If you're employed in India, you're likely familiar with common salary components like basic pay, HRA and bonuses. However, there’s another important part of your salary that often goes unnoticed which is known as perquisites. These are the additional benefits provided by your employer, and they are covered under Section 17 2 of the Income Tax Act. In this blog, we'll explore what Section 17 2 entails, what kinds of perquisites it covers and how they will affect your tax liability.
What is the meaning of perquisites in income tax?
You may have often come across the term "perks" when discussing salaries. These "perks" refer to the additional benefits that your employer provides on top of your salary.
Perquisites can be either monetary or non-monetary. For example, you may get a rent-free house, a car from your company or medical insurance. The important point is that these benefits hold a monetary value and are considered part of your total income for tax purposes.
What are perquisites in salary?
Perquisites are divided into three different categories. Understanding these categories will help you determine your tax liability in a better way.
- Taxable Perquisites: These perquisites are fully taxable. For example: rent-free accommodation or personal use of a company car.
- Exempt Perquisites: Your mobile phones or laptops that you use for official work come under the exempt category. It means that you do not have to pay any tax for these.
- Partially Taxable Perquisites: For these perquisites, only a part of your benefit is taxable. For example, concessional loans given by your employer.
Rules for the valuation of perquisites in income tax
The Income Tax Rules offer a detailed guideline for valuing different types of perquisites. For example:
- The value of your rent-free home depends on your salary and your city of residence.
- The value of your company car that you use for personal purposes is calculated based on the engine capacity and the fuel expenses.
- For individual health insurance provided by the employer, the value may or may not be taxable depending on your particular situation.
What is section 17(2) of income tax act?
Section 17 of income tax act states all the components of your salary. Under this, section 17 2 especially deals with the perquisites in salary. It provides a list of various types of benefits that are considered perquisites and hence, they are taxable as part of your salary.
What is the taxability of perquisites under section 17(2)?
According to section 17 2, all perquisites that you get from your employer are taxable unless specifically exempted. The value of these perquisites is added to the total income and taxed as per the applicable income tax slab.
Hence,if your employer pays the premium for an individual health insurance policy covering your family, the value of this benefit may be taxable in certain situations. Similarly, if your company provides you with housing, the rental value of the accommodation is added to your salary and taxed accordingly.
Tax exempt perquisites
As mentioned earlier, not all perquisites are taxed. For example:
- Provision of mobile phone and internet for work purposes.
- Your company’s contribution to a retirement fund (within limits)
- Medical insurance that is provided under a group scheme for employees.
Calculation of value of perquisites as per section 17 (2)
Each type of perquisite is calculated through a different method and it depends on several factors:
|
Type of Perquisite
|
Method of Calculation
|
|
Rent-free Accommodation
|
Based on the employee’s salary and the classification of the city (metro or non-metro)
|
|
Car Facility
|
Depends on the usage (official/personal), engine size and whether fuel/driver cost is borne by the employer or employee
|
|
Loan Facility
|
Calculated as the difference between the market interest rate and the rate charged by the employer
|
Benefits of perquisites
Even though perquisites are taxed, they offer several advantages:
- Increase in overall composition.
- Access to benefits like housing, transport, medical insurance and education allowance.
- Cost savings on personal expenses.
- Enhanced job satisfaction and retention.
FAQs
-
Are all perquisites taxable?
No, some perquisites are exempt fully as well as partially under the Income Tax Rules.
-
Is employer-paid medical insurance taxable?
Group policies may be exempt, but individual health insurance premiums paid by your employer may be taxable.
-
What is the main purpose of Section 17(2)?
This section defines which perks are considered part of your salary and lays down rules for their taxation.
Conclusion
Understanding section 17 2 of the income tax act helps you to stay informed and make smarter financial choices. Hence, you should take your time to review your salary structure, understand the benefits as well as consult a tax expert if needed.
Disclaimer: The information provided in this blog is for educational and informational purposes only. It is not intended as a substitute for professional advice, diagnosis or treatment. Please consult a certified medical and/or nutrition professional for any questions. Relying on any information provided in this blog is solely at your own risk, and ICICI Lombard is not responsible for any effects or consequences resulting from the use of the information shared.