Employees to be taxed for perquisites they receive

Saturday, December 19, 2009, 19:54 by Business Editor

New Delhi: The Government of India is considering taxing the employees for perquisites they receive from their employers such as official accommodation, car allowance, company-supplied credit card, employee stock option plans (ESOPs), and servants.

This is in contrast to the earlier employer-based tax system for perquisites.

The new taxes, to be levied on most of the perquisites, are likely to take effect with retrospective effect from April 1, 2009, according to official sources.

The Central Government, the sources added, may publish a notification soon on the procedure for computation of the value of the housing allowance and conveyance allowance to determine the amount of tax.

The Fringe Benefit Tax, which taxed the employers for perquisites given to their employees, was abolished in the Union Budget 2009-10.

According to the new tax plan, employees, both in the government sector and in the private sector, will have to pay tax on the rent, or value of the accommodation (be it furnished or unfurnished), provided by the employers.

In other words, the tax burden of perquisites, which was on the employer under the Fringe Benefit Tax, will now be placed on the employee.

The official sources said that the Central Government is preparing a system for computing the tax on perquisites given to employees by private employers as well as the government.

The new tax on perks proposed by the government will include those for travel and non-alcoholic beverages that the employer provides, food given free of charge, any gift or vouchers like meal vouchers that the employees are given on ceremonial occasions, tour and other allowances, and reimbursements for membership of a club.

Also taxed under the new plan will be any benefit given by the employer, resulting in free education for any member of an employee’s family.

The new rules on taxing perquisites – prepared by the Central Board of Direct Taxes (CBDT) – have laid out the methods for calculating tax in different situations. For example, in cities with a population of over 25 lakh, the value of unfurnished housing for an employee has been capped at 15% of the salary.

For evaluating accommodation to civil servants of the Central Government or state governments, who are on deputation to a government undertaking, the rules regarding perquisite taxation would be the same as those for employees in the private sector.

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