Taxability of Business Perquisites under Income Tax Act

Dear Students/Readers,

Let us start with a small practical scenario.

Mr. Sunil is a proprietor of Anant Pharma, a distributor of ZydusPharma Limited. Zydus Pharma Limited had given free foreign trip to the family of Mr. Sunil considering the business performance of Anant Pharma. Discuss taxability, if any, in the hands of Mr. Sunil assuming that costing of similar foreign trip is Rs. 2,80,000.

Technical issue involved

The only issue involved in the above referred problem of Mr. Sunil is that he is a beneficiary of foreign trip and the same is awarded in lieu of the business performance achieved by AnantPharma of which he is a proprietor. Technically speaking, such foreign trip is nothing but a benefit or perquisite in the hands of Mr. Sunil. And, we are aware that benefit or perquisite received by the employee from the employer is taxable under the head “Salary”. But in the present case, Mr. Sunil is neither a salaried person nor the benefit or perquisite received by him from the employer. Therefore, the moot question is whether such type of business perquisites would be chargeable to tax? And if yes, then, under which head?

Analysis

Interestingly,section 28(iv) of the Income Tax Act, 1961 provides that any benefit or perquisite arising from exercise of business or profession shall be taxed under the head “Profits and Gains from Business or Profession”(PGBP). The above referred provision of the Income Tax Act rules out one of the biggest misconception that perquisites are taxable only in the hands of employees.The only requirement to bring perquisite under the head “PGBP” is that the same has been derived from the exercise of business or profession.

Conclusion

Therefore, the conclusion is that the benefit or perquisite in the form of foreign trip shall be taxable in the hands of Mr. Sunil under the head “PGBP”. But the next interesting issue is how to perform the valuation of such benefit or perquisite? Are there any valuation rules for such perquisites under the head PGBP as we find under the head “Salary? Do post your answer in comment box.

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