The Income Tax Act contains various sections dealing with taxation of different types of income. One important section is Section 17(2), Perquisits in Income Tax. This is the part of the rules governing the taxation of employee benefits. These perquisites are an essential part of an employee’s income.
What is Section 17(2)?
Section 17(2) of the Income Tax Act specifies what constitutes “perquisites” or benefits provided by an employer. These are considered as a part of an employee’s income. These are additional benefits beyond the regular salary. Perquisites can be taxable. So, they are included when calculating the total taxable income.
What Are Perquisites?
Perquisites are any benefits or perks provided by an employer beyond the regular salary or wages. They can include things like free housing, company cars, or even subsidized meals. These benefits must be valued and included in the employee’s taxable income, according to The Income Tax Act.
These perquisites include:
- Rent-Free Accommodation: An employee using a house or an apartment given by employer without giving rent.
- Company Car: If the employer provides a car for personal use, the value of this benefit is taxable.
- Stock Options: The benefit from stock options.
- Reimbursement of Expenses: If the employer reimburses certain expenses, like travel or medical bills, these may also be taxable as perquisites.
Example:
Suppose you work in XYZ Ltd. As part of your employment benefits, you get a company car and free housing. Your monthly salary is ₹50,000. Here’s how Section 17(2) affects you:
- Company Car: XYZ Ltd. provides you with a car, and you use it for personal trips. The value of this car’s use is calculated and then added to your taxable income. For simplicity, let’s say the annual value of the car’s personal use is ₹60,000.
- Free Housing: You live in a house provided by XYZ Ltd. The annual rent for this house, if rented from the open market, would be ₹120,000. This amount is treated as a perquisite and added to your taxable income.
Total Taxable Perquisites:
- Car Value: ₹60,000 per year
- Housing Value: ₹120,000 per year
Total Perquisites Added to Salary: ₹60,000 + ₹120,000 = ₹180,000
So, if your annual salary is ₹600,000, for tax purposes, your total taxable income would be ₹600,000 + ₹180,000 = ₹780,000.
Conclusion:
In summary, Section 17(2), Perquisits in Income Tax plays a crucial role in defining what constitutes taxable benefits for employees. By including the value of perquisites in their total income, employees can ensure they are compliant with tax regulations and avoid any potential issues with the tax authorities.
– Ketaki Dandekar (Team Arthology)
Read more about Perquisits of Income here – https://cleartax.in/s/perquisites