Contents
1	WHAT CONSTITUTES SALARY INCOME?
2	IS RELATIONSHIP OF EMPLOYER AND EMPLOYEE NECESSARY
3	WHAT IS THE PLACE OF ACCRUAL OF SALARY?
4	PENSIONS TO BE TAXED AS SALARY?
5	IS ADVANCE SALARY TO BE TAXED IN THE YEAR OF RECEIPT?
6	WHAT IS TAX FREE SALARY AND HOW IS IT TAXED?
7	IS SALARY PAYABLE FOR LEAVE-PERIOD TO NON­RESIDENTS TAXABLE EVEN IF LEAVE IS SPENT OUTSIDE INDIA?
8	EXEMPTIONS OF INCOME
9	RELEVANT FOR THE HEAD "SALARIES"
10	WHAT ARE PERQUISITES?
11	WHO IS A SPECIFIED EMPLOYEE AND WHAT PERQUISITES ARE TAXABLE IN HIS HANDS?
12	LAW APPLICABLE, AT THE OPTION OF THE ASSESSES, UPTO 30.9.2001.
11	HOW IS RENT FREE UNFURNISHED ACCOMMODATION VALUED ?
12	THE LAW APPLICABLE FOR TAXATION OF PERQUISITES w.e.f. 1.4.2001.
13	WHAT IS THE NEW DEFINITION OF "SALARY' FOR THIS PURPOSE ?
14	WHAT IS FAIR RENT?
15	HOW IS RENT FREE FURNISHED ACCOMMODATION VALUED?
16	LAW APPLICABLE, AT THE OPTION OF THE ASSESSES, UPTO 30.9.2001.
17	HOW IS A RESIDENCE, PROVIDED AT CONCESSIONAL RATES, VALUED?
18	LAW APPLICABLE, AT THE OPTION OF THE ASSESSES, UPTO 30.9.2001.
19	THE LAW APPLICABLE FOR TAXATION OF PERQUISITES w.e.f. 1.4.2001.
20	HAS THE SCOPE OF THE WORD "ACCOMMODATION" BEEN WIDENED ?
21	WHAT DOES REMOTE AREA MEAN ?
22	IS PERQUISITE VALUE OF MOTOR CAR PROVIDED FOR OFFICIAL USE CHARGEABLE TO TAX?
23	WHAT IS PERQUISITE VALUE OF MOTOR CAR PROVIDED FOR PERSONAL USE?
24	HOW WILL THE PERQUISITE BE COMPUTED WHERE THE EMPLOYEE OWNS A MOTOR CAR
25	BUT THE ACTUAL RUNNING & MAINTENANCE CHARGES (INC1UDING REMUNERATION OF THE CHAUFFEUR, IF ANY) ARE MET OR REIMBURSED TO HIM BY THE EMPLOYER?
26	HOW WILL THE PERQUISITE BE COMPUTED WHERE THE EMPLOYEE OWNS ANY OTHER AUTOMOTIVE CONVEYANCE BUT THE ACTUAL RUNNING MAINTENANCE CHARGES ARE MET OR REIMBURSED TO HIM BY THE EMPLOYER?
27	HOW IS PERQUISITE VALUE CALCULATED FOR USE OF CAR FOR PRIVATE PURPOSES, PROVIDED AT CONCESSIONAL RATES?
28	WHAT IS THE LAW APPLICABLE W.E.F. 1.4.2001 WHERE SECOND AND ADDITIONAL CARS ARE PROVIDED BY EMPLOYER?
29	AS PER NEW RULES WHAT IS THE DOCUMENTATION THAT NEEDS TO BE MAINTAINED FOR CLAIMING HIGHER AMOUNT OF OFFICIAL USE IN RESPECT OF CARS?
30	ARE THE RULES OF VALUATION FOR EMPLOYEE OWNED CARS BE TAKEN TO APPLY TO CONVEYANCE ALLOWANCE REGULARLY PAID OR PAYABLE TO THE EMPLOYEE?
31	WHAT IS THE MOST IMPORTANT CHANGE TO BE KEPT IN MIND WHILE CALCULATING THE PERQUISITE VALUE OF CARS?
32	WHAT IS PERQUISITE VALUE OF FREE SUPPLY OF GAS, ELECTRICITY AND WATER FOR HOUSE-HOLD CONSUMPTION?
33	WHAT IS THE PERQUISITE FOR USE BY THE EMPLOYEE OF AN ASSET OWNED BY THE EMPLOYER?
34	IS AN AMOUNT SPENT ON MEMBERSHIP FEE BY THE EMPLOYER ON THE MEMBERSHIP OF THE EMPLOYEE IN A PROFESSIONAL INSTITUTION A TAXABLE PERQUISITE?
35	AS PER NEW RULES WHAT IS THE POSITION OF CLUB EXPENSES BORNE BY THE EMPLOYER?
36	AS PER NEW RULES WHAT IS THE POSITION OF INITIAL ONE TIME DEPOSITS OR FEES FOR CLUB MEMBERSHIPS?
37	AS PER NEW RULES WHAT IS THE POSITION OF CREDIT CARD EXPENSES BORNE BY EMPLOYERS?
38	AS PER NEW RULES WHAT DOCUMENTATION IS TO BE MAINTAINED BY EMPLOYERS FOR CREDIT CARD / CLUB EXPENSES BORNE BY THE EMPLOYERS TO BE EXEMPT IN THE HANDS OF THE EMPLOYEE?
39	SOME VEHICLE IS SOLD BY EMPLOYER TO ITS EMPLOYEE, IS IT A TAXABLE PERQUISITE?
40	AS PER NEW RULES DO ELECTRONIC GADGETS GET SPECIAL TREATMENT IF SOLD TO EMPLOYEE?
41	ARE GIFTS MADE IN KIND BY EMPLOYER TAXABLE PERQUISITES?
42	AS PER NEW RULES WHAT IS THE PERQUISITE IF THE EMPLOYEE AVAILS OF FREE OR CONCESSIONAL JOURNEYS IN THE CONVEYANCE(S) OWNED BY THE EMPLOYER'S BUSINESS FOR TRANSPORTATION?
43	AS PER NEW RULES WHAT IS THE PERQUISITE IF EMPLOYEE AVAILS OF INTEREST FREE OR CONCESSIONAL LOANS?
44	IS THE PERQUISITE AVAILING OF INTEREST FREE OR CONCESSIONAL LOANS EXEMPT IN ANY CASE?
45	AS PER NEW RULES WHAT IS THE PERQUISITE IF EMPLOYEE IS PROVIDED WITH FREE MEALS?
46	AS PER NEW RULES WHAT WOULD BE THE PERQUISITE OF A BENEFIT OR AMENITY NOT INCLUDED IN THE RULES?
47	THE NEW RULES HAVE BEEN MADE EFFECTIVE FROM 1.4.2001 ALTHOUGH THE WERE ONLY NOTIFIED THROUGH NOTIFICATION NO. 313 DATED 25.9.2001. IS THIS IS NOT INEQUITABLE?
48	CAN AN EMPLOYEE EXERCISE OPTION FOR USING THE OLD OR NEW RULES FOR THE PERIOD DIFFERENTLY IN RESPECT OF DIFFERENT PERQUISITES?
49	WHAT ARE THE CONDITIONS FOR MEDICAL FACILITIES TO QUALIFY AS TAX FREE PERQUISITES?
50	WHAT ARE ALLOWANCES?
51	HOUSE RENT ALLOWANCE
52	LEAVE TRAVEL CONCESSION
53	WILL THIS CHANGE APPLY ONLY TO GOVERNMENT EMPLOYEES OR DOES IT APPLY ALSO TO EMPLOYEES OF OTHER SECTORS ?
54	HOW MANY TIMES CAN EXEMPTION BE CLAIMED ?
55	TO QUALIFY FOR EXEMPTION IS IT NECESSARY TO PERFORM ACTUAL JOURNEY ?
56	HAS ANY CHANGE BEEN MADE IN RULES FOR EXEMPTION OF L.T.C. TO DENY THIS BENEFIT TO LARGE FAMILIES?
57	PAYMENTS OF PROFIT-IN-LIEU OF SALARY
58	TAXATION OF AMOUNTS RECEIVED UNDER V.R.S.
59	IS COMPENSATION RECEIVER IN CONNECTION WITH THE TERMINATION OF EMPLOYMENT TAXABLE ?
60	IS COMPENSATION RECEIVED BY A DIRECTOR UNDER INDUSTRIAL DISPUTE ACT, EXEMPT?
61	DOES NOT THIS EXEMPTION EXTEND TO COMPENSATION PAID BY NEW MANAGEMENT?
62	HAS THE EXEMPTION OF AMOUNT RECEIVED UNDER V.R.S NOW BEEN EXTENDED TO CENTRAL AND STATE GOVERNMENT EMPLOYEES?
63	IF THIS EXEMPTION HAS BEEN ALLOWED TO ANY EMPLOYEE FOR ANY ASSESSMENT YEAR CAN IT BE ALLOWED IN ANOTHER ASSESSMENT YEAR ALSO?
64	'GOLDEN HANDSHAKE'
65	WHAT ARE THE GUIDELINES FOR EXEMPTION FROM TAX OF COMPENSATION RECEIVED OR 'GOLDEN HANDSHAKE 1 GIVEN TO AN EMPLOYEE UNDER A SCHEME OF VOLUNTARY RETIREMENT?
66	IN THE AMOUNT OF GOLDEN HANDSHAKE, WHETHER THE ENTIRE AMOUNT RECEIVABLE OR ONLY THE EXCESS OF THE AMOUNT ABOVE Rs. 5 LACS, IS TO BE SUBJECTED TO INCOME-TAX ?
67	IS THE 'GOLDEN HANDSHAKE' RECEIVABLE BY AN EMPLOYEE OF A COMPANY WHICH HAS BEEN SET UP LESS THAN 10 YEARS AGO, EXEMPT?
68	CAN SUCH SCHEME ONLY BE DRAWN BY LOSS MAKING COMPANIES?
69	WHETHER INCOME TAX EXEMPTION OF GOLDEN HANDSHAKE IS AVAILABLE WHEN THE AMOUNT PAYABLE IS IN ADDITION TO NORMAL RETIREMENT BENEFITS LIKE P.F., GRATUITY, PENSION ETC. UNDER THE TERMS GOVERNING EMPLOYMENT?
70	WHETHER ANY TDS HAS TO BE MADE FROM GOLDEN HANDSHAKE?
71	HAS THERE BEEN ANY REGENT CHANGE IN THE GOLDEN HANDSHAKE SCHEME?
72	ENCASHMENT OP EARNED LEAVE
73	IS ENCASHMENT OF EARNED LEAVE EXEMPT AT THE TIME OF RETIREMENT?
74	IS ENCASHMENT OF LEAVE DURING THE EMPLOYMENT ALSO EXEMPT?
75	TAXATION OF COMMUTATION OF PENSION
76	WHAT IS THE AMOUNT OF EXEMPTION OF COMMUTATION OF PENSION?
77	TAXATION OF GRATUITY AT RETIREMENT
78	IF GRATUITY IS RECEIVED FROM MORE THAN ONE EMPLOYER IN THE SAME YEAR, WHAT WILL BE THE CEILING?
79	WHAT IS THE AMOUNT OF EXEMPTION OF GRATUITY RECEIVED AT THE TIME OF RETIREMENT?
80	IF THE GRATUITY IS RECEIVED FROM DIFFERENT EMPLOYERS IN DIFFERENT YEARS WILL THE CEILING BE DIFFERENT?
81	EMPLOYER'S CONTRIBUTION TO PROVIDENT FUND
82	HAS THERE BEEN A CHANGE IN RATE OF EMPLOYEE'S CONTRIBUTION TO HIS PROVIDENT FUND?
83	HAS THERE BEEN A CHANGE IN RATE OF DEDUCTION ALLOWED ON ACCOUNT OF INITIAL CONTRIBUTION THAT AN EMPLOYER MAY MAKE FOR PAST SERVICES OF EMPLOYEE ?
84	HAS THERE BEEN A CHANGE IN RATE OF ANNUAL CONTRIBUTION TO A PROVIDENT FUND BY EMPLOYEE AND EMPLOYER?
85	ESOPs OR SWEAT EQUITY
86	WHAT ARE ESOPs?
87	VARIETY OF ESOPs
88	WHAT IS A STOCK OPTION?
89	WHAT IS SWEAT EQUITY?
90	WHO CAN ISSUE SWEAT EQUITY?
91	WHAT IS THE DIFFERENCE BETWEEN 'SWEAT EQUITY' AND 'ESOPs?
92	CAN 'SWEAT EQUITY' BE ISSUED FOR FREE?
93	BUT WHAT SHALL BE THE COST OF THE SHARES IF THE TAX HAD BEEN LEVIED AS PERQUISITE AT THE TIME OF EXERCISE OF OPTION?
94	DOES IT MEAN THAT TRANSFER OF CAPITAL ASSETS RECEIVED AS ESOPs or SWEAT EQUITY WOULD NOT ATTRACT CAPITAL GAINS TAX?
95	AT WHAT RATE IS THE LONG TERM CAPITAL GAINS IN RESPECT TO GDRs ISSUED TO EMPLOYEES UNDER ESOPQ TAXABLE?
96	DO THESE PROVISIONS EXTEND TO SUBSIDIARY COMPANIES, OTHER KNOWLEDGE BASED INDUSTRIES?
97	WHAT IS THE POSITION OF TDS IN THE YEAR SUCH ESOPs OR SWEAT EQUITY ARE GIVEN/ALLOTTED BY THE COMPANY?
98	THE DEDUCTIONS FROM SALARY INCOME UNDER SECTION 16
99	IS STANDARD DEDUCTION ALLOWABLE TO PENSIONERS?
100	DEDUCTION FOR PROFESSIONAL OR EMPLOYMENT TAX
101	ENTERTAINMENT ALLOWANCE
102	HAS THERE BEEN A CHANGE IN ALLOWABILITY OF ENTERTAINMENT ALLOWANCE?
103	RELIEF ON ARREARS OF SALARIES
104	IS THERE A RELIEF AGAINST HIGHER TAX RATES WHEN SALARY IS PAID IN ARREARS OR IN ADVANCE?
105	WHO WOULD GRANT RELIEF TO PENSIONERS U/S. 16, 88, 88B AND 88C?
106	WHICH FORM IS SPECIFIED FOR CLAIMING RELIEF u/s 89 (1)?
107	WHICH RULE IS RELEVANT FOR DETERMINATION OF RELIEF U/S 89(1)?
108	HOW IS THE RELIEF U/S 89(1) COMPUTED?
109	WHERE THE PAYMENT IS NOT IN THE NATURE OF SALARY PAID IN ARREARS OR IN ADVANCE OR GRATUITY OF PAST SERVICES OR COMPENSATION RECEIVED AT OR IN CONNECTION WITH THE TERMINATION OF EMPLOYMENT OR IN
110	COMMUTATION OF PENSION WILL RELIEF U/S 89(1) BE APPLICABLE?
111	IS IT NECESSARY THAT DEDUCTIONS AND REBATES CLAIMED SHOULD HAVE BEEN MADE OUT OF INCOME CHARGEABLE TO TAX?
112	IF THE SALARY IS BEING PAID IN FOREIGN CURRENCY WHAT WOULD BE ITS TAXABLE VALUE?
113	CAN TDS BE MADE AT A LOWER RATE OR NO DEDUCTION BE MADE ALTOGETHER?
114	IF THE EMPLOYER DOES NOT ISSUE A TDS CERTIFICATE, IS THERE A REMEDY?
115	IS THE LIABILITY OF THE EMPLOYER TO DEDUCT AND PAY TAX U/S 192(1) ABSOLUTE AND WHAT IF HE FAILS TO DO SO?

WHAT CONSTITUTES SALARY INCOME?

"Salary" is the remuneration received by or accruing periodically to an individual for service rendered as a result of expressed or implied contract.

Compensation or remuneration even in the following circumstances is chargeable to Income-tax under the head 'Salaries': -

a) When due from the former employer or present employer in the previous year, whether paid or not.

b) When paid or allowed in the previous year, by or on behalf of a former employer or present employer, though not due or before it becomes due.

c) When arrears of salary are paid in the previous year by or on behalf of a former employer or present employer, if not charged to tax in the period to which it relates.

It is, therefore, clear that apart from current years salary, even advance salary and/or arrears of salary may be taxed in the year of receipt. More specifically and elaborately, the Income-tax Act has stipulated that salary includes :-

a) Salary, including advance/arrears of salary;

b) Wages;

c) Fees;

d) Commission;

e) Pension;

f) Annuity;

g) Perquisite;

Receipts from Provident Fund chargeable to tax; Profit in lieu of or in addition to salary or wages; Gratuity;

Contribution of employer to Recognised Provident Fund in excess of prescribed limit; Interest on credit balance of Recognised Provident Fund in excess of notified rates;

i) Encashment of leave.

definition of 'salary' is inclusive and not exclusive.

IS RELATIONSHIP OF EMPLOYER AND EMPLOYEE NECESSARY ?

No, payment can be taxed under this section unless the relationship of employer and employee exists between the payer and payee. The employer and employee relationship is the relationship of a master and servant, and it distinctly differs from that existing between a principal and agent. Primarily, the degree of control of the employer over the employee would be a deciding factor, as the agent is generally not under the complete Control and supervision of his principal.

That is why even the emoluments received by an Member if Parliament/ M.L.A. are not taxable under the head "Salary" because of the absence of employer and employee relationship.

WHAT IS THE PLACE OF ACCRUAL OF SALARY?

The golden rule is that it accrues where the service is rendered. Leave salary paid to a person employed in India on leave to a foreign country is treated to be the arisen in India. However, if a citizen of India service outside India and receives salary from the of India, it would be taxable as salary to have accrued in India.

PENSIONS TO BE TAXED AS SALARY?

Pensions are taxed under the head 'Salaries'. The of standard deduction is also available on them.

IS ADVANCE SALARY TO BE TAXED IN THE YEAR OF RECEIPT?

The I.T. Act contemplates tax on salary which is due, whether paid or not, tax is attracted at the latest possible point of time which is the date when the salary accrues or becomes due. However, where any salary paid in advance is assessed in the year of payment, it cannot be taxed again when it becomes due. Similarly, if arrears of salary have been assessed on the 'due' basis in the past, they are not liable to be taxed again when they are paid.

WHAT IS TAX FREE SALARY AND HOW IS IT TAXED?

When the salary is paid 'tax-free' the employee has to return in his total income the gross salary, i.e. aggregate of the net-salary received plus the amount of tax paid on his behalf by the employer. It does not make any difference whether the tax is borne by the employer voluntarily or under a contractual obligation.

IS SALARY PAYABLE FOR LEAVE-PERIOD TO NON­RESIDENTS TAXABLE EVEN IF LEAVE IS SPENT OUTSIDE INDIA?

Yes. The salary paid for services rendered in India is regarded as income earned in India, so as to specifically provide that any salary payable for rest period or leave period which is both proceeded or succeeded by service in India forms part of the service contract of employment will also be regarded as income earned in India and so is to be taxed.

EXEMPTIONS OF INCOME

RELEVANT FOR THE HEAD "SALARIES"

It is not true that every income received by an employee from his employer is taxable. Any income falling within any of the following paragraphs shall not be included in computing the income from salaries: -

(1) The value of any travel concession or assistance received by or due to an employee from his employer or former employer for himself and his family, in connection with his proceeding

(a) on leave to any place in India or

(b) on retirement from service, or, after termination of service to any place in India is exempt under clause (5) of Section 10 subject, however, to the conditions prescribed in rule 2B of the I.T. Rules, 1962.

(2) Death-cum-retirement gratuity or any other gratuity which is exempt to the extent specified from inclusion in computing the total income.

(3) Any payment in commutation of pension received under the Civil Pension (Commutation) Rules of the Central Government or under any similar scheme applicable to the members of the Civil/Defense services under the Union/State/Local Authority or a Corporation established by a Central, State or Provincial Act. Payments in commutation of pension received under any scheme of any other employer, exemption will be governed by the provisions of Section 10(10A) (ii).

(4) Any payment received by an employee of the Central /State Government, as cash-equivalent   of the leave salary in respect of the period of earned leave at his credit at the time of his retirement on superannuation or otherwise, is exempt. In the case of other employees it is subject to a maximum of ten month's leave. This exemption has an overall max. limit of Rs. 2,40,000 [S.0.1015 (E) dated 27.11.97).

(5) Under Section 10(10B), the retrenchment compensation received by a workman is exempt from income-tax subject to certain limits.

(6) Under Section 10(10C), any payment received by an employee of the notified bodies at the time of his voluntary retirement or termination of his service, in accordance with any scheme or schemes of voluntary retirement or in the case of public sector company, a scheme of voluntary separation, is exempted to the extent that such amount does not exceed five lakh rupees

(7) Any sum received under a Life Insurance Policy, including the sum allotted by way of bonus on such policy other than any sum received under sub-section (3) of Section 80DDA.

(8) Any payment from a Provident Fund to which the Provident Funds Act, 1925 (19 of 1925), applies.

(9) Under Section 10(13AJ of the Income-tax Act, 1961, any special allowance specifically granted to an assessee by his employer to meet expenditure incurred on payment of rent (by whatever name called) in respect of residential accommodation occupied by the assessee is exempt from Income-tax to the extent as may be prescribed.

(10) Under section 10(14) exemption of notified allowances is provided. The CBDT has prescribed guidelines for the purpose of classes (i) and (ii) of Section 10(14) vide Notification No.SO617(E) dated 7th July/ 1995 (F.No.l42/9/95TPL)which has been amended vide Notification SO No.403(E) dated 24.4.2000 (F,No.l42/34/99-TPL).

11) Under Section 10(15)(iv)(i) of the Income-tax Act, interest payable by the Government on deposits made by an employee of the Central Government or a State Government or a public sector company from out of his retirement benefits, in a notified scheme, is exempt.

(12) Income by way of pension received by an individual or family pension received by any member of the family of an individual who has been in the service of the Central Government or State Government and has been awarded 'Param Vir Chakra" or "Maha Vir Chakra" or "Vir Chakra" or such notified gallantry award, is exempt.

(13) Under Section 17 of the Act, exemption from tax will also be available, under prescribed conditions, in respect of any medical treatment provided to an employee or any member of his family or premium paid by the employer in respect of approved medical insurance taken for his employees or reimbursement of insurance premium to the employees for such medical insurance for the employee or his family members.

A 'perquisite' is defined in the Oxford as 'any casual emolument, or profit attached to an office or position in addition to the salaries or wages'. In sunlit words, perquisites are the benefits in addition to normal salary to which the employee has a right to by virtue his employment. In simple language, 'perquisites 1 are benefits or amenities provided in kind by the employer free of cost or at a concessional rate. Their value, to the extent these go to reduce expenditure that the employee normally would have otherwise incurred in obtaining these benefits and amenities, is regarded as part of taxable salary. As a golden rule, the taxable value of perquisites in the hands of the employee, is its cost to the employer.

However, there are specific rules for valuation of certain perquisites.

WHO IS A SPECIFIED EMPLOYEE AND WHAT PERQUISITES ARE TAXABLE IN HIS HANDS?

The specified employees include the following:-

a) Director employee, whether full time or part time.

b) Employee who is beneficial owner of equity in the employer's company carrying 20% or more voting power.

c) The employees other than those mentioned above, drawing salary in excess of Rs. 24,000 (w.e.f. 13th April 2002 this limit is Rs. 50,000) in monetary terms.

The value of any benefit or amenity granted or provided free of cost or at concessional rates to these specified persons would be a 'perquisite' taxable in their hands.

WHAT ARE THE OTHER TAXABLE PERQUISITES?

LAW APPLICABLE, AT THE OPTION OF THE ASSESSES, UPTO 30.9.2001.

The other taxable perquisites which are taxable in a prescribed manner include the folio wing: -

a) Value of rent free accommodation provided to the assessee by his employer.

b) Value of concession in rent of accommodation provided to the assessee by his employer.

c) Amount payable by an employer directly or indirectly to effect an assurance on the life of the employee or to effect a contract for an annuity, other than payment made to recognised provident fund etc.

d) Amount paid by an employer in respect of any obligation which otherwise would have been payable by the employee, for example - payment of income-tax.

THE LAW APPLICABLE FOR TAXATION OF PERQUISITES w.e.f. 1.4.2001.

The definition of "perquisite" has been amended to include the value of any prescribed fringe benefit or amenity. The fringe benefits are to be calculated in the manner prescribed in the Income-tax Rules.

It has further been laid down that 'profits in lieu of salary shall include amounts received in lump sum, in installments or in any manner, even prior to employment or after cessation of employment, for the purposes of taxation.

HOW IS RENT FREE UNFURNISHED ACCOMMODATION VALUED ?

LAW APPLICABLE, AT THE OPTION OF THE ASSESSEE, UPTO 30.9.2001.

For the purposes of calculating perquisite value of rent free residential accommodation, the employees have been classified into three categories as follows: -

For the first category of employees, the of the rent free unfurnished Accommodation is taken as the rent payable by such employee in accordance with the Government Rules for allotment of residences to its officers.

In the case of second category of employees, the value of rent free unfurnished accommodation is taken at 10% of the salary of the employee for the period during which it is occupied by him. However, where the Fair Rental Value of the accommodation is less than 10% calculated above, the Assessing Officer is empowered to restrict the value of the perquisite to such Fair Rental Value.

In the case of third category of employees, the value of rent free unfurnished accommodation is taken 10% of salary plus excess of Fair Rental Value over 60% of salary, if the property is located in the four metros. In any other place, the value will be taken as 10% of salary plus excess of Fair Rental Value over 50% of salary.

THE LAW APPLICABLE FOR TAXATION OF PERQUISITES w.e.f. 1.4.2001.

Under the new Rule 3, for purposes of valuation of perquisite of accommodation, employees are of two categories only- Union. & State Govt. employees and Others.

WHAT IS THE NEW DEFINITION OF "SALARY' FOR THIS PURPOSE ?

The definition of "salary' for calculating perquisite value is the same as per earlier Rules. The only change is that, medical allowances and reimbursement for treatment of serious illnesses as prescribed in provision below Section 17 (2) (vi) have now been excluded.

For the purpose of calculating the perquisite, 'salary' includes basic salary or wages, D.A., Bonus, Commission, Fees, taxable allowances as well as payments made by the employer (like Income-tax, electricity, gas etc.).

WHAT IS FAIR RENT?

'Fair rent' is the rent which a similar accommodation is able to get in the same locality or the Municipal value of the accommodation, whichever is higher.

Where the accommodation is hired by the employer, it is the actual rent paid for the accommodation.

Where it is owned by the employer, maintenance expenses of garden and salary of the gardener, if borne by the employer, are also to be taken into account.

HOW IS RENT FREE FURNISHED ACCOMMODATION VALUED?

LAW APPLICABLE, AT THE OPTION OF THE ASSESSES, UPTO 30.9.2001.

Where the accommodation is furnished, the perquisite value of unfurnished accommodation is increased in all the above three categories by the actual hire charges for the furniture or 10% per annum of the original cost of furniture, if it is owned by the employer.

HOW IS A RESIDENCE, PROVIDED AT CONCESSIONAL RATES, VALUED?

LAW APPLICABLE, AT THE OPTION OF THE ASSESSES, UPTO 30.9.2001.

First, the perquisite value of the accommodation is determined in the above manner as if it was provided free of rent. From the amount so, determined, a deduction is made of the rent actually paid by employee. The balance amount is the perquisite value to "be added to the taxable salary.

THE LAW APPLICABLE FOR TAXATION OF PERQUISITES w.e.f. 1.4.2001.

Now, under the newly notified Rules, the value of residential accommodation provided by the employer to the employee during the previous year relevant to the A.Y. 2002-03 shall be determined on the basis provided in the table below:-

Sr. No.	Circumstances	Where the accommodation is unfurnished	Where the accommodation is furnished
1.	Where the accommodation is provided by Union or State Government to their employees either holding office or post in connection with the affairs of Union or State any body or Undertaking under the control of such Government on deputation.	License fee determined by Union or State government in respect of accommodation in accordance with the rules framed by that government [minus] the rent actually paid by the employee.	The value of perquisite as per col. (3) [plus] 10% per annum of the cost of furniture (including TV sets, radio sets, refrigerators, other household appliances, air plants or other equipment) or if such furniture is hired, the actual hire charges payable for the same [minus] charges paid or payable for it by the employee.
2.	Where the accommodation is provided by any other employer and	[i]] 10% of salary in cities having population exceeding four lacs as per 1991 census; ii) 7.5% of salary in other cities.	The value of perquisite as per col. (3) and [plus] 10% per annum of the cost of furniture (including television sets, radio sets, refrigerators, other household appliances, air conditioning plant or equipment or other similar appliances or gadgets) or if such furniture is hired, by the actual hire charges payable for the same [minus] any charges paid or payable for the same by the employee
	(a) where the accommodation is owned by the employer or	In respect of the period during which the said accommodation was occupied by the employee[minus] the rent, if any actually paid by the employee
	(b) where the accommodation is taken on , on lease or rent by the employer	Actual lease rental paid or payable by the employer or 10% of salary which ever is lower [minus] the rent, if any, actually paid by employee.
3.	Where the accommodation is provided by the employer 4Tspecified in SI.No. (1) or (2) above in a hotel (except where the employee is given such accommodation for a period not Exceeding in aggregate 15 days on his transfer from one place to another)	Actually paid by employee.	24% of salary paid or payable or the actual charge paid or payable to such hotel, whichever is lower, for the period during which such accommodation is provided [minus] the rent, if any, actually paid or payable by the employee

However, nothing contained in this sub-rule would be applicable to any accommodation located in a 'remote area 1 provided to an employee working at a mining site or an onshore oil exploration site, or a project execution site or an accommodation provided in an offshore site of similar nature.

Also, where on account of his transfer from one place to another, the employee is provided with accommodation at the new place of posting while retaining the accommodation at the other place, the value of perquisite shall be determined with reference to only one such accommodation which has the lower value with reference to the Table above for a period not exceeding 90 days and thereafter the value of perquisite shall be charged for both such accommodations as per the above Table.

HAS THE SCOPE OF THE WORD "ACCOMMODATION" BEEN WIDENED ?

Yes. The scope of the word "accommodation" has been widened by clarifying that it includes a house, flat, farm house, hotel accommodation, guest house, a caravan, mobile home, ship etc. However, the value of any accommodation located ' in a remote area' provided to an employee working at a mining site or an on-shore oil exploration site or a project execution site or an accommodation provided in an offshore site will not be treated as a perquisite. A project site for the purposes of this sub-rule means a site of project upto the stage of its commissioning.

WHAT DOES REMOTE AREA MEAN ?

A remote area means an area located at least 40 kilometers away from a town having a population not exceeding 20,000 as per the latest published all India census. Off-shore sites of similar nature do not have to meet any requirement of distance.

ARE FREE EDUCATIONAL FACILITIES TAXABLE AS A PERQUISITE?

LAW APPLICABLE, AT THE OPTION OF THE ASSESSES, UPTO 30.9.2001.

The basic rule is that any expenditure incurred by the employer in providing educational facilities to any family member of the employee normally is a perquisite.

Where the educational institution is run by the employer, the value of this perquisite is the cost of education in a similar institution in or around the same locality.

THE LAW APPLICABLE FOR TAXATION OF PERQUISITES W.E.F. 1.4. 2001.

Under the new rules, free or concessional education shall be valued in a manner assuming that such expenses are borne by the employee, and would cover cases where an employer may be running, maintaining or directly or directly financing the educational institution. Any amount paid by the employee for such facilities or services shall be deducted from the above amount. However where such educational institution itself is maintained and owned by the employer or where such free educational facilities are provided in any institution by reason of his being in employment of that employer, the sub-rule shall not apply if the cost of such education or such benefit per child does not exceed Rs. 1000 p.m.

IS PERQUISITE VALUE OF MOTOR CAR PROVIDED FOR OFFICIAL USE CHARGEABLE TO TAX?

No. As per chart given below:-

Circumstances	Engine Cubic capacity does not exceed 1.6 litres.	Engine Cubic capacity exceeds 1.6 litres.
If motor-car is used wholly and exclusively in the performance of his official duties.	No value if specified documents are maintained by the employer.	No value if specified documents are maintained by the employer.

WHAT IS PERQUISITE VALUE OF MOTOR CAR PROVIDED FOR PERSONAL USE?

LAW APPLICABLE, AT THE OPTION OF THE ASSESSES, UPTO 30.9.2001.

Usually, where the car is owned or hired by the employer, the perquisite value is determined as the expenditure inferred by the employer on the maintenance and running of the motor car, including emoluments, if any, of the driver and for the normal depreciation attributable to the use of the car for the private purposes of the employee.

LAW APPLICABLE FOR TAXATION OF PERQUISITE OF MOTOR CAR W.E.F. 1.4. 2001.

Circumstances	Engine Cubic capacity does not exceed 1.6 litres	Engine Cubic capacity exceeds 1.6 litres.
If car is used exclusively for private or personal purposes of the employee or any member of his household & the running and maintenance are met or reimbursed by the employer	Actual amount of expenditure incurred by the employer on the running and maintenance of motorcar (+) remuneration, if any, paid by the employer to the chauffeur (+) depreciation of the car and (-) any amount charged by the employer for such use by the employee	Actual amount of expenditure incurred by the employer on the running and maintenance of motorcar (+) remuneration, if any, paid by the employer to the chauffeur (+) depreciation of the car and (-) any amount charged by the employer for such use by the employee

IF ON THE BASIS MENTIONED ABOVE, DETERMINATION OF THE PERQUISITE VALUE OF CAR PRESENTS ANY PRACTICAL DIFFICULTY, WILL THE PERQUISITE BE COMPUTED? LAW APPLICABLE, AT THE OPTION OF THE ASSESSES, UPTO 30.9.2001. The perquisite value, will be determined as under:-

Value of perquisite per calendar month upto 30.9.01
	Where the horsepower of the car does not exceed 16 or the cubic capacity of the engine does not exceed 1.88 litres	In the case of other cars
1 . Where the car is owned or hired by the employer and all expenses on its maintenance and running are met or reimbursed to assessee by employer. employee's private or personal expenses are borne by the employee.	Rs.600 upto 30.9.01 (Rs.300 upto 2.6.95)	Rs. 800 upto 30.9.01 (Rs.400 upto 2.6.95)
2.Where the car is owned or hired by the employer but the running & maintenance expenses for the employee's private or personal are borne by the employee	Rs.200 upto 30.9.01 (Rs.100 upto 2.6.95)	Rs 300 upto 30.9.01 (Rs.150 upto 2.6.95)

Under the new Rules, w.e.f. 1.4.2001, the calculation of Value of Perquisite per calendar month of car, if used partly in the performance of duties & partly for private or personal purposes of his own or any member of his household is determined as given here-in-below:-

Circumstances	Engine Cubic capacity does not exceed 1.6 litres.	Engine Cubic capacity exceeds 1.61t.
(i) maintenance and running are met or reimbursed by the employer.	Rs.1200 (plus Rs.600, if chauffeur is also provided to run the car).	Rs.1600 (plus Rs.600, if chauffeur is also provided to run the car).
(ii) maintenance and running for such private or personal use are fully met by the assessee	Rs.400 (plus Rs. 600, if chauffeur is provided by the employer to run the car).	Rs.600 (plus Rs.600, if chauffeur is also provided to run the car).

HOW WILL THE PERQUISITE BE COMPUTED WHERE THE EMPLOYEE OWNS A MOTOR CAR BUT THE ACTUAL RUNNING & MAINTENANCE CHARGES (INC1UDING REMUNERATION OF THE CHAUFFEUR, IF ANY) ARE MET OR REIMBURSED TO HIM BY THE EMPLOYER?

The perquisite value in such case will be determined as under:-

Circumstances	Engine Cubic capacity does not exceed 1.6 lt	Engine Cubic capacity exceeds 1.6 It.
(i) such reimbursement is for the use of the vehicle wholly and exclusively for official purposes.	No value if specified documents are maintained by the employer.	No value if specified documents are maintained by the employer.
(ii) such reimbursement is for the use of the vehicle partly for official purposes & partly for personal or private purposes of the employee or any member of his household.	Subject to the provisions contained in clause (B) of this sub-rule, the actual amount of expenditure incurred by the employer (-) Rs.1200 (plus Rs.600, if chauffeur is also provided by the employer to run the car).	Subject to the provisions contained in clause (B) of this sub-rule, the actual amount of expenditure incurred by the employer (-) Rs. 1600 (plus Rs.600, if chauffeur is also provided by the employer to run the car).

HOW WILL THE PERQUISITE BE COMPUTED WHERE THE EMPLOYEE OWNS ANY OTHER AUTOMOTIVE CONVEYANCE BUT THE ACTUAL RUNNING MAINTENANCE CHARGES ARE MET OR REIMBURSED TO HIM BY THE EMPLOYER?

The perquisite value, will be determined as under:-

Circumstances	Cubic capacity of engine does not exceed 1.6 litres.	Engine Cubic cap. exceeds 1.6 litres
(i) where such reimbursement is for the use of the vehicle wholly & exclusively for official purposes. No value if specified documents are maintained by the employer. Not applicable	No value if specified documents are maintained by the employer.	Not applicable
(ii) such reimburse­ment is for the use of the vehicle partly for official purposes and partly for personal or private purposes of the employee.	Subject maintenance of specified documents by the employer, the actual amount of expenditure incurred by the employer (-) Rs. 600.

HOW IS PERQUISITE VALUE CALCULATED FOR USE OF CAR FOR PRIVATE PURPOSES, PROVIDED AT CONCESSIONAL RATES?

As per the old and the new rules, firstly, the value of the perquisite has to be arrived at as given above and then from the amount so determined, deduction is made from the actual amount paid by the employee for private use of the car. The balance is the perquisite value in this case.

WHAT IS THE LAW APPLICABLE W.E.F. 1.4.2001 WHERE SECOND AND ADDITIONAL CARS ARE PROVIDED BY EMPLOYER?

Such other cars shall be deemed to be for personal use and the value of perquisite shall be computed accordingly. Where fuel and upkeep cost of the employees, car is borne or reimbursed by the employer, the amount reasonably attributable to business use is not to be charged as perquisite. For this, user details in the form of log books; odometer readings etc. should be maintained.

AS PER NEW RULES WHAT IS THE DOCUMENTATION THAT NEEDS TO BE MAINTAINED FOR CLAIMING HIGHER AMOUNT OF OFFICIAL USE IN RESPECT OF CARS?

For claiming higher amount of official use in respect of reimbursement of car expenses or wholly official use of car provided by an employer, the following details and documents need to be maintained:-

i) the employer has maintained complete details of journeys undertaken for official purpose which may include date of journey, destination, mileage and the amount of expenditure incurred thereon;

ii) the employee gives a certificate that the expenditure on claimed trips was incurred wholly and exclusively for the performance of his official duty;

iii) the supervising authority of the employee, wherever applicable, gives a certificate to the effect that the expenditure was incurred wholly and exclusively for the performance of official duties.

ARE THE RULES OF VALUATION FOR EMPLOYEE OWNED CARS BE TAKEN TO APPLY TO CONVEYANCE ALLOWANCE REGULARLY PAID OR PAYABLE TO THE EMPLOYEE?

No, these rules of valuation for employee owned cars should not be taken to apply to conveyance allowance regularly paid or payable to the employee under terms of employment or otherwise. The conveyance allowance is a cash disbursement and is to be taxed separately as an allowance subject to the provisions contained in Section 10(14). The present rules provide for the computation of value of perquisite where the expenses on the running or maintenance of employee owned car is met or reimbursed by. the employer.

WHAT IS THE MOST IMPORTANT CHANGE TO BE KEPT IN MIND WHILE CALCULATING THE PERQUISITE VALUE OF CARS?

One of the most important changes incorporated is in the cubic capacities of motorcars. Previously, the cubic capacities of small motorcars was specified as not exceeding 1.88 litres whereas now the limit is 1.6 litres.

WHAT IS PERQUISITE VALUE OF FREE SUPPLY OF GAS, ELECTRICITY AND WATER FOR HOUSE-HOLD CONSUMPTION?

LAW APPLICABLE, AT THE OPTION OF THE ASSESSEE, UPTO 30.9.2001.

In case the supply is made from resources owned by the employer, the perquisite value is 'Nil'. Where the supply is taken from third party, the perquisite value would be the expenses incurred by the employer.

In case the supply is partly for official and partly for private purposes, the perquisite value is its actual cost to the employer or 6.25% of salary, whichever is Less,

THE LAW APPLICABLE FOR TAXATION OF PERQUISITES W.E.F. 1.4. 2001.

For free supply of gas, electricity and water for household consumption the old rules already provide that the amount paid by the employer to the agency supplying the amenity shall be the value of perquisite. However, when the supply is made from employer's own resources, the value of perquisite was taken as Nil. The separate provision in the old rules of valuation at 6.25% of salary of the taxpayer for part official use is discontinued. Under the new rules even where the supply is made from the employer's own resources, the manufacturing cost per unit incurred by the employer would be the value of perquisite. Any amount paid by the employee for such facilities or services is reduced from this amount.

WHAT IS THE VALUE OF PERQUISITE OF HOUSEHOLD SERVANTS PROVIDED BY THE EMPLOYER?

LAW APPLICABLE, AT THE OPTION OF THE ASSESSES, OTTO 30.9.2001.

The perquisite value w.e.f. 2.6.95 is taxed as:-

	When employer reimburses salary of servant engaged by employee	When servant is provided by employer
1. Gardener, sweeper and watchman.	100% salary taxable.	Rs. 120 p.m. Per person.
2. Any other servant.	100% salary taxable.	100% salary taxable.

THE LAW APPLICABLE FOR TAXATION OF PERQUISITES W.E.F, 1.4. 2001.

Value of free service of all personal attendants including a sweeper, gardener, or watchman is to be at actual cost to the employer. Where attendant(s) is provided at the residence of employee, full cost will be taxed as perquisite in the hands of employee irrespective of degree of personal service rendered to him. Any amount paid by the employee for such facilities shall be reduced from the above amount.

IF THE EMPLOYER GIVES OPTION TO ITS EMPLOYEE 'TO BUY ITS SHARES, IS IT A TAXABLE PERQUISITE?

Prior to 1.4.2001, stock options were taxed at two stages i.e., as perquisite (on the amount representing the difference between the exercise price and the fair market value on the date of exercise), and as capital gains.

With effect from 1.4.2001 (relevant to assessment year 2001-2002) onward, stock options issued as per guidelines of the Central Government are to be taxed only once, at the time of sale, as capital gains. In cases, where perquisite has been assessed with reference to exercise of the option by the employee under Section 17(2), the fair market value at the time of exercise of the option shall be the cost of acquisition of share for working out the capital gains. The relevant guidelines of the Central Government have been issued vide Notification No.l021(E) dt. 1.10.2001. Stock options not in conformity with the above guidelines-(non-qualified stock options) shall continue to be taxed at both the stages.

WHAT IS THE PERQUISITE FOR USE BY THE EMPLOYEE OF AN ASSET OWNED BY THE EMPLOYER?

This perquisite is to be charged at the rate of 10% of the original cost of the asset as reduced by any charges paid for such use. However, Computers and laptops are exempt Further, the value of perquisite for an asset used for income for more than ten years would be taken as Nil.

IS AN AMOUNT SPENT ON MEMBERSHIP FEE BY THE EMPLOYER ON THE MEMBERSHIP OF THE EMPLOYEE IN A PROFESSIONAL INSTITUTION A TAXABLE PERQUISITE?

Yes. It is a taxable perquisite.