Section 17(2) of the Income Tax Act lays down the provisions for the taxability of perquisites or fringe benefits provided by an employer to its employees. A perquisite can be any benefit or amenity provided by the employer to its employees, either free of cost or at a concessional rate. Some examples of perquisites include housing, company cars, club memberships, interest-free loans, medical reimbursements, and so on.
However, there are certain provisos to Section 17(2) that limit the scope of the taxability of perquisites. These provisos are as follows:
- Proviso (i): Perquisites provided to certain employees are exempt from tax
As per this proviso, any perquisite provided by the employer to an employee who is working in a remote area or who is engaged in the production of mineral oil is exempt from tax. The rationale behind this exemption is that employees working in remote areas or engaged in the production of mineral oil face a lot of hardships and therefore, the government provides certain tax exemptions to them.
- Proviso (ii): The value of certain perquisites shall be deemed to be nil
This proviso applies to certain perquisites that are provided to the employee for the discharge of their duties. Some examples of such perquisites include laptops, computers, and other electronic gadgets. As per this proviso, the value of such perquisites shall be deemed to be nil, and therefore, not be taxable in the hands of the employee.
- Proviso (iii): Value of certain perquisites shall be determined as per the prescribed rules
This proviso applies to certain perquisites that are not covered under the previous two provisos. As per this proviso, the value of such perquisites shall be determined as per the prescribed rules. The prescribed rules are specified by the Income Tax Department and take into account various factors such as the actual cost of the perquisite, the usage of the perquisite by the employee, the period for which the perquisite is provided, and so on.
- Proviso (iv): Exemption for employees with lower income
This proviso provides an exemption for certain employees who have a lower income. As per this proviso, the value of perquisites provided to an employee whose income does not exceed Rs. 50,000 is exempt from tax. However, it is important to note that this exemption is not applicable in case the perquisites are provided in lieu of any salary or wage.
- Proviso (v): Exemption for certain perquisites provided to government employees
This proviso provides an exemption for certain perquisites provided to government employees. As per this proviso, any perquisite provided to a government employee for the discharge of their official duties shall be exempt from tax. However, this exemption is not applicable in case the perquisite is provided in lieu of any salary or wage.
- Proviso (vi): Exemption for certain perquisites provided to specified employees
This proviso provides an exemption for certain perquisites provided to specified employees such as the Chairman and members of the Union Public Service Commission, the Chairman and members of the Finance Commission, and so on. As per this proviso, any perquisite provided to these specified employees for the discharge of their official duties shall be exempt from tax.
- Proviso (vii): Exemption for certain perquisites provided to employees working in the software technology parks
This proviso provides an exemption for certain perquisites provided to employees working in the software technology parks. As per this proviso, any perquisite provided to an employee working in a software technology park, for the purpose of enabling them to perform their duties, shall be exempt from tax.
- Proviso (viii): Exemption for certain perquisites provided to employees working in notified sectors
This proviso provides an exemption for certain perquisites provided to employees working in notified sectors such as power, telecom, and so on. As per this proviso, any perquisite provided to an employee working in a notified sector, for the purpose of enabling them to perform their duties, shall be exempt from tax.
- Proviso (ix): Exemption for certain perquisites provided to employees of an airline
This proviso provides an exemption for certain perquisites provided to employees of an airline. As per this proviso, any perquisite provided to an employee of an airline, for the purpose of enabling them to perform their duties, shall be exempt from tax.
In conclusion
the provisos to Section 17(2) of the Income Tax Act provide various exemptions for perquisites provided by an employer to its employees. These exemptions are aimed at providing relief to certain categories of employees who face unique challenges and hardships in their work. However, it is important for employers and employees to understand these provisions in detail to ensure that they comply with the tax laws and do not face any legal issues.
Read more useful content:
- section 234e of income tax act
- section 286 of income tax act
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- section 226(3) of income tax act
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Frequently Asked Questions (FAQs)
Q1. What are perquisites under Section 17(2) of the Income Tax Act?
A: Perquisites are any benefits or amenities provided by an employer to its employees, either free of cost or at a concessional rate. Some examples of perquisites include housing, company cars, club memberships, interest-free loans, medical reimbursements, and so on.
Q2. Are all perquisites taxable under Section 17(2) of the Income Tax Act?
A: No, not all perquisites are taxable under Section 17(2) of the Income Tax Act. There are certain provisos that provide exemptions for perquisites provided to certain categories of employees, perquisites provided for the discharge of official duties, and so on.
Q3. What is Proviso (ii) to Section 17(2) of the Income Tax Act?
A: Proviso (ii) to Section 17(2) of the Income Tax Act provides that the value of certain perquisites provided to the employee for the discharge of their duties shall be deemed to be nil. Some examples of such perquisites include laptops, computers, and other electronic gadgets.
Q4. What is Proviso (iv) to Section 17(2) of the Income Tax Act?
A: Proviso (iv) to Section 17(2) of the Income Tax Act provides an exemption for the value of perquisites provided to an employee whose income does not exceed Rs. 50,000. However, this exemption is not applicable in case the perquisites are provided in lieu of any salary or wage.
Q5. What is Proviso (viii) to Section 17(2) of the Income Tax Act?
A: Proviso (viii) to Section 17(2) of the Income Tax Act provides an exemption for certain perquisites provided to employees working in notified sectors such as power, telecom, and so on. As per this proviso, any perquisite provided to an employee working in a notified sector, for the purpose of enabling them to perform their duties, shall be exempt from tax.
Q6. Is it mandatory for an employer to report perquisites in Form 16?
A: Yes, it is mandatory for an employer to report perquisites in Form 16. Form 16 is a certificate issued by the employer to the employee containing details of salary paid, tax deducted, and any other perquisites provided during the financial year. It is a crucial document for the employee to file their income tax return.
