To reduce the tax bite and give you more incentive to keep working, your employer tries to find ways to keep you happy. A nice house or a chauffeur-driven car or a holiday abroad. However, all this and more came under the tax hammer with the taxman calling it the perquisites tax.
Four years back, in 2005-06, this tax liability was taken away from the employee and was passed to the employer as fringe benefit tax (FBT). This year, the tax axe came on your head again with the FBT getting scrapped.
Says Kartik Varma, co-founder, iTrust, a financial advisory firm: “FBT rules were often misused by employees who disguised personal expenses and consumption as official expenses. The tax receipts under this regime did not justify the enormous cost of compliance and paperwork that was being forced upon the employers and the tax department. Now, the perks will be charged to the employee.”
How much and when you would have to pay was unclear and it took the Central Board of Direct Taxes (CBDT) the entire year to figure that out.
Last week, CBDT announced that you have just a month to pay this tax for FY10. Says Ameet Patel, partner, Sudit K Parekh and Co.: “Since the notification came only this month, tax will have to be deducted for the nine months gone by in January itself.”
This means painful times for your HR department—salaries will have to be restructured and tax liability will have to be calculated afresh. Adds Patel: “Expect a slim pay cheque and even delays this New Year.”
Perquisites are taxed differently. Suppose you get an unfurnished office accommodation in Delhi. As per the rule, this would inflate your basic (plus dearness allowance) salary by 7.5%. So, if you are earning Rs10 lakh, an accommodation from the company would increase your income to Rs10.75 lakh. It is on this amount that you will have to pay an income-tax. For other facilities, like electricity, the bill would just be added to your income. For stock options, which many companies offer to their employees, it would be the difference between the current market price and the grant price that would get added to the income.
The rules to assess the value of these perquisites have been kept unchanged, except for cars, where the valuation has been increased by 50%. Adds Patel: “This tax is only on perquisites that give non-monetary benefits. It does not apply to allowances like HRA or any other special allowances, already specified under section 10 of the Income-Tax Act.”
Perquisites consist of perks such as accommodation, car, driver, services of a sweeper, gardener, watchman or a personal attendant, gas, electricity or water, educational facilities, travel, holidays, gift vouchers and club membership.