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Various perks and allowances are offered to the officials by the PSU's. Let us discuss how they are taxed under the Income Tax Act, 1961.

Opinion regarding Taxability of Perks/allowances admissible to the Officials:

1. Laptop Reimbursement: This will be covered under the category of Perquisites under Section 17(2)(viii) read with rule 3(7)(vii), as it is an asset on which depreciation is claimed by the employer. Therefore, it is shown by the employer as an asset in its books, Use of movable assets of the employer by the employee.

Taxability: Taxable value of the Computer/Laptop will be taken as Nil. In the case of Buyback by the employee at the time of leaving the organization, its value will be taken as the actual cost of asset less depreciation at 50% (using reducing balance method) for each completed year of usage by employer less amount recovered from the employee.

2. Hard disk reimbursement: This will be covered under the category of Perquisites under Section 17(2)(viii) read with rule 3(7)(vii), as it is an asset on which depreciation is claimed by the employer. Therefore, it is shown by the employer as an asset in its books, Use of movable assets of the employer by the employee.

Taxability: Taxable value of the Hard disk will be taken as 10 % of the original cost of the asset – amount recovered from the employee. In the case of Buyback by the employee, its value will be taken as the actual cost of asset less depreciation at 50% (using reducing balance method) for each completed year of usage by employer less amount recovered from the employee. Note: will come in the category of Electronic items.

3. Hard & Soft furnishing: This will be covered under the category of Perquisites under Section 17(2)(viii) read with rule 3(7)(vii), as it is an asset on which depreciation is claimed by the employer. Therefore, it is shown by the employer as an asset in its books, Use of movable assets of the employer by the employee.

Taxability: Taxable value of Hard and soft furnishing will be taken as 10 % of the original cost of the asset – amount recovered from the employee. In the case of Buyback by the employee, its value will be taken as the actual cost of asset less depreciation at 10% (on SLM basis) for each completed year of usage by employer less amount recovered from the employee.

4. Reimbursement of Entertainment expenses: Entertainment Allowance received by the Government employees (Fully-taxable in case of other employees). It is covered under Section 16(ii) of the Income Tax Act,1961, which says that it will first be included in the total income under Salary then deduction will be available under section 16(ii), least of the following is deductible :

Taxability of various perks offered by the PSUs, under the Income Tax Act, 1961

a) Rs 5,000
b) 1/5th of salary (excluding any allowance, benefits, or another perquisite)
c) Actual entertainment allowance received.

5. Mobile Reimbursement: This will be covered under the category of Perquisites under Section 17(2)(viii) read with rule 3(7)(vii), as it is an asset on which depreciation is claimed by the employer. Therefore, it is shown by the employer as an asset in its books, Use of movable assets of the employer by the employee.

Taxability: Taxable value of the Hard disk will be taken as 10 % of the original cost of the asset – amount recovered from the employee. In the case of Buyback by the employee, its value will be taken as the actual cost of asset less depreciation at 50% (using reducing balance method) for each completed year of usage by employer less amount recovered from the employee. Note: will come in the category of Electronic items.

6. Briefcase Reimbursement: This will be covered under the category of Perquisites under Section 17(2)(viii) read with rule 3(7)(vii), as it is an asset on which depreciation is claimed by the employer. Therefore, it is shown by the employer as an asset in its books, Use of movable assets of the employer by the employee.

 

Taxability: Taxable value of the Briefcase will be taken as 10% of the original cost of the asset (if the asset is owned by the employer) less amount recovered from the employee.

7. Lease paid to Regular and deputations officials and tax paid by employer: If House Property is taken on lease or rent by the employer, the perquisite value shall be :

i. Lease rent paid or payable by the employer or 15% of the salary*, whichever is lower

*Salary includes:

a) Basic Pay
b) Dearness Allowance (only to the extent it forms part of retirement benefit salary)
c) Bonus
d) Commission
e) All other allowances (only taxable portion)
f) Any monetary payment which is chargeable to tax

But does not include

i. Value of any perquisite [under section 17(2)]
ii. Employer's contribution to PF
iii. Benefits received at the time of retirement like gratuity, pension, etc.

Note: The value so determined shall be reduced by the amount of rent, if any, paid by the employee.

8. TADK Allowance: This allowance comes under the category of Helper/Assistant allowance under section 10(14) of the Income Tax Act,1961. This allowance is exempt to the extent of expenditure incurred.

 

9. LTC reimbursement: It will be dealt with by Section 10(5) of the Income Tax Act,1961 which provides that

"Leave Travel Concession or Assistance (LTC/LTA), extended by an employer to an employee for going anywhere in India along with his family*

*Family includes spouse, children, and dependent brother/sister/parents. However, the family doesn't include more than 2 children of an Individual born on or after 01-10-1998.

The exemption shall be limited to fare for going anywhere in India along with family twice in a block of four years:

i. Exemption limit where the journey is performed by Air - Airfare of economy class in the National Carrier by the shortest route or the amount spent, whichever is less

ii. Exemption limit where the journey is performed by Rail - Air-conditioned first-class rail fare by the shortest route or the amount spent, whichever is less

iii. Exemption limit if places of origin of journey and destination are connected by rail but the journey is performed by any other mode of transport - Air-conditioned first-class rail fare by the shortest route or the amount spent, whichever is less

iv. Exemption limit where the places of origin of journey and destination are not connected by rail:

a. Where a recognized public transport system exists - First Class or deluxe class fare by the shortest route or the amount spent, whichever is less

b. Where no recognized public transport system exists - Air-conditioned first-class rail fare by shortest route or the amount spent, whichever is less

Notes:

i. Two journeys in a block of 4 calendar years is exempt
ii. Taxable only in case of Specified Employees

The following employees are deemed as specified employees:

1) A director-employee

2) An employee who has a substantial interest (i.e. beneficial owner of equity shares carrying 20% or more voting power) in the employer-company

3) An employee whose monetary income* under the salary exceeds Rs. 50,000

*Monetary Income means Income chargeable under the salary but excluding the perquisite value of all non-monetary perquisites.

Restriction on Number of Children for Claiming LTA:- As per LTA Rules, the exemption is not available for more than two children of an individual born after October 01, 1998. This restriction does not apply in respect of children born before this date, and also in cases where an individual, after having one child, begets multiple children (twins or triplets or quadruplets, etc.) on the second occasion. The term “Child” includes a step-child and an adopted child of the individual.

This above relaxation is as same as the Company's criteria of family.

Therefore in the case of LTC to the employees,

  1. In the case of specified employees, the LTC amount would be fully taxable.
  2. In the case where an Individual has any family member who does not fall in the above family criteria then no exemption to be allowed for such family members.

The last point would be The amount of exemption will be limited to the amount spent by the employee on the travel of his and his family.

10. Composite transfer and packaging grant Reimbursement: This will be dealt with by Section 10(14) of the Income Tax Act,1961, rule 2BB of the Income Tax Rules,1962 which provides :

"Any allowance granted to meet the cost of travel on transfer (including packaging & transport of personal effect) in connection with transfer can be claimed as exempt from tax.

If paid more than what is incurred then the difference between the amount paid by the employer and incurred by an employee will be taxable in the hands of the employee.”

11. Compensatory Travelling allowance: This allowance can be categorized into two allowances.

First: Transport Allowance, being for the purpose of traveling from home to place of duty. It is fully taxable now, in the wake of Standard Deduction being given in lieu of Transport Allowance and Medical reimbursement.

Second: Conveyance Allowance, granted to meet the expenditure on conveyance in the performance of duties of an office. This allowance is exempt to the extent it is incurred for the purpose of official duty.

12. Medical reimbursement: This reimbursement is fully taxable in the wake of Standard Deduction coming into operation.

13. Uniform Allowance: Amount received from employer or amount spent by an employee for the purpose as per bills submitted, whichever is lower will be exempt from Income tax.

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