Section 17(2) of the Income Tax Act, 1961 deals with the taxability of perquisites provided by an employer to an employee. Perquisites refer to the non-cash benefits or amenities provided by the employer to the employee in addition to the regular salary or wages. These perquisites can take various forms, such as the use of company vehicles, free accommodation, or reimbursement of medical expenses. In this blog, we will explore section 17(2) of the Income Tax Act in more detail, covering the following topics:
1. Overview of Section 17(2)
Section 17(2) of the Income Tax Act, 1961, states that any perquisite provided by an employer to an employee shall be considered as a taxable income of the employee, and thus subject to tax under the head of “Income from Salaries”. The value of such perquisites shall be determined as per the rules and guidelines issued by the Central Board of Direct Taxes (CBDT). This means that any benefit or amenity provided by the employer to the employee, other than actual salary or wages, will be considered as a perquisite and subject to tax.
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Types of Perquisites Covered Under Section 17(2)
Section 17(2) covers a wide range of perquisites that can be provided by an employer to an employee. Some of the common types of perquisites covered under this section are:
a. Accommodation: If an employer provides accommodation to an employee, either free or at a concessional rate, the value of such accommodation will be considered as a perquisite and subject to tax.
b. Motor Car: If an employer provides a motor car for the personal use of an employee, the value of such use will be considered as a perquisite and subject to tax.
c. Education: If an employer provides education to the children of an employee, the value of such education will be considered as a perquisite and subject to tax.
d. Club Memberships: If an employer provides club memberships to an employee, the value of such membership will be considered as a perquisite and subject to tax.
e. Medical Reimbursement: If an employer reimburses medical expenses incurred by an employee, the value of such reimbursement will be considered as a perquisite and subject to tax.
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Valuation of Perquisites
The valuation of perquisites is determined as per the guidelines issued by the CBDT. The value of each perquisite is calculated differently, based on the type of perquisite provided. For example, the value of accommodation provided by the employer will be calculated as per the rules laid down by the CBDT. Similarly, the value of a motor car provided by the employer will be calculated based on the cost of the vehicle, the distance travelled by the employee, and other factors. The employer is responsible for calculating and deducting tax on the value of perquisites provided to the employee.
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Exemptions from Tax on Perquisites
There are certain exemptions from tax on perquisites, as provided by the Income Tax Act, 1961. Some of the common exemptions are:
a. Medical Reimbursement: Any reimbursement of medical expenses up to INR 15,000 per annum is exempt from tax.
b. Transport Allowance: Any transport allowance paid to an employee for commuting between their residence and place of work is exempt from tax, up to a maximum of INR 1,600 per month.
c. Meal Coupons: Any meal coupons provided to an employee up to a value of INR 50
per meal are exempt from tax.
d. Education Allowance: Any education allowance provided to an employee for the education of their children is exempt from tax, up to a maximum of INR 100 per month per child, for a maximum of two children.
e. Leave Travel Allowance: Any reimbursement of expenses incurred by an employee for travel within India on leave is exempt from tax, subject to certain conditions.
It is important to note that the exemptions from tax on perquisites are subject to certain conditions and limits. Employers must ensure that they comply with these conditions to claim these exemptions.
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Conclusion
In conclusion, Section 17(2) of the Income Tax Act, 1961, is an important provision that governs the taxation of perquisites provided by an employer to an employee. Employers must carefully consider the value and nature of the perquisites provided to their employees and ensure that they comply with the guidelines issued by the CBDT. It is also important for employees to understand the tax implications of the perquisites provided to them by their employer. By understanding the provisions of Section 17(2), employers and employees can avoid any disputes with the tax authorities and ensure that they are compliant with the law.
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Frequently Asked Questions (FAQs)
What are perquisites under the Income Tax Act?
Perquisites refer to the non-cash benefits or amenities provided by an employer to an employee in addition to the regular salary or wages. These perquisites can take various forms, such as the use of company vehicles, free accommodation, or reimbursement of medical expenses.
Are all perquisites taxable under the Income Tax Act?
Yes, all perquisites provided by an employer to an employee are taxable under the head of “Income from Salaries”. However, there are certain exemptions from tax on perquisites provided by the Income Tax Act.
How are perquisites valued under the Income Tax Act?
The valuation of perquisites is determined as per the guidelines issued by the Central Board of Direct Taxes (CBDT). The value of each perquisite is calculated differently, based on the type of perquisite provided.
What are the common types of perquisites covered under Section 17(2) of the Income Tax Act?
The common types of perquisites covered under Section 17(2) of the Income Tax Act are accommodation, motor car, education, club memberships, and medical reimbursement.
What are the exemptions from tax on perquisites under the Income Tax Act?
The exemptions from tax on perquisites include medical reimbursement up to INR 15,000 per annum, transport allowance up to INR 1,600 per month, meal coupons up to INR 50 per meal, education allowance up to INR 100 per month per child (for a maximum of two children), and leave travel allowance.
What is the responsibility of the employer with respect to perquisites provided to an employee?
The employer is responsible for calculating and deducting tax on the value of perquisites provided to the employee.
What is the responsibility of the employee with respect to perquisites provided by the employer?
The employee must disclose the value of perquisites received from the employer while filing their income tax return.
Can an employee claim a tax deduction for expenses incurred for official purposes?
Yes, an employee can claim a tax deduction for expenses incurred for official purposes, subject to certain conditions and limits.
Can an employee claim a tax deduction for medical expenses?
Yes, an employee can claim a tax deduction for medical expenses incurred for themselves, their spouse, children, or dependent parents, subject to certain conditions and limits.
What is the penalty for non-compliance with the provisions of Section 17(2) of the Income Tax Act?
Non-compliance with the provisions of Section 17(2) of the Income Tax Act can result in penalties, fines, and legal action by the tax authorities. It is important for employers and employees to comply with the provisions of the Income Tax Act to avoid any legal disputes or penalties.
