Perquisites Meaning in Income tax: Benefits & Examples

Perquisites are extra benefits that employees receive on top of their pay. Depending on their nature, certain perks or perquisites may or may not be taxable. The term fringe benefits or perks refers to a variety of benefits that are provided in addition to a person’s pay. 

To promote accountability and transparency, these components are taxed separately from the employer’s account. The company’s amenities are considered perquisites and are taxed under the laws and regulations that have been established. 

In this article, we have covered the definition of perquisites in remuneration as well as their varieties, advantages, calculations, and taxation.

 

Perquisites in income tax: What are the perquisites in salary?

Profits given to an employee in addition to their base pay are known as perquisites. Benefits that come with a wage might be as basic as lodging provided by the employer, fuel reimbursement, etc., or they could be more complicated, like interest-free loans, access to medical services, etc.

 

Perquisites in income tax: What are the different types of perquisites?

Based on the amount of tax collected, these are divided into the following three major categories:

Taxable perquisites: Some fringe benefits, such as the provision of gas, water, and electricity, rent-free housing, professional tax, reimbursement of medical expenses, etc., are tax-deductible. Other fringe benefits provided by employers, such as complimentary meals, gifts with a value greater than Rs 5,000, access to clubs and gyms, etc., are also included in this category.

Tax-exempted perquisites: Numerous fringe benefits are exempt from taxes, including travel expenses, reimbursement for company-provided computers or laptops used for business purposes, access to health clubs and sports facilities, refreshments served during business hours, telephone lines, interest-free loans, employer contributions to retirement plans, and free medical care.

Perquisites are taxable only by employee: This category includes child care centres, vehicles that belong to the company but are used by the employee, etc. 

 

Perquisites in income tax: Benefits 

Employees in the current period demand more than just a paycheck. Offering these advantages can boost personnel productivity, increase the level of staff loyalty and retention of employees, and attract talent. 

To further understand, let us look at an example. For instance, a sales profile person must perform a lot of fieldwork. It transforms into frequent travel for work purposes, which means that the employee must pay a lot of expenses. These costs include things like gas, meals, car upkeep, lodging, etc. 

The company typically provides perquisites above the wage to cover these costs to ensure that the employee is not burdened. The main advantage of having perquisites in remuneration is this.

 

Perquisites in income tax: Taxation on perquisites under Income Tax Act

According to the Income Tax Act, the following factors are used to determine the taxation of perquisites:

• The levy amount for the specified fiscal year
• Earnings reported as salaries
• Employer tax paid for the perquisites

all about: Section 17 (1) of Income Tax Act

Perquisites in income tax: Tax-exempt perquisites

The term “Income from salaries” governs how much of an employer’s perquisites are taxed. Although the following list is not inclusive, some perquisites are exempt from taxes.

• Leave travel concessions subject to conditions
• Medical treatment/expenditure
• Computer/laptop for official use
• Fees paid for corporate membership
• Annual premium paid for personal accident policy
• Subscription to work-related periodicals and journals
• Gifts not exceeding Rs 5,000 per annum

 

FAQs

What is the meaning of perquisite?

Any supplemental perquisite or benefit given to an employee instead of a pay or wage is referred to as a perquisite.

Are perquisites part of the salary?

Perquisites are indeed counted as salary income if they are obtained from an employer. However, benefits from sources other than an employer are counted as part of profits and gains from a business or profession or as income from other sources.