Computation of income under the head Salary – Part 2

Covering meaning of perquisite and exempted perquisites (Updated upto A.Y. 2018-19)

Pay Cheque

In the earlier post (Computation of income under the head Salary – Part I), we have dicsussed about chargeability, meaning of salary, tax treatment of various components of salary like basic, DA, bonus, commission, allowance, etc. In this post we will discussed about perquisites.

Perquisite: Meaning and Chargeability

In common parlance, perquisite means, any casual emoluments or benefits attached to an office or position, in addition to salary or wages, which is availed by an employee. In other words, perquisites are the benefits in addition to normal salary. As per sec. 17(2) of the Income tax Act, Perquisite includes:

  1. Value of rent-free accommodation provided by the employer.
  2. Value of concession in rent in respect of accommodation provided to the assessee by his employer.
  3. The value of any benefit or amenity granted or provided free of cost or at concessional rate to ‘specified employees’.
  4. Amount paid by an employer in respect of any obligation which otherwise would have been payable by the employee.
    Taxpoint: Any obligation of the employee met by employer shall be taxable on cash basis i.e. in the year in which amount is paid by the employer.

    Employer paid employees’ professional tax liability pertaining to period 2016-17 in April 2017, such perquisite shall be taxable in the previous year 2017-18.

  5. Sum payable by an employer, whether directly or through a fund other than recognised provident fund or approved superannuation fund or deposit-linked insurance fund, to effect an assurance on the life of the assessee or to effect a contract for an annuity.
    Taxpoint: Such sum shall be taxable on accrual basis.
  6. The value of any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the employer, or former employer, free of cost or at concessional rate to the assessee.
  7. Any contribution in excess of 1,50,000 to an approved superannuation fund by the employer in respect of the assessee.
  8. the value of any other fringe benefit or amenity as may be prescribed.
Also Read  Computation of income under the head Salary - Part I


  1. Perquisites are taxable under the head “Salaries” only if, they are:
    • Allowed by an employer to his employee or any member of his household.
    • Resulting in the nature of personal advantage to the employee.
    • Derived by virtue of employee’s authority.
  2. Perquisite may be contractual or voluntary. In other words, it is not necessary that the benefit must have been received under an enforceable right.
  3. Perquisite may be received from the former, present or prospective employer
  4. Member of household includes:
    • Spouse (whether dependent or not)
    • Parents (whether dependent or not);
    • Children and their spouse (whether dependent or not);
    • Servants; and
    • Dependents

Specified employees [Sec. 17(2)(iii)]

Specified employee means:

  1. A director employee.
    It is immaterial –

    1. whether he is a nominee of the workers, financial institutions, etc. on the board;
    2. whether the employee is full time director or a part time; and
    3. whether he was a director throughout the previous year or not.


    • A director-employee shall be treated as specified employee of that company only.

      If Miss Somu is working with X Ltd. as director-employee and with Y Ltd. as employee only, she will be treated as specified employee only for X Ltd. and not for Y Ltd.

    • Director even for a day is construed as specified employee of such company.
  2. An employee who has substantial interest in the employer company.

    Substantial interest means the employee who beneficially holds 20% or more voting power in the employer company.


    • Such employee shall be treated as specified employee of that company only.
    • The main criteria is beneficial ownership and not the legal ownership.
    • Substantial interest must be held by the assessee individually, and not together with relative.

    Mr. Mohan holds 18% equity share of X Ltd. and his wife holds 7% equity share of the same company. In such case Mr. Mohan will not be treated as specified employee.

  3. An employee whose aggregate salary from all employers together exceeds ₹ 50,000 p.a.
    For computing the sum of ₹ 50,000, following are to be excluded/deducted:

    1. All non-monetary benefits;
    2. Non-taxable monetary benefits;
    3. Deduction u/s 16(ii) and 16(iii); and
    4. Employer’s contribution to Provident Fund


    • Where salary is received from two or more employers, the aggregate salary from all employers shall be considered for calculation of above ceiling. And if aggregate salary exceeds ₹ 50,000 p.a. the employee shall be treated as specified employee of all employers.

      Mr. Rohan is working with X & Co. and Y Ltd. His taxable monetary salary from X & Co. is ₹ 36,000 p.a. and from Y Ltd. is ₹ 45,000 p.a. Since the aggregate salary is more than ₹ 50,000 p.a. Mr. Rohan will be treated as specified employee for both the employer i.e. X & Co. and Y Ltd.

    • Even ‘DA not forming a part of salary for retirement benefit’ shall be included in salary, while determining the above limit of ₹ 50,000 p.a.
Also Read  Deduction from Gross Total Income available to Individual & HUF

Exempted Perquisites

Following perquisites are exempted in hands of employee:

  1. Tea, similar non-alcoholic beverages and snacks provided during working hours.
  2. Food provided by employer in working place.
  3. Recreational facilities extended to a group of employees.
  4. Goods manufactured by employer and sold by him to his employees at concessional (not free) rates.
  5. Conveyance facility provided –
    • to employees for journey between office and residence and vice versa.
    • to the judges of High Court and Supreme Court
  6. Amount spent on training of employees including boarding & lodging expenses for such training.
  7. Any perquisite allowed outside India by the Government to a citizen of India for rendering services outside India.
  8. Contribution in some specified schemes
    • Employer’s contribution to a pension or deferred annuity scheme.
    • Employer’s contribution to staff group insurance scheme.
    • Annual premium paid by the employer on personal accident policy affected by him in respect of his employee.
  9. Loans
    • Loan given at nil or at concessional rate of interest by the employer provided the aggregate amount of loan does not exceed ₹ 20,000.
    • Interest free loan for medical treatment of the diseases specified in Rule 3A.
  10. Medical facility
    • A provision of medical facility at office is exempt.
    • In any other case, medical facility up to ₹ 15,000 is exempt.

    Note: However, medical allowance is fully taxable.

  11. Periodicals and journals: Periodicals and journals required for discharge of work.
  12. Expenses for telephone, mobile phones actually incurred on behalf of employee by the employer whether by way of direct payment or reimbursement.
  13. Free education facility to the children of employee in an institution owned or maintained by the employer provided cost of such facility does not exceed ₹ 1,000 per month per child.
    Note: Such facility is not restricted to 2 children as in case of Children Education allowance.
  14. Computer or Laptop provided whether to use at office or at home (provided ownership is not transferred to the employee).
  15. Sale or gift of any movable asset (other than car and electronic items) to employee after being used by the employer for 10 or more years.
  16. Leave Travel Concession (LTC) subject to few conditions.
  17. Rent-free accommodation
    • Rent-free official residence provided to a Judge of a High Court or the Supreme Court
    • Rent-free furnished residence (including maintenance thereof) to Official of Parliament, a Union Minister or a Leader of opposition in Parliament.
  18. Accommodation provided:
    • on transfer of an employee in a hotel for a period not exceeding 15 days in aggregate.
    • in a remote area to an employee working at a mining site or an onshore exploration site or a project execution site or a dam site or a power generation site or an offshore site.
  19. Tax on non-monetary perquisite paid by employer on behalf of employee. With effect from A.Y. 2003-04 a new sec. 10(10CC) has been inserted which provides that income tax paid by employer on behalf of employee on income, being non-monetary perquisite, is not a taxable perquisite.
  20. Health club, Sports club facility
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