Preamble: The Central Board of Direct Taxes on 18.12.2009 notified the rules for valuation of perquisites (vide notification No. 94 dated 18.12.2009). Hitherto, the Finance Act (No. 2), 2009 had abolished the Fringe Benefit Tax with effect from 1st April, 2009 and introduced tax on specified fringe benefits in the hands of the employees as perquisites. However, the rules for the valuation of the perquisites were yet to be notified. This Communiqué outlines the valuation mechanism prescribed therein. Valuation of Perquisites: RENT FREE ACCOMMODATION: Accommodation owned by the employer 15% of salary. Applicable in cities having population exceeding 25 Lakhs as per 2001 census. E.g. Delhi, Bombay, Calcutta, Madras, Bangalore, Hyderabad 10% of salary. Applicable in cities having population exceeding 10 Lakhs but not exceeding 25 Lakhs as per 2001 census. E.g. Jaipur, Agra, Lucknow 7.5% of salary - in other areas Salary should be in respect of the period during which the said accommodation was occupied In case of a furnished accommodation the value of perquisite as determined in either cases will be increased by 10% per annum of the cost of the furniture or actual hire charges if brought on hire Accommodation rented/ leased by the employer Amount of lease rent paid or payable or 15% of salary whichever is lower Any amount recovered from the employee shall be reduced from the value of perquisite. Salary for this purpose includes basic, bonus, commission, fee, all other taxable allowances and monetary payments by what ever name called. But excludes, employer's contribution to PF, all allowances which are exempt from tax and value of perquisites
MOTOR CAR Car is owned or hired by the employer: Used exclusively for the personal purposes of the employee. Running and maintenance cost is borne by the employer Used partly for official purpose and partly for personal purposes of the employee. Running and maintenance cost is borne by the employer Used partly for official purpose and partly for personal purposes of the employee Running and maintenance cost is borne by the employee. Actual amount of expenditure incurred or reimbursed Salary of the chauffeur. Further increased by 10% per annum of the actual cost of the car towards the wear and tear of the car If cubic capacity of the motor car exceeds 1.6 litres then Rs.2,400/- per month If cubic capacity of the motor car does not exceed 1.6 litres then Rs.1,800/- per month Rs.900/- per month for the chauffeur. If cubic capacity of the motor car exceeds 1.6 litres then Rs.900/- per month If cubic capacity of the motor car does not exceed 1.6 litres then Rs.600/- per month Rs.900/- for the chauffeur if it s provided by the employer Employee can claim that amount attributable to official use is higher than the stipulated amount or is wholly for official purposes and should not trigger a perquisite. In such case complete details (date, destination, mileage) of the journey for official use has to be maintained and the employer should issue a certificate in that relation. Car is owned by the employee: Used partly for official purpose and partly for personal purposes of the employee. Employer reimburses the running and maintenance charges including the salary of the chauffeur Actual amount of expenditure incurred by the employer reduced by: If cubic capacity of the motor car exceeds 1.6 litres then Rs.2,400/- per month If cubic capacity of the motor car does not exceed 1.6 litres then Rs.1,800/- per month Rs.900/- for the chauffeur.
ANY OTHER AUTOMOTIVE (TWO WHEELER) Owned by the employee and the running and maintenance cost is reimbursed by the employer and used by the employee partly for official purposes and partly for personal purposes. Actual amount of expenditure incurred by the employer reduced by an amount of Rs.900/- per month Employee can claim that amount attributable to official use is higher than the stipulated amount or is wholly for official purposes and should not trigger a perquisite. In such case complete details (date, destination, mileage) of the journey for official use has to be maintained and the employer should issue a certificate in that relation. TELEPHONE / MOBILE REIMBURSEMENTS Not a taxable perquisite The bill should be in the name of the employee and business expediency needs to be established. Use of any MOVABLE ASSETS OTHER THAN COMPUTERS/LAPTOPS Transfer of ownership of movable asset owned by employer - LAPTOP/CAR/OTHER MOVABLE ASSETS Provision of FREE FOOD OR NON-ALCOHOLIC BEVERAGES (Lunch coupons ) 10% per annum of the actual cost of such asset reduced by any amount recovered from employees. In case of rented asset the rent will be treated as perquisite Computers and electronic items is valued at actual cost less depreciation @ 50% Car is valued at actual cost less depreciation @ 20% Value of other assets is valued at actual cost to the employer less depreciation @10% If any amount is recovered from the employee, that should be reduced from the perquisite value Not taxable to the extent provided at office or business premise or through a lunch coupon and value does not exceed Rs.50/- per meal. Use of Computers / Laptop is not a taxable perquisite Depreciation to be computed on reducing balance method for each completed year during which the asset was put to use by the employer for computers and electronic items and motor cars. Depreciation on other assets will be calculated @ 10% of actual cost for each completed year of use. Lunch coupons should be non-transferable and usable only at eating joints. No threshold limit for meals provided in a remote area or an off-shore installation
GIFTS The actual value of the gift. No perquisite will arise if the value of the gift is below Rs.5,000/- in aggregate for the year. CLUB FACILITY Employer have corporate membership Employer does not have corporate membership and employer pay for the club facility for its employee. Actual amount of expenditure incurred or reimbursed by employer as reduced by the amount paid or recovered from the employee All expenditure including the membership fee incurred or reimbursed by the employer as reduced by the amount paid or recovered from the employee Amount paid for acquiring the corporate membership will not form part of perquisite Employee can claim that the entire expense relates to the official purpose and in such case the complete details (date, nature and business expediency in respect of expenditure is to be maintained and a certificate to be obtained from the employer to that effect. No taxable perquisite for use of health club, sports and similar facilities provided uniformly to all employees by the employer INTEREST FREE OR CONCESSIONAL LOAN Interest charged by the State Bank of India on the first day of the previous year in respect of the loans for the same purpose advance by it on the maximum outstanding monthly balance as reduced by interest if any actually paid by the employee. Not applicable if the loan amount does not exceed Rs.20,000/- or Loan is taken for the medical treatment specified in Rule 3A. Reimbursements towards PERSONAL TRAVEL OR HOUSEHOLD OR UTILITY SUPPORT e.g. personal attendants, gas, electricity, water, education. Actual expenditure incurred by the employer as reduced by the amount paid or recovered from the employee.
EMPLOYEE STOCK OPTION and sweat equity shares Perquisite value: Fair market value of the specified security or sweat equity shares on the date of exercise of option by the employee as reduced by the amount paid if any. Rule 3(8) of the notification prescribes determination of the fair market value. In the case of listed company - average of the opening and closing price of the share on the date of exercise. In case the shares are listed in more than one stock exchange on such date, the fair market value in such case will be average of the opening and closing price of the share on the stock exchange that records the highest volume of trading in the share. If there is no trading on such date, then closing price of such share on date closest to date of exercise and immediately preceding such date or the closing price of the share which records the highest volume of trading on the date closest to the date of exercising the option and immediately preceding such date where shares are listed in more than one stock exchange. In the case of company not listed, fair market value is as determined by a merchant banker on the date of exercise of the option or date earlier than date of exercise of option but not exceeding 180 days The fair market value of the specified security other than equity share on the date of the exercise by the employee will be value as determined by a merchant banker. This is applicable for both listed and unlisted companies. In the case of the company not listed, the valuation done by a merchant banker is valid for 180 days from the date of the valuation and the same valuation can be used for valuing the shares exercised within 180 days from such valuation date.
Key Action Points: The introduction of the perquisite valuation rules with effect from 1 st April 2009 would mean that the employer needs to re-assess the withholding tax on salaries for the employees for the current financial year and adjust the shortfall/excess in the remaining four months (December to March) of the financial year. The documentation emphasis for substantiating that the select expenditure is for official purposes and the associated certificate from the employer triggers a need to build a robust process internally with appropriate expense authorisation protocols and policy for supportings. *** The views expressed and the information provided in this communiqué are of general nature and is not intended to address the circumstances of any particular individual or entity. The above content should neither be regarded as comprehensive nor sufficient for making decisions. No one should act on the information or views provided in this publication without appropriate professional advise. It should be noted that no assurance is given for any loss arising from any actions taken or to be taken or not taken by anyone based on this publication. This is meant for private circulation only. ACCRETIVE Business Consulting Private Limited vishnu@accretiveglobal.com # 112/12, 1st Floor, 11th Cross, 5th Main, Malleswaram, Bangalore 560003 INDIA badrinath@accretiveglobal.com +91. 80. 41516187 www.accretiveglobal.com