Computation of income under the head Salary – Part 3: Valuation of Perquisites

Covering valuation of perquisite (Updated upto A.Y. 2018-19)

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In the earlier post, we have discussed about meaning of perquisite (Computation of income under the head Salary – Part 2). Now, we will discussed about determination of monetary value of those perquisites for the purpose of income-tax.

Rent-free unfurnished accommodation (RFA) [Rule 3(1)]

Rent-free accommodation is taxable in the hands of all employees (except the Judges of High Court or Supreme Court and Official of the Parliament or Union Minister and a leader of Opposition).
Accommodation here includes fixed as well as floating structure.

Fixed StructureA house, flat, farm house (or a part there of), accommodation in hotel, motel, service apartment, a guest house, etc.
Floating StructureA caravan, mobile home, ship etc.

For the purpose of valuation, employees are divided into 3 categories:

  1. Employees of the Central or State Government or of any undertaking under the control of the Government;
  2. Accommodation provided by Government to an employee serving on deputation
  3. Other employees
Central and State Government Employee (including military person)

Where the accommodation is provided by the Central Government or any State Government to the employees either holding office or post in connection with the affairs of the Union or of such State, the value of perquisite in respect of such accommodation is equal to the licence fee, which would have been determined by the Central or State Government in accordance with the rules framed by the Government.
Taxpoint: Employees of a local authority or a foreign government are not covered under this category.

Accommodation provided by Government to an employee serving on deputation

Where the accommodation is provided by the Central Government or any State Government to an employee who is serving on deputation with any body or undertaking under the control of such Government, then the value of perquisite of such an accommodation shall be:

City in which accommodation is providedValue of perquisite
Having population exceeding 25 lacs as per 2001 census15% of salary for the period during which the employee occupied the said accommodation.
Having population exceeding 10 lacs but not exceeding 25 lacs as per 2001 census10% of salary for the period during which the employee occupied the said accommodation.
Any other city7.5% of salary for the period during which the employee occupied the said accommodation.
  • Salary here means:
    Basic + Dearness allowance/pay (if it forms a part of retirement benefit) + Bonus + Commission + Fees + All other taxable allowances (only taxable amount) + Any other monetary payment by whatever name called (excluding perquisites and lump-sum payments received at the time of termination of service or superannuation or voluntary retirement, like gratuity, severance pay leave encashment, voluntary retrenchment benefits, commutation of pension and similar payments)
  • Salary shall be determined on due basis.
  • Where an assessee is receiving salary from two or more employers, the aggregate salary for the period during which accommodation has been provided (by any of the employer) shall be taken into account.
  • Monetary payments, which are not in the nature of perquisite, shall be taken into account. E.g. Leave encashment received during the continuation of service shall be included in salary for this purpose. However, if such pay leave is received at the time of retirement, then such receipt shall not be considered.
  • Here salary does not include employer’s contribution to Provident Fund of the employee.
  • The employer of such an employee shall be deemed to be that body or undertaking where the employee is serving on deputation.
Other Employees (residual category)

The value of perquisite is determined as per the following table:

City in which accommodation is providedAccommodation is owned by the employerAccommodation is not owned by the employer
Having population exceeding 25 lacs as per 2001 census15% of salary for the period during which the employee occupied the said accommodation.Rent paid or payable by the employer or 15% of salary, whichever is lower.
Having population exceeding 10 lacs but not exceeding 25 lacs as per 2001 census10% of salary for the period during which the employee occupied the said accommodation.
Any other city7.5% of salary for the period during which the employee occupied the said accommodation.
  1. Salary here means:
    Basic + Dearness allowance/pay (if it forms a part of retirement benefit) + Bonus + Commission + Fees + All other taxable allowances (only taxable amount) + Any other monetary payment by whatever name called (excluding perquisites and lump-sum payments received at the time of termination of service or superannuation or voluntary retirement, like gratuity, severance pay leave encashment, voluntary retrenchment benefits, commutation of pension and similar payments)
  • Salary shall be determined on due basis.
  • Where an assessee is receiving salary from two or more employers, the aggregate salary for the period during which accommodation has been provided (by any of the employer) shall be taken into account.
  • Monetary payments, which are not in the nature of perquisite, shall be taken into account. E.g. Leave encashment received during the continuation of service shall be included in salary for this purpose. However, if such pay leave is received at the time of retirement, then such receipt shall not be considered.
  • Here salary does not include employer’s contribution to Provident Fund of the employee.
  • Exemption of 90 days in case of two house allotment

    Where an employee is transferred from one place to another and he is provided with an accommodation at new place also, the value of perquisite shall be taken for only one such house having lower value for a period not exceeding 90 days. Thereafter, the values of both such houses are taxable.

  • Any accommodation provided to an employee working at a mining site; or an on-shore oil exploration site; or a project execution site; or a dam site; or a power generation site; or an off-shore site, which:
    1. being of a temporary nature and having plinth area not exceeding 800 sq.ft. is located not less than 8 kms away from the local limits of any municipality or a cantonment board; or
    2. is located in a remote area.Remote area here means an area located at least 40 K.M. away from a town having population not exceeding 20,000 as per latest published census.

Valuation of Rent-free furnished accommodation

  • Furnished accommodation means Accommodation + Furniture.
  • Value of Furnished accommodation = Value of accommodation + Value of furniture
  • Valuation of Accommodation: As discussed earlier.
  • Valuation of Furniture: As per the following table
CaseTaxable value
Furniture owned by the employer10% of original cost of furniture
Furniture hired by the employerActual hire charges paid/payable by the employer
  1. “Furniture” here, includes refrigerator, television, radio, air-conditioner and other household appliances, etc.
  2. The above rule is applicable to Government as well as Non-Government Employees.

Valuation of accommodation provided at concessional rent

Valuation will be made as if the rent-free accommodation is provided and the amount so computed will be reduced by the rent payable by the employee.

Value of Rent free accommodation as usual*****
Less: Rent payable by employee to employer for the above facility****
Taxable value of perquisite****

Taxpoint: The above rule of valuation shall be applicable in case of the Government employee also.

Accommodation provided in a hotel

In this case, value of perquisite shall be minimum of the following:

  1. 24% of salary for the period such accommodation is provided; or
  2. Actual charges paid or payable to such hotel.

However, if the following conditions are satisfied then nothing is taxable –

  • Such accommodation is provided for a period not exceeding in aggregate 15 days; and
  • Such accommodation is provided on transfer of employee from one place to another place.

If the employee pays any rent, the value so determined shall be reduced by the rent actually paid or payable by the employee

Taxpoint

  • Salary here has the same meaning as in the case of rent-free accommodation.
  • Above rule shall be applicable whether the assessee is a Government or a Non-Government employee.
  • If the facility is provided for more than 15 days, then the perquisite is exempt for first 15 days and thereafter taxable. E.g. if facility has been provided for 45 days then taxable perquisite shall be only for last 30 days.
  • Hotel includes licensed accommodation in the nature of motel, service apartment or guest house.

Insurance premium payable by employer

As per sec. 17(2)(v), following sums payable by an employer shall be taxable perquisite in the hands of all employees, whether it is paid 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

Employee can claim deduction u/s 80C for LIC premium paid by employer.

Sweat equity shares allotted or transferred to the assessee

Meaning

  • Specified security means the securities as defined in sec.2(h) of the Securities Contracts (Regulation) Act, 1956 and, where employees’ stock option has been granted under any plan or scheme therefore, includes the securities offered under such plan or scheme. As per sec.2(h) of the Securities Contracts (Regulation) Act, 1956, securities includes:
    1. shares, scripts, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate;
    2. derivative;
    3. units or any other instrument issued by any collective investment scheme to the investors in such schemes;
    4. security receipt as defined in sec. 2(zg) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
    5. units or any other such instrument issued to the inves­tors under any mutual fund scheme;
    6. any certificate or instrument (by whatever name called), issue to an investor by any issuer being a special purpose distinct entity which possesses any debt or receivable, including mortgage debt, assigned to such entity, and acknowledging beneficial interest of such investor in such debt or receivable, including mortgage debt, as the case may be;
    7. Government securities;
    8. such other instruments as may be declared by the Central Government to be securities; and
    9. rights or interest in securities.
  • Sweat equity shares means equity shares issued by a company to its employees or directors at a discount or for consideration other than cash for providing know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called.Taxpoint:If such shares are allotted or transferred not for above reasons (i.e, for providing know-how, etc.), then it is not taxable as perquisite. E.g., if such option is granted to the employee against acquisition of immovable property by the company, then such benefit shall not be considered as perquisite. However, employee is liable to pay tax, if any, under the head ‘Capital Gain’
  • Option means a right but not an obligation granted to an employee to apply for the specified security or sweat equity shares at a predetermined price.

Perquisites

Value of any specified security or sweat equity shares shall be considered as perquisites in hands of employee if the following conditions are satisfied:

  1. Such security or sweat equity shares are allotted or transferred on or after 01-04-2009
  2. Such security or sweat equity shares are allotted or transferred by the employer (former or present) directly or indirectly.
  3. Such security or sweat equity shares are allotted or transferred free of cost or at concessional rate to the assessee

Valuation

Value of such perquisite shall be computed as under:

ParticularsAmount
The fair market value of the specified security or sweat equity shares, as the case may be, on the date on which the option is exercised by the assessee***
Less: The amount actually paid by, or recovered from the assessee in respect of such security or shares***
Value of perquisite***

Motor Car [Rule 3(2)]

Motor-car facility provided by an employer is taxable in the hands of employee on the following basis:

CaseTaxable ValueIn hands of

Car is owned and maintained by the employer

Office purposeNot a perquisiteNot applicable
Personal purposeM + D (See Note 1 & 2)Specified Employee
Both purpose 1800 p.m. or 2400 p.m. (See Note 3)Specified Employee

Car is owned by the employer but maintained by the employee

Office purposeNot a perquisiteNot applicable
Personal purposeD (See Note 2)Specified Employee
Both purpose 600 p.m. or 900 p.m. (See Note 4)Specified Employee

Car is owned by the employee but maintained by the employer

Office purposeNot a perquisiteNot applicable
Personal purposeM (See Note 1)All Employee
Both purposeActual expenditure incurred by the employer as reduced by 1,800 p.m. / 2,400 p.m. (see Note 3) (further deduction of 900 p.m. for driver) or a higher deduction if prescribed conditions are satisfied (See Note 5)All Employee

Car is owned and maintained by the employee

Any purposeNot a perquisiteNot applicable
  1. M =Maintenance cost
  2. D = Depreciation @ 10% of actual cost of the car. However, if the car is not owned by employer then actual hire charge incurred by employer shall be considered.
  3. ₹ 2,400 p.m. in case of higher capacity car and 1,800 p.m. for lower capacity car.

    Higher capacity car means a car whose cubic capacity of engine exceeds 1.6 litres.

  4. 900 p.m. in case of higher capacity car and 600 p.m. for lower capacity car.
  5. Conditions to be fulfilled for claiming higher deductions:
    • The employer has maintained complete details of journey undertaken for official purpose, which may include date of journey, destination, mileage, and the amount of expenditure incurred thereon; and
    • The employer gives the certificate to the effect that the expenditure was incurred wholly and exclusively for the performance of official duties.
Chauffeur / Driver

If chauffeur is also provided, then salary of chauffeur is further to be added to the value of perquisite (as computed above). However, if car is used for both i.e. official and personal purpose then 900 p.m. (irrespective of higher or lower capacity of car) is to be taken as value of chauffeur perquisite.

  1. If motor car is provided at a concessional rate then charges paid by employee for such car, shall be reduced from the value of perquisite.
  2. The word “month” denotes completed month. Any part of the month shall be ignored.
  3. When more than one car is provided to the employee, otherwise than wholly and exclusively for office purpose, the value of perquisite for:
    • One car shall be taken as car is provided partly for office and partly for private purpose i.e. 1,800 or 2,400 p.m. (plus 900 p.m. for chauffeur, if provided); and
    • For other car(s), value shall be calculated as car(s) are provided exclusively for private purpose.
  4. Further reminded, conveyance facility to the judges of High Court or Supreme Court is not taxable.
  5. Use of any vehicle provided to an employee for journey from residence to work place or vice versa is not a taxable perquisite.

Vehicle other than Motor Car

The facility provided by employer is taxable in the hands of employee on the following basis:

CaseTaxable ValueIn hands of

Vehicle is owned and maintained by the employer

Office purposeNot a perquisiteNot applicable
Personal purposeActual Maintenance + D @ 10% of original costSpecified Employee
Both purposeReasonable proportion of (Maintenance + Depreciation @ 10% of Original cost)Specified Employee

Vehicle is owned by the employee but maintained by the employer

Office purposeNot a perquisiteNot applicable
Personal purposeActual MaintenanceAll Employee
Both purposeActual expenditure incurred by the employer as reduced by 900 p.m. or as reduced by higher sum if prescribed conditions (as discussed in case of Car facility) are satisfiedAll Employee

Free Domestic Servants [Rule 3(3)]

Value of perquisite is determined as under:

Servant appointed byTaxable value of perquisiteTaxable in hands of
EmployerActual cost to the employer is taxable as perquisiteSpecified employee
EmployeeAll employee
  1. If rent-free accommodation (owned by the employer) is provided with gardener then gardener’s salary and maintenance cost of garden shall not be taxable. [Circular No.122 dated 19/101973]
  2. Any amount charged from the employee for such facility shall be reduced from above value.
  3. Domestic servant allowance given to employee is fully taxable.
  4. Reimbursement of servant-salary by the employer shall be taxable in hands of all employee.

Free Transport [Rule 3(6)]

The facility provided by employer is taxable in the hands of employee on the following basis:

CaseTreatment
If employer is engaged in transportation business.Amount charged from public for such facility is taxable in the hands of specified employee.
In any other caseActual cost of employer for such facility is taxable in the hands of all employees.
  1. In case above facility is provided to employees of Railways & Airlines, nothing shall be chargeable to tax.
  2. Any amount charged from the employee for such facility shall be reduced from the above value.
  3. Conveyance facility provided to the employee for journey between office and residence is not taxable.

Gas, electricity or water facility [Rule 3(4)]

It is taxable on the following basis:

CaseTaxable value of perquisiteTaxable in the hands of
Facility is provided from own sourcesFacility is provided from other agency
Facility is in name of employeeManufacturing cost to the employerPrices paid to such agencyAll employees
Facility is in name of employerSpecified employees

Where the employee is paying any amount for such facility, the amount so paid by employee shall be reduced from the value determined above.

Valuation of perquisite in respect of free education [Rule 3(5)]

Taxable value of perquisite is as follows:

CaseTaxable Value
Facility provided to employeeNot taxable
Facility provided to family member
Facility provided in an institution owned by the employerChild of the assessee: Cost of such education in similar institution subject to an exemption of 1,000 p.m. per child shall be taxable1.
Other family member: Cost of such education in similar institution shall be taxable.
Facility provided in any institution (not owned by the employer) by reason of his being in employment.
Reimbursement of education expenditure to employee.Actual reimbursement shall be taxable. Such reimbursement of tuition fee shall also be taxable in the hands of Central Government employee. (Circular letter No 35/7/65–IT(B) dt 12/2/1965)

Who is chargeable

CaseTaxability in the hands of
In case of reimbursement; or
School fee of family member of the employee paid by the employer directly to school
All employee
In any other caseSpecified employee
  1. 1,000 per month per child shall be exempted without any restriction on number of children.
  2. Child includes adopted child, stepchild of the assessee, but does not include grandchild or illegitimate child.
  3. Any amount charged from the employee for such facility shall be reduced from the above value.
  4. Contribution made under an Educational Trust, created for the children of particular group of employees, is not taxable.

Interest free loan or concessional rate of interest [Rule 3(7)(i)]

Perquisite in respect of interest free loan or loan at concessional rate of interest to the employee or any member of his household by the employer or any person on his behalf, is not taxable if aggregate amount of loan given by the employer (or any other person on his behalf) does not exceed 20,000.
The taxable value of such perquisite shall be determined as per the rate as on the 1st day of the relevant previous year charged by the State Bank of India in respect of loans for the same purpose advanced by it. Rate chart applicable for the A.Y. 2018-19 is given below:

Purpose of the loanDetailsRate
Home Loan (for acquiring house and not for repairs thereof)Upto ₹ 75 lacs8.65%2
Above ₹ 75 lacs8.70%3
Education loanUpto ₹ 7.5 lacs11.20%4
Above ₹ 7.5 lacs10.90%5
Car Loan for new car (not for repairs thereof)Not under below scheme9.80%6
SBI Loyalty Car Loan SchemeCar Loan9.70%7
Certified pre-owned cars or used car loan11.00%8
Certified pre-owned carsNot under aforesaid scheme13.20%
Super Bike Loan12.20%
Loan against NSC / KVP / RBI Bonds / Surrender value of SBI Life / LIC, etc.13.70%
Loan against pledge of Gold Ornaments11.20%
Xpress Credit (i.e., personal loan to employees of noted entities maintaining salary account with SBI at zero marginFull check off (Category I)12.6% – 13.1%
Partial check off (Category II)13.6% – 14.1%
No check off (Category III)14.6% – 15.1%
  1. Maximum outstanding monthly balance: Interest is calculated on the maximum outstanding monthly balance. Maximum outstanding monthly balance means the aggregate outstanding balance for each loan as on the last day of each month.
  2. Loan for medical treatment: Nothing is taxable if loan is given for medical treatment of the employee or any member of his household in respect of diseases specified in rule 3A. However, such exempted loan will not include the amount that has been reimbursed by an insurance company under any medical insurance scheme.
  3. Concessional interest: Any interest paid by the employee to the employer for such loan shall be reduced from the above computed value. If rate of interest charged by the employer is higher than the above rate, nothing is taxable as perquisite.
  4. Amount on which interest shall be calculated: If loan amount is more than `20000, interest shall be levied on total loan amount, rather than the excess amount.
  5. Treatment of outstanding loan taken earlier: Interest on loan, taken before insertion of this provision, shall also be treated as taxable perquisite. [Circular No.15/2001dated 12/12/2001]
  6. House or conveyance loan must be for acquiring house or conveyance and not for repairs thereof.

Travelling / Touring / Holiday Home expenditure on Holiday [Rule 3(7)(ii)]

Valuation of perquisite in respect of travelling, touring, holiday home or any other expenses paid for or borne or reimbursed by the employer for any holiday availed of by the employee or any member of his household is taxable in the hands of all employees as per the following table:

CaseTaxable value of perquisite
Where such facility is maintained by employer and is not available uniformly to all employeeNotional cost of such facility. In other words, value at which such facilities are offered by other agencies to the public.
Where the employee is on official tour and the expenses are incurred in respect of any member of his household accompanying himThe amount of expenditure so incurred for the accompanying member of his household.
Where any official tour is extended as a vacationThe value will be limited to the expenses incurred in relation to such extended period of stay or vacation.
In any other caseAmount incurred by the employer.
  1. Any amount charged from employee shall be reduced from the above determined value.
  2. The above provisions are not applicable in case of Leave Travel Concession

Valuation of perquisite in respect of free meals [Rule 3(7)(iii)]

The facility provided by employer is taxable in the hands of employee on the following basis:

CaseTax Treatment
Tea, snacks or other non-alcoholic beverages in the form of light refreshment provided during office hours (including over-time)Nil
Free meals provided during office hours in:

  • Remote area9; or
  • An offshore installation
Nil
Free meals provided by the employer during office hours:

  • At office or business premises; or
  • Through paid vouchers which are not transferable and usable only at eating joints.
Expenditure on free meals in excess of 50 per meal shall be taxable perquisite to the extent of excess amount in hands of all employees.

Free meal given to employee worth 70 per meal through non-transferable coupon for 300 times in a year. Taxable perquisite in such case shall be 6,000 {being (70 – 50) * 300}.

In any other caseThe actual expenditure incurred by employer as reduced by amount charged from employee for such lunch or meal shall be taxable in the hands of all employees. i.e. [Actual expenditure to employer less Amount charged from employee]

Gift, voucher or token given by employer [Rule 3(7)(iv)]

The value of any gift, voucher, or token (in lieu of which any gift may be received) given to the employee (or any member of his household) on ceremonial occasion or otherwise by the employer shall be taxable in the hands of all employees. However, gift, voucher or token upto 5,000, in aggregate, during the previous year, shall be exempted.

  1. Where worth of gift is in excess of 5,000 then amount in excess of 5,000 shall be taxable.
  2. No such exemption (₹ 5,000) is available on gift made in cash or convertible into money.

Credit Card [Rule 3(7)(v)]

Expenditure incurred by an employer in respect of credit card facility to employee shall be treated as under:

CaseTax Treatment
Where such credit card is used wholly and exclusively for office purpose and specified conditions# are satisfied.Nil
Where expenses (including membership and annual fees) are incurred by the employee or any member of his household, which is charged to a credit card (including any add-on card) provided by the employer or otherwise, are paid or reimbursed by the employer.If directly paid by the employer
Any amount incurred by the employer as reduced by amount charged from the employee shall be taxable in the hands of all employees
If amount reimbursed by the employer
Any amount reimbursed by the employer shall be taxable in the hands of all employees.

# Specified conditions to be fulfilled to claim that expenses have been incurred wholly and exclusively for office purpose:

  1. Complete details in respect of such expenditure are maintained by the employer which may, inter-alia, include the date of expenditure and the nature of expenditure; and
  2. The employer gives a certificate for such expenditure to the effect that the same was incurred wholly and exclusively for the performance of official duty.

Club Expenditure [Rule 3(7)(vi)]

Expenditure incurred by employer in respect of club facility to employee shall be treated as under:

CaseTax Treatment
Where such expenses are incurred wholly and exclusively for office purpose and specified conditions# are satisfied.Nil
Where health club, sports and similar facilities are provided uniformly to all employees by the employer.Nil
Where the employer has obtained corporate membership of the club and the facility is enjoyed by the employee or any member of his householdAmount incurred by employer for such facility shall be taxable perquisite in the hands of all employees. However, initial fees paid for obtaining corporate membership shall not be a taxable perquisite.
Any payment or reimbursement by the employer of any expenditure incurred (including the amount of annual or periodical fee) in a club by employee or any member of his householdIf directly paid by the employer
Any amount incurred by the employer as reduced by amount charged from the employee shall be taxable in the hands of all employees.
If amount reimbursed by the employer
Any amount reimbursed by the employer shall be taxable in the hands of all employees.

# Specified conditions to be fulfilled to claim that expenses have been incurred wholly and exclusively for office purpose:

  1. Complete details in respect of such expenditure is maintained by the employer which may, inter alia, include the date of expenditure, the nature of expenditure and its business expediency; and
  2. The employer gives a certificate for such expenditure to the effect that the same was incurred wholly and exclusively for the performance of official duty;

Use of movable assets [Rule 3(7)(vii)]

If employee (or any member of his household) uses any movable asset (other than the assets for which provisions have been made) belonging to employer, then such facility is taxable in the hands of all employees. The value of such benefit is determined as per the following table:

If the asset is owned by the employer10% of the original cost of such asset.
If the asset is hired by the employerCharges paid or payable by the employer
  1. Any sum charged from the employee shall be reduced from the value determined as above.
  2. Use of computer, laptop, etc. (as discussed earlier) is exempted perquisite.
  3. Here, movable asset does not include car.

Movable assets sold by an employer [Rule 3(7)(viii)]

If the sale price is less than the written down value (calculated as per method and rate mentioned below) then the difference would be treated as perquisite and taxable in the hands of all employees.
Rates and methods of depreciation for different types of assets are as follow:

Types of assetRate & Method of depreciation
Electronic items10 / Computer50% [Reducing balance method]
Motor car20% [Reducing balance method]
Any other10% [Straight line method]

Mathematically, taxable perquisite is as under:

Original cost to the employer*****
Less: Accumulated depreciation for each completed year during which such asset is used by the employer****
Written down value****
Less: Amount charged from employee***
Value of Perquisite (if positive)****

Taxpoint: No depreciation shall be charged for a part of the year.

Medical facility [Proviso to Sec. 17(2)]

Medical facility provided in India

Medical facility is taxable as under:

CaseTreatment
Medical facility provided to the employee or his family in a hospital, clinic, dispensary or nursing home maintained by the employer.Exempted
Reimbursement of medical bill of the employee or his family of:

  • Any hospital maintained by Government or Local Authority; or
  • Any hospital approved by the Government for its employee.
Exempted
Payment/reimbursement by employer of medical expenses incurred by an employee on himself/his family in a hospital, which is approved by the CCIT, for the prescribed diseases (like Cancer, TB, AIDS, etc.) Employee must attach with the return of income:

  • a certificate from the approved hospital specifying the prescribed disease or ailment for which hospitalisation was required; and
  • a receipt for the amount paid to the hospital.
Exempted
Group medical insurance (i.e. Mediclaim) obtained by the employer for his employees.Exempted
Any reimbursement by employer of any insurance premium paid by the employee, for insurance of his health or the health of any member of his family.Exempted
Reimbursement of any medical bill whether for employee or for his family member.Exempted up to 15,000
Medical facility provided outside India

Medical facility is taxable as under:

CaseTreatment
Medical ExpenditureExempted to the extent permitted by RBI.
Cost of stay abroad (Patient + One Attendant/Care taker)Exempted to the extent permitted by RBI.
Cost of travel (Patient + One Attendant/Care taker)Exempted only when gross total Income of the employee excluding this (cost of travel) perquisite, does not exceed 2,00,000 p.a.
Taxpoint: In calculation of gross total income ceiling, taxable value of medical treatment perquisite and cost of stay perquisite shall be included.
  1. Hospital includes a dispensary, a clinic or a nursing home.
  2. For this purpose ‘family’ means:
    • Spouse, children of the individual; and
    • Parents, brothers, sisters of the individual, wholly or mainly dependent on him.
  3. Fixed Medical Allowance is fully taxable.
  4. The expenditure on medical treatment by the employer may be by way of payment or reimbursement.
  5. The perquisite is taxable in the hands of specified employee, however if the bills are issued in the name of employee and reimbursed by the employer, then it shall be taxable in the hands of all employees.

Leave Travel Concession [Sec. 10(5)]

If an employee goes on travel (on leave) with his family and traveling cost is reimbursed by the employer, then such reimbursement is fully exempted.

  • Journey may be performed during service or after retirement.
  • Employer may be present or former.
  • Journey must be performed to any place within India.
  • In case, journey was performed to various places together, then exemption is limited to the extent of cost of journey from the place of origin to the farthest point reached, by the shortest route.
  • Employee may or may not be a citizen of India.
  • Stay cost is not exempt.

Exemption

Exemption is limited to the amount actually incurred on the travel to the extent as under:

Journey performedMaximum exempted fare
By AirAir economic class fare of shortest route
By RailAir conditioned 1st class fare of shortest route
When the place of origin and destination is connected by rail but journey is performed by any other mode of transportSame as above
When the place of origin and destination is not connected by rail:
Where a recognised public transport system existsFirst class or deluxe class fare, as the case may be, on such transport.
Where no recognised public transport system existsAmount equivalent to air-conditioned 1st class rail fare, for the distance of the journey by the shortest route, as if journey had been performed by rail.
  1. No exemption can be claimed without performing journey and incurring expenses thereon.
  2. Block-period: Exemption is available in respect of 2 journeys performed in a block of 4 calendar years commencing from 1st January 1986.
    For A.Y. 2018-19, the relevant block is Jan 2014 to Dec. 2017 & Jan 2018 to Dec. 2021.
  3. Carry-forward facility: Where concession is not availed during the preceding block (whether on one occasion or both), then any one journey performed in the first calendar year of the immediately succeeding block will be additionally exempted (i.e. not counted in two journey limit)
  4. Family: Family here means –
    • Spouse and children of the individual; and
    • Parents, brothers and sisters of the individual, who are wholly or mainly dependent on him.
  5. Restriction on number of children: Exemption can be claimed for any number of children born on or before 30/9/1998. In addition, exemption is available only for 2 surviving children born on or after 1/10/1998.
    However, children born out of multiple birth, after the first child, will be treated as one child only.
  6. Fixed Leave travel allowance: Fixed amount paid to employees by way of leave travel allowance shall not be exempt.
  7. The exemption u/s 10(5) is for travel cost and does not include stay cost or other cost.

Other Perquisites

The value of any other facilities, benefits, amenities, services, rights or privileges (which is not discussed earlier) provided by the employer shall be determined on the basis of cost to the employer under an arms length transaction, as reduced by the employee’s contribution, if any.

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