Shares given by trust is perquisities or gift tax
This query is : Resolved
20 May 2011
Hi,
Infosys recently gifted shares to its employees via Infosys welfare trust. This has not been shown in Form 16. Should this be considered perquisites or can be considered in gift tax ambit where upto50000 is exempt.
Regards
Vijay
Infosys recently gifted shares to its employees via Infosys welfare trust. This has not been shown in Form 16. Should this be considered perquisites or can be considered in gift tax ambit where upto50000 is exempt.
Regards
Vijay
21 May 2011
REFER TO THE CASE CIT & Anr. v. Infosys Technologies Ltd. (2007) 15 (I) ITCL 181 (Karn-HC) : (2007) 293 ITR 146 (Karn) '
THIS IS THE CASE DEALING WITH THIS ISSUE
CA MANOJ GUPTA
JODHPUR
09828510543
THIS IS THE CASE DEALING WITH THIS ISSUE
CA MANOJ GUPTA
JODHPUR
09828510543
Message likes :
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22 May 2011
Appreciate your quick response Manoj.
After reading the jist of the case, my understanding is that it is not considered as perquisite hence doesn't come under tax liability.
Please clarify when the IT returns are filed, should this be declared under exempt income or no mention is required.
Regards
Vijay
After reading the jist of the case, my understanding is that it is not considered as perquisite hence doesn't come under tax liability.
Please clarify when the IT returns are filed, should this be declared under exempt income or no mention is required.
Regards
Vijay
25 July 2025
Great question, and you're right to seek clarity — **shares received from a trust like Infosys Welfare Trust** can fall into a **gray area** between **perquisites and gifts**, depending on the structure and the nature of the transaction.
Let’s clarify it step by step.
---
## ✅ Background: Infosys Case Reference
You're referring to:
> **CIT & Anr. v. Infosys Technologies Ltd.** \[(2007) 293 ITR 146 (Karnataka HC)]
This case dealt with **shares allotted to employees by a welfare trust**, and the High Court **held that**:
* Such allotment **did not amount to a "perquisite"** under Section 17(2) of the Income Tax Act at that time, **as there was no employer-employee transaction directly**.
* It was ruled that **the benefit was not taxable in the hands of the employee** as perquisite.
However, tax laws **have evolved** significantly since 2007, so here’s how it stands **today**:
---
## ✅ Key Tax Treatment (as per current law):
### 🔹 **If shares are given by a trust set up by the employer:**
1. **If the shares are received for free or at a concessional rate**, and:
* The **employer controls or contributes to the trust** (like Infosys Welfare Trust),
* Then it may be treated as a **perquisite** under **Section 17(2)(vi)**, and taxed as **salary income**.
➤ **Taxable Value = FMV on date of allotment – amount paid by employee**
2. **If the shares are gifted without consideration**, and:
* There’s **no employer-employee relationship**, or
* It’s not part of a salary or bonus structure,
* It could be taxed under **Section 56(2)(x)** as a **gift**.
➤ **Gift Exemption Limit = ₹50,000/year** (aggregate from all non-relatives)
---
## ✅ Your Specific Questions:
### 🔹 **Is it a perquisite or gift?**
* If the **welfare trust is employer-linked** (like Infosys), and shares are given to employees — **likely perquisite**.
* **Karnataka HC ruling** said not perquisite, but **after changes in law post-Finance Act 2009/2010**, that may no longer hold, especially with **Section 17(2)(vi)**.
### 🔹 **Not shown in Form 16 — Should I declare it?**
* Yes. Even if **Form 16 doesn’t show it**, **you are liable to report** it under **salary income**, if it qualifies as a perquisite.
* If you strongly believe it's **not a perquisite** and value is **under ₹50,000**, you could treat it as **gift** and **exempt** — but **this is a risky interpretation** if the employer is involved.
---
## 🔍 How to Report in ITR:
* If **taxable as perquisite**:
Report under **“Salary – Others”**, and pay tax on it (include FMV – cost paid)
* If treating as **gift under ₹50,000**:
Either:
* Report under **“Exempt Income” → Others**, or
* Do **not report** if amount is **very small** and you're confident it doesn’t cross ₹50,000 from all sources (not mandatory unless large or asked during scrutiny)
---
## 🧾 Recommendation:
* Safest to **consult a CA** if the value of shares is **significant**.
* If it’s a **large allotment** (e.g. ESOP-style), better to **report it as salary/perquisite**.
* If it’s a **one-time small gift**, and employer-trust is **at arm’s length**, you may **treat it under gift tax exemption**.
Let me know the **value of shares received**, and I can guide whether it crosses any limit or falls under taxable slab.
Let’s clarify it step by step.
---
## ✅ Background: Infosys Case Reference
You're referring to:
> **CIT & Anr. v. Infosys Technologies Ltd.** \[(2007) 293 ITR 146 (Karnataka HC)]
This case dealt with **shares allotted to employees by a welfare trust**, and the High Court **held that**:
* Such allotment **did not amount to a "perquisite"** under Section 17(2) of the Income Tax Act at that time, **as there was no employer-employee transaction directly**.
* It was ruled that **the benefit was not taxable in the hands of the employee** as perquisite.
However, tax laws **have evolved** significantly since 2007, so here’s how it stands **today**:
---
## ✅ Key Tax Treatment (as per current law):
### 🔹 **If shares are given by a trust set up by the employer:**
1. **If the shares are received for free or at a concessional rate**, and:
* The **employer controls or contributes to the trust** (like Infosys Welfare Trust),
* Then it may be treated as a **perquisite** under **Section 17(2)(vi)**, and taxed as **salary income**.
➤ **Taxable Value = FMV on date of allotment – amount paid by employee**
2. **If the shares are gifted without consideration**, and:
* There’s **no employer-employee relationship**, or
* It’s not part of a salary or bonus structure,
* It could be taxed under **Section 56(2)(x)** as a **gift**.
➤ **Gift Exemption Limit = ₹50,000/year** (aggregate from all non-relatives)
---
## ✅ Your Specific Questions:
### 🔹 **Is it a perquisite or gift?**
* If the **welfare trust is employer-linked** (like Infosys), and shares are given to employees — **likely perquisite**.
* **Karnataka HC ruling** said not perquisite, but **after changes in law post-Finance Act 2009/2010**, that may no longer hold, especially with **Section 17(2)(vi)**.
### 🔹 **Not shown in Form 16 — Should I declare it?**
* Yes. Even if **Form 16 doesn’t show it**, **you are liable to report** it under **salary income**, if it qualifies as a perquisite.
* If you strongly believe it's **not a perquisite** and value is **under ₹50,000**, you could treat it as **gift** and **exempt** — but **this is a risky interpretation** if the employer is involved.
---
## 🔍 How to Report in ITR:
* If **taxable as perquisite**:
Report under **“Salary – Others”**, and pay tax on it (include FMV – cost paid)
* If treating as **gift under ₹50,000**:
Either:
* Report under **“Exempt Income” → Others**, or
* Do **not report** if amount is **very small** and you're confident it doesn’t cross ₹50,000 from all sources (not mandatory unless large or asked during scrutiny)
---
## 🧾 Recommendation:
* Safest to **consult a CA** if the value of shares is **significant**.
* If it’s a **large allotment** (e.g. ESOP-style), better to **report it as salary/perquisite**.
* If it’s a **one-time small gift**, and employer-trust is **at arm’s length**, you may **treat it under gift tax exemption**.
Let me know the **value of shares received**, and I can guide whether it crosses any limit or falls under taxable slab.
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