Understanding Section 119 of the Income Tax Act
Section 119 of the Income Tax Act is an important provision that allows employees to claim tax exemptions on certain perquisites received from their employers. This section covers a wide range of perquisites, including accommodation, medical facilities, and transportation allowances. In this blog, we will take a closer look at Section 119 and understand how it works.
Introduction to Section 119
Section 119 of the Income Tax Act was introduced to provide tax relief to employees who receive certain perquisites from their employers. Perquisites, also known as perks or fringe benefits, are non-monetary benefits that are provided by employers to their employees in addition to their regular salary or wages. These perquisites can be in the form of free or subsidized accommodation, medical facilities, transportation allowances, etc.
Exemptions under Section 119
Section 119 of the Income Tax Act provides exemptions on certain perquisites received by employees. The exemptions are provided on the following perquisites:
- Accommodation: If an employer provides free or subsidized accommodation to an employee, the value of the perquisite is exempt from tax up to a certain limit.
- Medical facilities: If an employer provides medical facilities to an employee, such as reimbursement of medical bills or payment of medical insurance premium, the value of the perquisite is exempt from tax up to a certain limit.
- Transportation allowances: If an employer provides transportation allowances to an employee for commuting to and from work, the value of the perquisite is exempt from tax up to a certain limit.
Conditions for claiming exemptions
To claim exemptions under Section 119, certain conditions need to be met. These conditions are as follows:
- The perquisites should be provided by the employer to the employee.
- The perquisites should be provided in the course of the employee’s employment.
- The perquisites should be provided uniformly to all employees.
- The value of the perquisites should not exceed the prescribed limits.
Prescribed limits for exemptions
The prescribed limits for exemptions under Section 119 are as follows:
- Accommodation: The value of the perquisite is exempt from tax up to 15% of the employee’s salary or the actual amount of rent paid by the employer, whichever is lower.
- Medical facilities: The value of the perquisite is exempt from tax up to Rs. 15,000 per annum.
- Transportation allowances: The value of the perquisite is exempt from tax up to Rs. 1,800 per month.
Benefits of Section 119
Section 119 of the Income Tax Act is beneficial for both employees and employers. Employees can claim tax exemptions on certain perquisites received from their employers, which can help reduce their tax liabilities. Employers, on the other hand, can provide these perquisites to their employees as a way to attract and retain talent, without incurring a significant cost.
By providing these perquisites, employers can create a positive work environment and improve employee satisfaction. For example, providing accommodation to employees can help reduce their housing costs and increase their disposable income. Similarly, providing medical facilities can help ensure that employees have access to quality healthcare, which can help improve their overall wellbeing.
It is worth noting that while Section 119 provides tax exemptions on certain perquisites, it does not cover all perquisites. Therefore, it is important for employees to understand the specific perquisites that are covered under this section and the prescribed limits for claiming exemptions.
Filing Requirements
Employers who provide perquisites to their employees are required to file Form 12BA with the Income Tax Department. This form provides details of the perquisites provided to employees during the financial year, including the value of the perquisites and the applicable exemptions.
Employees who receive perquisites from their employers are also required to disclose the same in their income tax returns. Failure to disclose perquisites can result in penalties and interest charges.
Impact of Budget Changes on Section 119
The Union Budget of 2021 brought in a few changes to Section 119 of the Income Tax Act. One of the notable changes was the increase in the prescribed limit for transportation allowances from Rs. 1,800 per month to Rs. 2,400 per month. This increase in the limit provides a higher exemption to employees who receive transportation allowances from their employers.
Another significant change was the introduction of a tax on employee contributions to provident funds, superannuation funds, and National Pension System (NPS). Under the new rule, contributions made by employees to these funds above Rs. 2.5 lakhs per annum will be taxed at the rate of 31.2%. This change will impact employees who receive contributions from their employers towards these funds as a perquisite.
The budget also proposed changes to the tax treatment of accommodation provided by employers. Under the current rule, the value of the perquisite is exempt from tax up to 15% of the employee’s salary or the actual amount of rent paid by the employer, whichever is lower. The proposed change will introduce a cap on the exempted amount based on the size of the city in which the accommodation is located.
Conclusion
Section 119 of the Income Tax Act is a beneficial provision for employees as it allows them to claim tax exemptions on certain perquisites received from their employers. The exemptions are provided on perquisites such as accommodation, medical facilities, and transportation allowances. To claim these exemptions, certain conditions need to be met, and the value of the perquisites should not exceed the prescribed limits. Understanding Section 119 can help employees save on their tax liabilities and make the most of the perquisites provided by their employers.
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Frequently Asked Questions (FAQs)
Q1.) What is Section 119 of the Income Tax Act?
Section 119 of the Income Tax Act provides tax exemptions on certain perquisites received by employees from their employers.
Q2.) What are the perquisites covered under Section 119?
The perquisites covered under Section 119 include accommodation, medical facilities, and transportation allowances.
Q3.) What is the prescribed limit for transportation allowances under Section 119?
The prescribed limit for transportation allowances was increased from Rs. 1,800 per month to Rs. 2,400 per month in the 2021 Union Budget.
Q4.) Do all perquisites provided by employers qualify for tax exemptions under Section 119?
No, not all perquisites provided by employers qualify for tax exemptions under Section 119. Only certain perquisites that meet the prescribed conditions and limits are eligible for exemptions.
Q5.) Is there a filing requirement for employers who provide perquisites under Section 119?
Yes, employers who provide perquisites under Section 119 are required to file Form 12BA with the Income Tax Department.
Q6.) Are employees required to disclose perquisites received from their employers in their income tax returns?
Yes, employees are required to disclose perquisites received from their employers in their income tax returns.
Q7.) Can employers provide perquisites to their employees as a way to attract and retain talent?
Yes, employers can provide perquisites to their employees as a way to attract and retain talent, without incurring a significant cost.
Q8.) What is the impact of the 2021 Union Budget on Section 119?
The 2021 Union Budget brought in a few changes to Section 119, including an increase in the prescribed limit for transportation allowances and the introduction of a tax on employee contributions to certain funds.
Q9.) What is the tax treatment of accommodation provided by employers under Section 119?
Under the current rule, the value of the perquisite is exempt from tax up to 15% of the employee’s salary or the actual amount of rent paid by the employer, whichever is lower.
Q10.) Why is it important for both employers and employees to understand the prescribed limits and conditions for claiming exemptions under Section 119?
It is important for both employers and employees to understand the prescribed limits and conditions for claiming exemptions under Section 119 to ensure compliance with the Income Tax Act and avoid penalties and interest charges.
