New income-tax rules on perks to replace FBT notified

Perquisites given by an employer such as residential accommodation, conveyance facility and other benefits to the family of the employee would be liable to tax from April 2010.

The Central Board of Direct Taxes (CBDT) has notified the new rules for valuation of perquisites such as accommodation, conveyance and other benefits provided by employers to the salaried staff for calculation of tax liability.

According to the notification dated December 18, the new rules, called the ‘Income-tax (13th Amendment) Rules, 2009’, “shall be deemed to have come into force on April 1, 2009,” to replace the already abolished Fringe Benefit Tax (FBT).

Hitherto, the tax on perquisites extended to salaried employees was paid by the employer in the form of the FBT. However, with Finance Minister Pranab Mukherjee scrapping the levy in the Budget 2009-10 owing to the persistent demand of corporates, perks such as residential accommodation, conveyance facility and other benefits provided to employees would henceforth be added to their individual salaries for computation of personal income tax. On final count, a large section of the corporate salaried class may have to cough up more as personal income tax each year. According to the CBDT notification, the perks to be included in the taxable salary of employees — subject to specific clauses and conditions pertaining to valuation norms — include residential accommodation given by the employer, expenses incurred on motor car for official or personal use, salaries of services such as driver, gardener, sweeper, watchman, personal attendant (if paid by the employer) and concessional education provided to their children.

Apart from conventional perks such as accommodation and conveyance, other benefits such as holiday/vacation travelling, free food and non-alcoholic beverages provided by the employer, gift or vouchers received by the employee on ceremonial occasions, reimbursements for club membership and tour allowances would also come under the ambit of the new income tax valuation norms.

Till last fiscal, although the perquisites were added to the salary for computation of income-tax, the tax leviable on them — if specified as FBT — were paid by the employer and not the employee who received the benefits.

With regard to government employees, the new rules appear to be the same as were applicable before, barring the staff on deputation who may have to pay a comparatively higher amount as income-tax.