, the value of perquisite is to be taken at 20 per cent on reducing the balance method. In case of all other movable assets given for use to the employee, the value of perquisite is to be taken at 10 per cent of its cost.

Where such movable assets are transferred to the employee or any member of his household, the value of perquisite will be taken as the difference between the transfer value and the cost as reduced by the value of perquisite already taxed.

In every case where any amount is paid or recovered from the employee, the value of perquisite will be reduced by the amount so paid or recovered.

Free lunch

Free lunch or lunch at subsidised rates is not to be treated as a perquisite to the extent of Rs 50 per meal. Any amount in excess of Rs 50 is to be treated as a perquisite. The same will be the situation even where the employer gives the employee paid vouchers, that are not transferable and are usable only in eating joints. The value of tea or snacks provided during office hours is also not treated as a perquisite.

Gift vouchers

These are not to be treated as a perquisite so far as the aggregate amount is below Rs 5,000 per annum.

Club membership

The expenditure incurred by the employer, including annual or periodical fees paid to the club by the employer is to be treated as the value of perquisite in such cases. This is to be reduced by any amount paid or recovered from the employee in this behalf. In case of the employer having obtained a corporate club membership, and where the facility is enjoyed by the employee or any member of his family, the value of perquisite shall not include the initial fee paid for acquiring such corporate membership.

Where the expenditure is incurred wholly and exclusively for official purposes, it shall not be treated as a perquisite. This is subject to fulfilling certain conditions, that are the same as stated above in respect of credit card facility provided to the employee.

Gas, electricity or water

The value of benefit from the supply of gas, electricity or water to the employee for his household consumption shall be the expenditure incurred by the employer in providing such facility. Where such supply is made from resources owned by the employer, the value of perquisite will be the manufacturing cost per unit incurred by the employer. Where any amount is recovered from the employee, the same will be reduced while arriving at the value of perquisite.

Domestic servants

Where an employee is provided by the employer with the services of a sweeper, a gardener, a watchman or a personal attendant, the value of benefit shall be the actual cost to the employer which will be the salary paid or payable by the employer as reduced to by the amount recovered from the employee.

Other perquisites

In respect of any other perquisite, its value is to be taken at the cost incurred by the employer. If the perquisite is provided at a concessional rate, the amount recovered from the employee is to be reduced by the value of perquisite. Expenses on telephone, including a mobile phone, are not to be treated as perquisites.

TAX CHECK

If any of the perquisites is made available to an employee, or member of his household anytime between April 1-September 30, 2001, the assessee has an option of having the same valued in accordance with the rules as they stood prior to the amendment.

Business Line invites queries on personal taxation issues to this column. They will be answered in the forthcoming issues of Business Line . Queries may be addressed to Tax Talk, Business Line, Kasturi Buildings, 859, Anna Salai, Chennai 600002, or by e-mail to vaidy@thehindu.co.in. (Readers are requested to mention `Tax Talk' in the subject line of their e-mails.)