1. Introduction
2. Basis Of Charge [Section 15]
3. Salary, Perquisite and Profits in Lieu of Salary [Section 17]
4. Deductions From Salary
5. Relief Under Section 89

The provisions pertaining to Income under the head “Salaries” are contained in section 15, 16 and 17 in the following manner.

Deduction for Entertainment allowance for Government employees and Professional tax
are allowable only under the optional tax regime i.e., if the employee exercises the option of shifting out of the default tax regime provided under section 115BAC(1A). The same are not allowable under the default tax regime under section 115BAC. 

Before learning the provisions, it is essential to understand the important concepts relating to Salaries.

(1) Employer-employee relationship: Every payment made by an employer to his employee for service rendered would be chargeable to tax as salaries. Before an income can become chargeable under the head ‘salaries’, it is vital that there should exist between the payer and the payee, the relationship of an employer and an employee.

Example:

1. Sujata, an actress, is employed in Chopra Films, where she is paid a monthly remuneration of ₹ 2 lakh. She acts in various films produced by various producers. The remuneration for acting in such films is directly paid to Chopra Films by the different producers.

In this case, ₹ 2 lakh will constitute salary in the hands of Sujata, since the relationship of employer and employee exists between Chopra Films and Sujata.

2. In the above example, if Sujata acts in various films and gets fees from different producers, the same income will be chargeable as income from profession since the relationship of employer and employee does not exist between Sujata and the film producers.

3. Commission received by a Director from a company is salary if the Director is an employee of the company. If, however, the Director is not an employee of the company, the said commission cannot be charged as salary but has to be charged either as income from business or as income from other sources depending upon the facts.

4. Salary paid to a partner by a firm is nothing but an appropriation of profits. Any salary, bonus, commission or remuneration by whatever name called due to or received by partner of a firm shall not be regarded as salary. The same is to be charged as income from profits and gains of business or profession. This is primarily because the relationship between the firm and its partners is not that of an employer and employee.

5. Remuneration received by a Member of Parliament/State Legislature is not taxable under the head ‘Salaries’ as such person is not a government employee. Such income would be taxable as ‘Income from Other Sources.

(2) Full-time or part-time employment: Once the relationship of employer and employee exists, the income is to be charged under the head “salaries”. It does not matter whether the employee is a full-time employee or a part-time one.

If, for example, an employee works with more than one employer, salaries received from all the employers should be clubbed and brought to charge for the relevant previous years.

(3) Forgoing of salary: Once salary accrues, the subsequent waiver by the employee does not absolve him from liability to income-tax. Such waiver is only an application and hence, chargeable to tax.

Example:

Mr. A, an employee instructs his employer that he is not interested in receiving the salary for April 2023 and the same might be donated to a charitable institution.

In this case, Mr. A cannot claim that he cannot be charged in respect of the salary for April 2023. It is only due to his instruction that the donation was made to a charitable institution by his employer. It is only an application of income.

Hence, the salary for the month of April 2023 will be taxable in the hands of Mr. A. He is, however, entitled to claim a deduction under section 80G for the amount donated to the institution. Deduction under section 80G is available only if Mr. A exercises the option of shifting out of the default tax regime provided under section 115BAC(1A). 

(4) Surrender of salary: However, if an employee surrenders his salary, in the public interest, to the Central Government under section 2 of the Voluntary Surrender of Salaries (Exemption from Taxation) Act, 1961, the salary so surrendered would be exempt while computing his taxable income.

(5) Salary paid tax-free: This, in other words, means that the employer bears the burden of the tax on the salary of the In such a case, the income from salaries in the hands of the employee will consist of his salary income and also the tax on this salary paid by the employer.

However, as per section 10(10CC), the income-tax paid by the employer on non-monetary perquisites on behalf of the employee would be exempt in the hands of the employee.

(6) Place of accrual of salary: Under section 9(1)(ii), salary earned in India is deemed to accrue or arise in India even if it is paid outside India or it is paid or payable after the contract of employment in India comes to an end.

If an employee is paid pension abroad in respect of services rendered in India, the same will be deemed to accrue in India. Similarly, leave salary paid abroad in respect of leave earned in India is deemed to accrue or arise in India.

Section 9(1)(iii) provides that salaries payable by the Government to a citizen of India for services outside India shall be deemed to accrue or arise in India. However, by virtue of section 10(7), any allowance or perquisites paid or allowed outside India by the Government to a citizen of India for rendering services outside India will be fully exempt. Individual assessees who are not citizens of India are entitled to the following exemptions in respect of remuneration/ salary received by them under section 10(6):

(i) Remuneration received by officials of Embassies of Foreign States [Section 10(6)(ii)]

The remuneration received by a person for services as an official of an embassy, high commission, legation, commission, consulate or the trade representation of a foreign State or as a member of the staff of any of these officials is exempt.

Conditions:

(a) The remuneration received by our corresponding Government officials or members of the staff resident in such foreign countries for similar purposes should be exempt.

(b) The above-mentioned members of the staff should be the subjects of the respective countries represented and should not be engaged in any other business or profession or employment in India.

(ii) Remuneration received for services rendered in India as an employee of foreign enterprise [Section 10(6)(vi)]

Remuneration received by a foreign national as an employee of a foreign enterprise for service rendered by him during his stay in India is also exempt from tax.

Conditions:

(a) The foreign enterprise is not engaged in any business or trade in India;

(b) The employee’s stay in India does not exceed 90 days during the previous year;

(c) The remuneration is not liable to be deducted from the employer’s income chargeable to tax under the Act.

(iii) Salary received by a non-citizen non-resident for services rendered in connection with employment on foreign ship [Section 10(6)(viii)]

Salary income received by or due to a non-citizen of India who is also non-resident for services rendered in connection with his employment on a foreign ship is exempt where his total stay in India does not exceed 90 days during the previous year.

(iv) Remuneration received by Foreign Government employees during their stay in India for specified training [Section 10(6)(xi)]

Any remuneration received by employees of foreign Government from their respective Government during their stay in India, is exempt from tax, if such remuneration is received in connection with their training in any establishment or office of or in any undertaking owned by –

(a) the Government; or

(b) any company wholly owned by the Central or any State Government(s) or jointly by the Central and one or more State Governments; or

(c) any company which is subsidiary of a company referred to in (b) above; or

(d) any statutory corporation; or

(e) any society registered under the Societies Registration Act, 1860 or any other similar law, which is wholly financed by the Central Government or any State Government(s) or jointly by the Central and one or more State Now, let us discuss the chargeability under section 15, the provisions explaining the meaning of Salary, Perquisite and Profits in lieu of salary contained in section 17 and the deductions under section 16.

Exemption under section 10(6) and 10(7) would be available to an assessee irrespective of the regime under which he pays tax.

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Exemption u/s 10(10A) in respect of commuted pension is available to an assessee irrespective of the regime under which he pays tax.

Judges of the Supreme Court and High Court will be entitled to the exemption of the commuted portion u/s 10(10A)(i).

Exemption in respect of pension received by recipient of gallantry awards [Section 10(18)]

Any income by way of pension received by an individual is exempt from income-tax if –

(a) such individual was an employee of Central or State Government and

(b) has been awarded “Param Vir Chakra” or “Maha Vir Chakra” or “Vir Chakra” or such other gallantry award notified by the Central Government in this behalf.

In case of the death of such individual, any income by way of family pension received by any member of the family of such individual shall also be exempt under this clause.

“Family”, in relation to an individual, means –

• The spouse and children of the individual; and
• The parents, brothers and sisters of the individuals or any of them, wholly or mainly dependent on the individual.

Exemption under section 10(18) would be available to an assessee irrespective of the regime under which he pays tax.

Exemption of disability pension granted to disabled personnel of armed forces who have been invalided on account of disability attributable to or aggravated by such service [Circular No. 13/2019, dated 24.6.2019]

The entire disability pension, i.e., “disability element” and “service element” of pension granted to members of naval, military or air forces who have been invalided out of naval, military or air force service on account of bodily disability attributable to or aggravated by such service would be exempt from tax.

The CBDT has, vide this circular, clarified that exemption in respect of disability pension would be available to all armed forces personnel (irrespective of rank) who have been invalided out of such service on account of bodily disability attributable 

to or aggravated by such service. However, such tax exemption will be available only to armed forces personnel who have been invalided out of service on account of bodily disability attributable to or aggravated by such service and not to personnel who have been retired on superannuation or otherwise.

(3) Gratuity

Gratuity is a voluntary payment made by an employer in appreciation of services rendered by the employee. Now-a-days gratuity has become a normal payment applicable to all employees. In fact, Payment of Gratuity Act, 1972 is a statutory recognition of the concept of gratuity. Almost all employers enter into an agreement with employees to pay gratuity.

Exemption in respect of Gratuity [Section 10(10)]

 

*Any death cum retirement gratuity received by an employee on his retirement or his becoming incapacitated prior to such retirement or on his termination or any gratuity received by his widow, children or dependents on his death

$ Salary for this purpose means basic salary and dearness allowance. No. of days in a month for this purpose, shall be taken as 26.

#Salary for this purpose means basic salary and dearness allowance, if provided in the terms of employment for retirement benefits, forming part of salary and commission which is expressed as a fixed percentage of turnover.

Where gratuity is received from 2 or more employers in the same previous year, then, aggregate amount of gratuity exempt from tax cannot exceed ₹ 20,00,000.

Where gratuity is received in any earlier previous year from former employer and again received from another employer in a later previous year, the limit of ₹ 20,00,000 will be reduced by the amount of gratuity exempt earlier.

It is important to note the difference in definition of “Salary” and the manner of computation of the third limit in case of employees covered under the Payment of Gratuity Act, 1972 and those not covered for determining the amount of exempt gratuity.

Exemption under section 10(10) would be available to an assessee irrespective of the regime under which he pays tax.

(4) Fees, commission, perquisites or profits in lieu of or in addition to any salary or wages

The payment in the form of fees or commission by the employer to the employee are fully taxable. Commission may be paid as fixed percentage of turnover or net profits etc.

Section 17(2) and 17(3) contains the provisions relating to perquisites and profits in lieu of salary, respectively. The provisions of these sections would be discussed in detail separately in this unit.

(5) Any Advance of Salary

The treatment of “Advance Salary” is already discussed in this unit.

(6) Leave Salary or Leave Encashment

Generally, employees are allowed to take leave during the period of service. Employee may avail such leave or in case the leave is not availed, then the leave may either lapse or be accumulated for future or allowed to be encashed every year or at the time termination/ retirement. The payment received on account of encashment of unavailed leave would form part of salary. However, section 10(10AA) provides exemption in respect of amount received by way of encashment of unutilised earned leave by an employee at the time of his retirement, whether on superannuation or otherwise.

Exemption of amount received by way of encashment of unutilised earned leave on retirement [Section 10(10AA)]

The taxability and exemption provisions are depicted hereunder:

 

Where leave salary is received from two or more employers in the same previous year, then the aggregate amount of leave salary exempt from tax cannot exceed ₹ 25,00,000.

Where leave salary is received in any earlier previous year from a former employer and again received from another employer in a later previous year, the limit of ₹ 25,00,000 will be reduced by the amount of leave salary exempt earlier.

Salary for this purpose means basic salary and dearness allowance, if provided in the terms of employment for retirement benefits and commission which is expressed as a fixed percentage of turnover.

‘Average salary’ will be determined on the basis of the salary drawn during the period of ten months immediately preceding the date of his retirement whether on superannuation or otherwise.

Exemption under section 10(10AA) would be available to an assessee irrespective of the regime under which he pays tax.

(7) Provident fund

Provident fund scheme is a scheme intended to give substantial benefits to an employee at the time of his retirement. Under this scheme, a specified sum is deducted from the salary of the employee each month or at regular intervals as his contribution towards the fund. The employer also generally contributes the same amount out of his pocket, to the fund. The contributions of the employer and the employee are invested in approved securities. Interest earned thereon is also credited to the account of the employee. Thus, the credit balance in a provident fund account of an employee consists of the following:

1. employee’s contribution
2. interest on employee’s contribution
3. employer’s contribution
4. interest on employer’s contribution.

The accumulated balance is paid to the employee at the time of his retirement or resignation. In the case of death of the employee, the same is paid to his legal heirs.

The provident fund represents an important source of small savings available to the Government. Hence, the Income-tax Act, 1961 gives certain deductions on savings in a provident fund account.

 

(i) Recognised Provident Fund (RPF): Recognised provident fund means a provident fund recognised by the Commissioner of Income-tax for the purposes of income-tax. It is governed by Part A of Schedule IV to the Income- tax Act, This schedule contains various rules regarding the following:

1. Recognition of the fund
2. Employee’s and employer’s contribution to the fund
3. Treatment of accumulated balance etc.

A fund constituted under the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 will also be a Recognised Provident Fund.

(ii) Unrecognised Provident Fund (URPF): A fund not recognised by the Commissioner of Income-tax is Unrecognised Provident Fund.

(iii) Statutory Provident Fund (SPF): The SPF is governed by Provident Funds Act, 1925. It applies to employees of government, railways, semi-government institutions, local bodies, universities and all recognised educational institutions.

(iv) Public Provident Fund (PPF): Public provident fund is operated under the Public Provident Fund Act, 1968. A membership of the fund is open to every individual though it is ideally suited to self-employed A salaried employee may also contribute to PPF in addition to the fund operated by his employer. An individual may contribute to the fund on his own behalf as also on behalf of a minor of whom he is the guardian.

For getting a deduction under section 80C, a member is required to contribute to the PPF a minimum of ₹ 500 in a year. The maximum amount that may qualify for deduction on this account is ₹ 1,50,000 as per PPF rules. 

A member of PPF may deposit his contribution in as many installments in multiples of ₹ 500 as is convenient to him. The amount of contribution may be paid at any of the offices or branch offices of the State Bank of India or its subsidiaries and specified branches of banks or any Post Office.

The tax treatment is given below: 

During the Employment period

Particulars	Recognised PF	Unrecognised PF	Statutory PF	Public PF
Employer’s Contribution	Contribution in excess of 12% of salary is taxable as “salary” u/s 17(1)	Not taxable at the time of contribution	Fully exempt	N.A.(as there is only assessee’s own contribution)
Employee’s Contribution	Eligible for deduction u/s 80C, where an employee exercises the option of shifting out of the default tax regime provided under section 115BAC(1A)	Not eligible for deduction	Eligible for deduction u/s 80C, where an employee exercises the option of shifting out of the default tax regime provided under section 115BAC(1A)	Eligible for deduction u/s 80C, where an employee exercises the option of shifting out of the default tax regime provided under section 115BAC(1A)
Interest Credited on Employer’s Contribution	Amount in excess of 9.5% p.a. is taxable as “salary” u/s 17(1)	Not taxable at the time of credit of interest	Fully exempt	N.A.
Interest Credited on Employee’s Contribution	Amount in excess of 9.5% p.a. is taxable as “salary” u/s 17(1) [See Note below]	Not taxable at the time of credit of interest	Exempt upto certain limit of contribution [See Note below]	Fully exempt
Amount withdrawn on retirement/ termination	Exempt u/s 10(12) subject to certain conditions detailed in the chart below	Employee’s contribution is not taxable.	Exempt  u/s 10(11)	Fully exempt u/s 10(11)
		Interest on Employee’s contribution is taxable under ‘Income from Other Sources’.
		Employer’s contribution and interest thereon is salary

Salary for this purpose means basic salary and dearness allowance, if provided in the terms of employment for retirement benefits and commission as a percentage of turnover.

Note - Interest credited on contribution by such person/employee

As per section 10(11), any payment from a Provident Fund (PF) to which Provident Fund Act, 1925, applies or from Public Provident Fund would be exempt.

Accumulated balance due and becoming payable to an employee participating in a Recognized Provident Fund (RPF) would be exempt under section 10(12).

However, the exemption under section 10(11) or 10(12) would not be available in respect of income by way of interest accrued during the previous year to the extent it relates to the amount or the aggregate of amounts of contribution made by that person/employee exceeding ₹ 2,50,000 in any previous year in that fund, on or after 1^st April, 2021.

If the contribution by such person/employee is in a fund in which there is no employer’s contribution, then, a higher limit of ₹ 5,00,000 would be applicable for such contribution, and   interest accrued in any previous year in that fund, on or after 1^st April, 2021 would be exempt upto that limit.

It may be noted that interest accrued on contribution to such funds upto 31^st March, 2021 would be exempt without any limit, even if the accrual of income is after that date.

Exemption under section 10(11) and 10(12) would be available to an assessee irrespective of the regime under which he pays tax.

The CBDT has, vide Rule 9D, notified the manner to calculate taxable interest relating to contribution in a provident fund or recognized provident fund, exceeding threshold limit.

Interest income accrued during the previous year which is not exempt from inclusion in the total income of a person (taxable interest) shall be computed as the interest accrued during the previous year in the taxable contribution account.

For this purpose, separate accounts within the provident fund account shall be maintained during the previous year 2021-22 and all subsequent previous years for taxable contribution and non-taxable contribution made by a person.

(a) Non-taxable contribution account – Aggregate of

1. closing balance in the account as on 03.2021;
2. any contribution made by the person in the account during the previous year 2021-22 and subsequent previous years, which is not included in the taxable contribution account; and
3. interest accrued on (i) and (ii),

as reduced by the withdrawal, if any, from such account.

(b) Taxable contribution account – Aggregate of

1. contribution made by the person in the account during the previous year 2021-22 and subsequent previous years, which is in excess of the yearly threshold limit; and
2. interest accrued on (i)

as reduced by the withdrawal, if any, from such account.

Yearly threshold limit is ₹ 5,00,000, if the contribution by such person/employee is in a fund in which there is no employer’s contribution and ₹ 2,50,000 in other cases.

Exemption of Accumulated balance of RPF, payable to an employee

Where the accumulated balance in RPF becomes taxable, the tax payable in each of the years would be computed as if the fund had been an URPF and the difference in tax would be payable by the employee.

Note:

If, after termination of his employment with one employer, the employee obtains employment under another employer, then, only so much of the accumulated balance in his provident fund account will be exempt which is transferred to his individual account in a recognised provident fund maintained by the new employer. In such a case, for exemption of payment of accumulated balance by the new employer, the period of service with the former employer shall also be taken into account for computing the period of five years’ continuous service.

(8) The contribution made by the Central Government or any other employer in the previous year to the account of an employee under a pension scheme referred to in section 80CCD

National Pension scheme is a scheme approved by the Government for Indian citizen aged between 18-70 years. Subscriber of the NPS account contributes some amount in their account. In case of any employee, being a subscriber of the NPS account, employer may also contribute into the employee’s account.

Employer’s contribution to NPS account would form part of salary of employees under section 17(1).

However, while computing total income of the employee-assessee, a deduction under section 80CCD is allowed to the assessee in respect of the employer’s as well as employee’s contribution under a pension scheme referred therein. (Deduction under section 80CCD will be discussed in detail in Chapter 6 – “Deductions from Gross Total Income”).

Deduction under section 80CCD(2) in respect of employer’s contribution would be available to an assessee irrespective of the regime under which he pays tax. However, deduction under section 80CCD(1)/(1B) in respect of employee’s contribution would be available to an assessee only if he exercises the option of shifting out of the default tax regime provided under section 115BAC(1A).

(9) The contribution made by the Central Government in the previous year, to the Agniveer Corpus Fund account of an individual enrolled in the Agnipath Scheme referred to in section 80CCH.

Agnipath Scheme is a Central Government Scheme launched in 2022 for enrolment of Indian youth in the Indian Armed Forces as Agniveers for four years to serve the country.

In pursuance of the Government's decision to implement the Agnipath Scheme, 2022, the Competent Authority has decided to create a non-lapsable dedicated Agniveer Corpus Fund in the interest-bearing section of the Public Account head.

In this account, fixed percentage of monthly emoluments would be contributed by the Agniveer and matching amount would be contributed by the Central Government.

The Agniveer Corpus Fund is defined as a Fund in which consolidated contributions of all the Agniveers and matching contributions of the Government along with interest on these contributions would be held in their respective accounts.

Central Government’s contribution to Agniveer Corpus Fund account would form part of salary of employees under section 17(1).

However, while computing total income of an individual enrolled in the Agnipath Scheme, being the assessee, a deduction under section 80CCH is allowed to the assessee in respect of his contribution as well as Central Government’s contribution under Agniveer Corpus Fund referred therein. (Deduction under section 80CCH will be discussed in detail in Chapter 6 – “Deductions from Gross Total Income”)

Deduction under section 80CCH(2) in respect of Central Government’s contribution would be available to an assessee irrespective of the regime under which he pays tax. However, deduction under section 80CCH(1) in respect of employee’s contribution would be available to an assessee only if he exercises the option of shifting out of the default tax regime provided under section 115BAC(1A).

3.2 Profits in lieu of salary [Section 17(3)]

It includes the following:
(i)	Compensation on account of termination of his employment
	The amount of any compensation due to or received by an assessee from his employer or former employer at or in connection with the termination of his employment.
(ii)	Compensation on account of modification of the terms and conditions of employment
	The amount of any compensation due to or received by an assessee from his employer or former employer at or in connection with the modification of the terms and conditions of employment.
	Usually, such compensation is treated as a capital receipt. However, by virtue of this provision, the same is treated as a revenue receipt and is chargeable as salary.
	Note: It is to be noted that merely because a payment is made by an employer to a person who is his employee does not automatically fall within the scope of the above provisions. The payment must be arising due to master-servant relationship between the payer and the payee. If it is not on that account, but due to considerations totally unconnected with employment, such payment is not profit in lieu of salary.
(iii)	Payment from provident fund or other fund
	Any payment due to or received by an assessee from his employer or former employer from a provident or other fund other than
	Gratuity [Section 10(10)]
	Pension [Section 10(10A)]
	Compensation received by a workman under Industrial Disputes Act, 1947 [Section 10(10B)]
	from provident fund or public provident fund [Section 10(11)]
	from recognized provident fund [Section 10(12)]
	from approved superannuation fund [Section 10(13)]
	any House Rent Allowance [Section 10(13A)],
	to the extent to which it does not consist of employee’s contributions or interest on such contributions.
	Note: If any sum is paid to an employee at the time of maturity from an unrecognised provident fund it is to be dealt with as follows:
	(a) that part of the sum which represents the employer’s contribution to the fund and interest thereon is taxable under the head “Salaries”.
	(b) that part of the sum which represents employee’s contribution is not chargeable to tax as no deduction or exemption was available at the time of contribution.
	(c) that part of the sum which represents the interest on employee’s contribution is chargeable to tax as ‘Income from other sources’.
(iv)	Keyman Insurance policy
	Any sum received by an assessee under a Key man Insurance policy including the sum allocated by way of bonus on such policy.
(v)	Lump sum Payment or otherwise
	Any amount, whether in lump sum or otherwise, due to the assessee or received by him, from any person -
	(a) before joining employment with that person, or
	(b) after cessation of his employment with that person.

(1) Retrenchment compensation [Section 10(10B)]

The retrenchment compensation means the compensation paid under Industrial Disputes Act, 1947 or under any Act, Rule, Order or Notification issued under any law. It also includes compensation paid on transfer of employment under section 25F or closing down of an undertaking under section 25FF of the Industrial Disputes Act, 1947.

It may be noted that compensation on account of termination and due to modification in terms and conditions of employment would be taxable as “profits in lieu of salary”. However, the retrenchment compensation would be exempt under section 10(10B), subject to following limits.

(a) Amount calculated in accordance with the provisions of section 25F of the Industrial Disputes Act, 1947

i.e., 15 days average pay x completed years of service and part thereof in excess of 6 months

(or)

(b) An amount, not less than ₹ 5,00,000 as may be notified by the Central Government in this behalf,

whichever is lower.

Notes:

The above limits will not be applicable to cases where the compensation is paid under any scheme approved by the Central Government for giving special protection to workmen under certain circumstances.

Average pay means average of the wages payable to a workman

• in the case of monthly paid workman, in the three complete calendar months,
• in the case of weekly paid workman, in the four calendar weeks,
• in the case of daily paid workman, in the twelve full working weeks,

preceding the date on which the average pay becomes payable if the workman had worked for three complete calendar months or four complete weeks or twelve full working days, as the case may be, and where such calculation cannot be made, the average pay shall be calculated as the average of the wages payable to a workman during the period he actually worked.

Wages for this purpose means all remuneration capable of being expressed in terms of money, which would, if the terms of employment, expressed or implied, were fulfilled, be payable to a workman in respect of his employment or of work done in such employment, and includes

• such allowances including DA as the workman is for the time being entitled to;
• the value of any house accommodation, or of supply of light, water, medical attendance or other amenity or of any other service or of any concessional supply of food grains or other articles;
• any travel concession; and
• any commission payable on the promotion of sales or business or both

However, it does not include

• any bonus;
• contribution to a retirement benefit scheme;
• any gratuity payable on the termination of his service.

Exemption under section 10(10B) would be available to an assessee irrespective of the regime under which he pays tax.

(2) Voluntary Retirement Receipts [Section 10(10C)]

Lump sum payment or otherwise received by an employee at the time of voluntary retirement would be taxable as “profits in lieu of salary”. However, it would be exempt under section 10(10C), subject to the following conditions:

Eligible Undertakings - The employees of the following undertakings are eligible for exemption under this clause:

1. Public sector company
2. An authority established under a Central/State or Provincial Act
3. A local authority
4. A co-operative society
5. An University established or incorporated under a Central/State or Provincial Act and an Institution declared to be an University by the University Grants Commission
6. An Indian Institute of Technology
7. Such Institute of Management as the Central Government may, by notification in the Official Gazette, specify in this behalf
8. Any State Government
9. The Central Government
10. An institution, having importance throughout India or in any State or States, as the Central Government may specify by notification in the Official

Limit: The maximum limit of exemption should not exceed ₹ 5 lakh.

Such compensation should be 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. The exemption will be available even if such compensation is received in installments.

Guidelines:

The schemes should be framed in accordance with such guidelines, as may be prescribed and should include the criteria of economic viability.

Rule 2BA prescribes that the exemption under this section would be available to an employee who has completed 10 years of service or completed 40 years of age. However, this requirement is not applicable in case of an employee of a public sector company under the scheme of voluntary separation framed by the company.

The amount receivable on account of voluntary retirement or separation of the employee must not exceed -

• the amount equivalent to three months’ salary for each completed year of service or
• salary at the time of retirement multiplied by the balance months of service left before the date of his retirement or superannuation.

Where any relief has been allowed to any assessee u/s 89 for any A.Y. in respect of any amount received or receivable on his voluntary retirement or termination of service or voluntary   separation,   no exemption u/s 10(10C) shall be allowed to him in relation to that A.Y. or any other A.Y.

Where exemption for voluntary retirement compensation under section 10(10C) has been allowed in any A.Y., then no exemption thereunder shall be allowed to him in any other A.Y.

“Salary” for this purpose means basic salary and dearness allowance, if provided in the terms of employment for retirement benefits, forming part of salary and commission which is expressed as a fixed percentage of turnover.

Exemption under section 10(10C) would be available to an assessee irrespective of the regime under which he pays tax.

3.3 Perquisites:

The term ‘perquisite’ indicates some extra benefit in addition to the amount that may be legally due by way of contract for services rendered. In modern times, the salary package of an employee normally includes monetary salary and perquisites like housing, car etc.

• Perquisite may be provided in cash or in kind.
• Reimbursement of expenses incurred in the official discharge of duties is not a perquisite.
• Perquisite may arise in the course of employment or in the course of profession. If it arises from a relationship of employer-employee, then the value of the perquisite is taxable as salary. However, if it arises during the course of profession, the value of such perquisite is chargeable as profits and gains of business or profession.
• Perquisite will become taxable only if it has a legal origin. An unauthorised advantage taken by an employee without his employer’s sanction cannot be considered as a perquisite under the Act.

Example:

Mr. A, an employee, is given a house by his employer. On 31.3.2024,  he is terminated from service, but he continues to occupy the house without the permission of the employer for six more months after which he is evicted by the employer. The question arises whether the value of the benefit enjoyed by him during the six months period can be considered as a perquisite and be charged to salary. It cannot be done since the relationship of employer-employee ceased to exist after 31.3.2024. However, the definition of income is wide enough to bring the value of the benefit enjoyed by Mr. A to tax as “Income from other sources”.

(1) Definition of “Perquisite”

The term “perquisite” is defined under section 17(2). The definition of perquisite is an inclusive one. Based on the definition, perquisites can be classified in following three ways:

(A) Perquisites taxable in the case of all employees

The following perquisites are chargeable to tax in case of all employees:

Rent Free Accommodation	Value of rent-free accommodation provided to the assessee by his employer computed in prescribed manner [Section 17(2)(i)]. [Refer discussion on valuation of perquisite]
Exception: Rent-free official residence provided to a Judge of a High Court or to a Judge of the Supreme Court is not taxable if they exercise the option of shifting out of the default tax regime provided under section 115BAC(1A).
Concession in rent	Value of any accommodation provided to the assessee by his employer at a concessional rate.
	Accommodation would be deemed to have been provided at a concessional rate, if the value of accommodation computed in the prescribed manner exceeds the rent recoverable from, or payable by, the assessee [Section 17(2)(ii)].
Payment by the employer in respect of an obligation of employee	Amount paid by an employer in respect of any obligation which otherwise would have been payable by the employee [Section 17(2)(iv)].
Example: If a domestic servant is engaged by an employee and the employer reimburses the salary paid to the servant, it becomes an obligation which the employee would have discharged even if the employer did not reimburse the same. This perquisite will be covered by section 17(2)(iv) and will be taxable in the hands of all employees.
Amount payable by an employer directly or indirectly to effect an assurance on the life of the assessee	Amount payable by an employer directly or indirectly to effect an assurance on the life of the assessee or to effect a contract for an annuity, other than payment made to RPF or approved superannuation fund or deposit-linked insurance fund established under the Coal Mines Provident Fund and Miscellaneous Provisions Act, 1948 or Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 [Section 17(2)(v)].
	However, there are schemes like group annuity scheme, employees state insurance scheme and fidelity insurance scheme, under which insurance premium is paid by employer on behalf of the employees. Such payments are not regarded as perquisite in view of the fact that the employees have only an expectancy of the benefit in such schemes.
Specified security or sweat equity shares allotted or transferred, by the employer	The value of any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the employer or former employer, free of cost or at concessional rate to the assessee [Section 17(2)(vi)] [Refer discussion on valuation of perquisite].
Amount or the aggregate of amounts of any contribution made to the account of the assessee by employer	The amount or aggregate of amounts of any contribution made
in a recognised provident fund	in a recognised provident fund
in NPS	in NPS referred to in section 80CCD(1)
in an approved superannuation fund	in an approved superannuation fund
	by the employer to the account of the assessee, to the extent it exceeds ₹ 7,50,000 [Section 17(2)(vii)].
Annual accretion to the balance at the credit of the recognised provident fund/NPS/approved superannuation fund which relates  to the employer’s contribution and included in total income (on account of the same having exceeded ₹ 7,50,000)	Refer discussion below
Any other fringe benefit or amenity	The value of any other fringe benefit or amenity as may be prescribed by the CBDT [Section 17(2)(viii)]. Rule 3(7) prescribed the following other benefits or amenity taxable in case of all employees.
	Interest free or concessional loan
	Travelling, touring and accommodation
	Free or concessional food and non-alcoholic beverages
	Gift, voucher or token in lieu of such gift
	Credit card expense
	Club expenditure
	Use of movable assets
	Transfer of movable assets
	Other benefit or amenity [For valuation, refer discussion on valuation of perquisite]

Annual accretion to the balance at the credit of the recognised provident fund/NPS/approved superannuation fund which relates to the employer’s contribution and included in total income (on account of the same having exceeded ₹ 7,50,000)

Any annual accretion by way of interest, dividend or any other amount of similar nature during the previous year to the balance at the credit of the recognized provident fund or NPS or approved superannuation fund to the extent it relates to the employer’s contribution which is included in total income in any previous year under section 17(2)(vii) computed in prescribed manner [Section 17(2)(viia)].

In other words, interest, dividend or any other amount of similar nature on the amount which is included in total income under section 17(2)(vii) would also be treated as a perquisite.

The CBDT has, vide Rule 3B, notified the following manner to compute the annual accretion by way of interest, dividend or any other amount of similar nature during the previous year-

TP = (PC/2)*R + (PC1 + TP1)*R

Where,

TP	Taxable perquisite under section 17(2)(viia) for the current P.Y.
PC	Amount or aggregate of amounts of employer’s contribution in excess   of ₹ 7.5 lakh to recognized provident fund, national pension scheme u/s 80CCD and approved superannuation fund during the P.Y.
PC1	Amount or aggregate of amounts of employer’s contribution in excess  of ₹ 7.5 lakh to recognized provident fund, national pension scheme u/s 80CCD and approved superannuation fund for the previous year or years commencing on or after 1stApril, 2020 other than the current P.Y.
TP1	Aggregate of taxable perquisite under section 17(2)(viia) for the previous year or years commencing on or after 1stApril, 2020 other than the current P.Y.
R	I/ Favg
I	Amount or aggregate of amounts of income accrued during the current P.Y. in recognized provident fund, national pension scheme u/s 80CCD and approved superannuation fund
Favg	(Amount or aggregate of amounts of balance to the credit of recognized provident fund, national pension scheme u/s 80CCD and approved superannuation fund on first day of the current P.Y. + Amount or aggregate of amounts of balance to the credit of recognized provident fund, national pension scheme u/s 80CCD and approved superannuation fund on last day of the current P.Y.)/2

Where the amount or aggregate of amounts of TP1 and PC1 exceeds the amount or aggregate of amounts of balance to the credit of the specified fund or scheme on the first day of the current previous year, then, the amount in excess of the amount or aggregate of amounts of the said balance shall be ignored for the purpose of computing the amount or aggregate of amounts of TP1 and PC1.

Exemption in respect of payment from superannuation funds [Section 10(13)] 

Any payment received by any employee from an approved superannuation fund shall be entirely excluded from his total income if the payment is made

1. on the death of a beneficiary; 
2. to an employee in lieu or in commutation of an annuity on his retirement at or after a specified age or on his becoming incapacitated prior to such retirement; or
3. by way of refund of contribution on the death of a beneficiary; or
4. by way of contribution to an employee on his leaving the service in connection with which the fund is established otherwise than by retirement at or after a specified age or his becoming incapacitated prior to such retirement, to the extent the payment made does not exceed the contribution made prior to 1-4-1962 and the interest thereon.
5. by way of transfer to the account of the employee under a pension scheme referred to in section 80CCD, which is notified by the Central Government.

(B) Tax free perquisites in all cases

The following perquisites are exempt from tax in the hands of all employees.

Telephone	Telephone provided by an employer to an employee at his residence
Transport Facility	Transport facility provided by an employer engaged in the business of carrying of passengers or goods to his employees either free of charge or at concessional rate;
Privilege passes and privilege ticket	Privilege passes and privilege ticket orders granted by Indian Railways to its employees;
Perquisites allowed outside India by the Government	Perquisites allowed outside India by the Government to a citizen of India for rendering services outside India;
Employer’s contribution to staff group insurance scheme;	Employer’s contribution to staff group insurance scheme;
Annual premium by employer on personal accident policy	Payment of annual premium by employer on personal accident policy effected by him on the life of the employee;
Refreshment	Refreshment provided to all employees during working hours in office premises;
Subsidized lunch	Subsidized lunch provided to an employee during working hours at office or business premises provided the value of such meal is upto ₹ 50; This exemption is available only if the employee exercises the option of shifting out of the default tax regime provided under section 115BAC(1A).
Recreational facilities	Recreational facilities, including club facilities, extended to employees in general i.e., not restricted to a few select employees;
Amount spent on training of employees	Amount spent by the employer on training of employees or amount paid for refresher management course including expenses on boarding and lodging;
Sum payable by employer to a RPF or an approved superannuation fund	Sum payable by an employer to a RPF or an approved superannuation fund or deposit-linked insurance fund established under the Coal Mines Provident Fund and Miscellaneous provisions Act, 1948 or the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 upto the limit prescribed;
Leave travel concession	Leave travel concession if the assessee exercises the option of shifting out of the default tax regime provided under section 115BAC(1A), subject to the conditions specified under section 10 (discussed below)
Note: Value of Leave travel concession provided to the High Court judge or the Supreme Court Judge and members of his family are completely exempt without any conditions if they exercise the option of shifting out of the default tax regime  provided under section 115BAC(1A).
Medical facilities	Medical facilities subject to certain prescribed limits [Refer proviso to section 17(2)];
Rent-free official residence	Rent-free official residence provided to a Judge of a High Court or the Supreme Court if they exercise the option of shifting out of the default tax regime provided under section 115BAC(1A);
Conveyance facility	Conveyance facility provided to High Court Judges under section 22B of the High Court Judges (Conditions of Service) Act, 1954 and Supreme Court Judges under section 23A of the Supreme Court Judges (Conditions of Service) Act, 1958 if they exercise the option of shifting out of the default tax regime provided under section 115BAC(1A).

Exemption in respect of Leave travel concession [Section 10(5)] 

(i) This clause exempts the leave travel concession (LTC) received by employees from their employers for proceeding to any place in India,

1. either on leave oreither on leave or
2. after retirement from service or
3. after termination of his service.

Exemption under this section would be available only to employees exercising the option of shifting out of the default tax regime provided under section 115BAC(1A). It is not available under the default tax regime under section 115BAC.

(ii) The benefit is available to individuals - citizens as well as non-citizens - in respect of travel concession or assistance for himself or herself and for his/her family- i.e., spouse and children of the individual and parents, brothers and sisters of the individual or any of them wholly or mainly dependent on the individual.

(iii) Limit of exemption - The exemption in all cases will be limited to the amount actually spent subject to such conditions as specified in Rule 2B regarding the ceiling on the number of journeys for the place of destination.Under Rule 2B, exemption will be available in respect of 2 journeys performed in a block of 4 calendar years commencing from the calendar year 1986. 
Where such travel concession or assistance is not availed by the individual during any block of 4 calendar years, one such unavailed LTC will be carried forward to the immediately succeeding block of 4 calendar years and will be eligible for exemption. 

Example:
An employee does not avail any LTC for the block 2018-21. He is allowed to carry forward maximum one unavailed LTC to be used in the succeeding block of 2022-25. Accordingly, if he avails LTC in April, 2023, the same will be treated as having availed in respect of the block 2018-2021. Therefore, he will be eligible for exemption in respect of that journey and two more journeys can be further availed in respect of the block of 2022-25.

(iv) Monetary limits - Where the journey is performed on or after the 1.10.1997, the amount exempted under section 10(5) in respect of the value of LTC shall be the amount actually incurred on such travel subject to the following conditions: 

S.No.	Journey performed by		Limit
1	Air		Amount not exceeding the air economy fare of the National Carrier by the shortest route to the place of destination.
2	Any other mode:
	(i)	Where rail service is available	Amount not exceeding the air-conditioned first class rail fare by the shortest route to the place of destination
	(ii)	Where rail service is not available
		(a) a recognised public transport system exists	amount not exceeding the 1st class or deluxe class fare, as the case may be, on such transport by the shortest route to the place of destination
		(b) no recognised public transport system exists	amount equivalent to the airconditioned first class rail fare, for the distance of the journey by the shortest route, as if the journey had been performed by rail

Note: The exemption referred to shall not be available to more than two surviving children of an individual after 1.10.1998. This restrictive sub-rule shall not apply in respect of children born before 1.10.1998 and also in case of multiple births after one child.

Exemption in respect of leave travel concession under section 10(5) would be available to an assessee only if he exercises the option of shifting out of the default tax regime provided under section 115BAC(1A). 

Medical facilities [Proviso to section 17(2)]

The following medical facilities are exempt from tax:

(i) Value of medical treatment in any hospital maintained by the employer:

The value of any medical treatment provided to an employee or any member of his family in any hospital maintained by the employer;

(ii) Reimbursement of expenditure actually incurred on medical treatment:

Any sum paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family

• in any hospital maintained by the Government/local authority/any other hospital approved by the Government for the purpose of medical treatment of its employees;
• in respect of the prescribed disease or ailments in any hospital approved by the Principal Chief Commissioner or Chief Commissioner having regard to the prescribed guidelines.
• in respect of any illness relating to COVID-19 subject to conditions notified by the Central Government
  Accordingly, the Central Government has, vide Notification No. 90/2022 dated 5.8.2022, specified that for claiming benefit of such exemption, the employee has to submit the following documents to the employer, – 

1. 1. the COVID-19 positive report of the employee or family member, or medical report if clinically determined to be COVID-19 positive through investigations, in a hospital or an in-patient facility by a treating physician of a person so admitted;
   2.   all necessary documents of medical diagnosis or treatment of the employee or his family member for COVID-19 or illness related to COVID-19 suffered within 6 months from the date of being determined as COVID-19 positive; and
   3. a certification in respect of all expenditure incurred on the treatment of COVID-19 or illness related to COVID-19 of the employee or of any member of his family.

(iii) Premium paid to effect an insurance on the health of employee: Any premium paid by an employer in relation to an employee to effect an insurance on the health of such employee. However, any such scheme should be approved by the Central Government or the Insurance Regulatory Development Authority (IRDA) for the purposes of section 36(1)(ib).

(iv)Reimbursement of premium paid to effect an insurance on the health of employee or for the family of an employee: Any sum paid by the employer in respect of any premium paid by the employee to effect an insurance on his health or the health of any member of his family under any scheme approved by the Central Government or the Insurance Regulatory Development Authority (IRDA)for the purposes of section 80D.

(v) Amount paid towards expenditure incurred outside India on medical treatment: Any expenditure incurred by the employer or any sum paid by the employer on any expenditure actually incurred by the employee on the following:

1. medical treatment of the employee or any member of the family of such employee outside India;
2. travel and stay abroad of the employee or any member of the family of such employee for medical treatment;
3. travel and stay abroad of one attendant who accompanies the patient in connection with such treatment.

Conditions:

1. The perquisite element in respect of expenditure on medical treatment and stay abroad will be exempt only to the extent permitted by the RBI.
2. The expenses in respect of traveling of the patient and the attendant will be exempt if the employee’s gross total income as computed before including the said expenditure does not exceed ₹ 2 lakhs.

Note: For this purpose, family means spouse and children of the individual. Children may be dependent or independent, married or unmarried. It also includes parents, brothers and sisters of the individual if they are wholly or mainly dependent upon him. Hospital includes a dispensary or a clinic or a nursing home.

Payment of premium on personal accident insurance policies

If an employer takes personal accident insurance policies on the life of employees and pays the insurance premium, no immediate benefit would become payable and benefit will accrue at a future date only if certain events take place.

Moreover, the employers would be taking such policy in their business interest only, so as to indemnify themselves from payment of any compensation. Therefore, the premium so paid will not constitute a taxable perquisite in the employees’ hands.

(C) Perquisites taxable only in the hands   of   specified   employees [Section 17(2)(iii)]

Any monetary obligation of the employee which is discharged by the employer is perquisite in the hands of all employees as per section 17(2)(iv). However, sometimes instead of discharging employee’s obligation, employer provides perquisites in the form of facility to the employee. Such perquisites are taxable in the hands of specified employees only.

The value of any benefit or amenity granted or provided free of cost or at concessional rate which have not been included in (A) & (B) above will be taxable in the hands of specified employees. Followings are the example of such services:

• Provision of sweeper, gardener, watchman or personal attendant
• Facility of use of gas, electricity or water supplied by employer
• Free or concessional tickets
• Use of motor car
• Free or concessional educational facilities

For valuation of such perquisites, refer discussion on valuation of perquisite.

Meaning of specified employees:

• Director employee: An employee of a company who is also a director is a specified employee. It is immaterial whether he is a full-time director or part- time It also does not matter whether he is a nominee of the management, workers, financial institutions or the Government. It is also not material whether or not he is a director throughout the previous year.
• An employee who has substantial interest in the company: An employee of a company who has substantial interest in that company is a specified A person has a substantial interest in a company if he is a beneficial owner of equity shares carrying 20% or more of the voting power in the company.

Beneficial and legal ownership: In order to determine whether a person has a substantial interest in a company, it is the beneficial ownership of equity shares carrying 20% or more of the voting power that is relevant rather than the legal ownership.

Example:

A, Karta of a HUF, is a registered shareholder of Bright Ltd. The amount for purchasing the shares is financed by the HUF. The dividend is also received by the HUF. Supposing further that A is an employee in Bright Ltd., the question arises whether he is a specified employee.

In this case, he cannot be called a specified person since he has no beneficial interest in the shares registered in his name. It is only for the purpose of satisfying the statutory requirements that the shares are registered in the name of A. All the benefits arising from the shareholding goes to the HUF. Conversely, it may be noted that an employee who is not a registered shareholder will be considered as a specified employee if he has beneficial interest in 20% or more of the equity shares in the company.

• Employee drawing in excess of ₹ 50,000: An employee other than an employee described in (i) & (ii) above, whose income chargeable under the head ‘salaries’ exceeds ₹ 50,000 is a specified The above salary is to be considered exclusive of the value of all benefits or amenities not provided by way of monetary payments.

In other words, for computing the limit of ₹ 50,000, the following items have to be excluded or deducted:
(a)	all non-monetary benefits;
(b)	monetary benefits which are exempt under section 10. This is because the exemptions provided under section 10 are excluded completely from salaries.
(c)	Standard deduction upto ₹ 50,000 [under section 16(ia)] is to be excluded irrespective of the regime.
(d)	Deduction for entertainment allowance [under section 16(ii)] and deduction toward professional tax [under section 16(iii)] are also to be excluded if the assessee exercises the option of shifting out of the default tax regime provided under section 115BAC(1A).

If an employee is employed with more than one employer, the aggregate of the salary received from all employers is to be taken into account in determining the above ceiling limit of ₹ 50,000, i.e., Salary for this purpose = Basic Salary + Dearness Allowance + Commission, whether payable monthly or turnover based +Bonus + Fees + Any other taxable payment + Any taxable allowances + Any other monetary benefits – Deductions under section 16]

(2) Valuation of Perquisites

The Income-tax Rules, 1962 contain the provisions for valuation of perquisites. It is important to note that only those perquisites which the employee actually enjoys have to be valued and taxed in his hand.

Example:

Suppose a company offers a housing accommodation rent-free to an employee but the latter declines to accept it, then the value of such accommodation obviously cannot be evaluated and taxed in the hands of the employees.

For the purpose of computing the income chargeable under the head “Salaries”, the value of perquisites provided by the employer directly or indirectly to the employee or to any member of his household by reason of his employment shall be determined in accordance with Rule 3.

(A) Value of rent free accommodation/ Value of accommodation provided to employee at a concessional rate [Sub-rule (1) of Rule 3]

Accommodation would be deemed to have been provided at a concessional rate, if the value of accommodation computed in the prescribed manner exceeds the rent recoverable from, or payable by, the assessee [Explanation to section 17(2)(ii)].

The value of residential accommodation provided by the employer during the previous year shall be determined in the following manner –

Sl.No.	Circumstances	In case of unfurnished accommodation	In case of furnished accommodation
(1)	(2)	(3)	(4)
1.	Where the accommodation is provided  by the Central Government or any State Government to the employees either holding office or post in connection with the affairs of the Union or of such State	License fee determined by the Central Government or any State Government in respect of accommodation   in accordance with the rules  framed by such   Government as reduced by	The value of perquisite as determined under column (3) should be increased by
		the rent actually paid by the employee.	(i) If furniture is owned by employer,
			10% per annum of the cost of furniture (including television sets, radio sets, refrigerators, other household appliances, air- conditioning plant or equipment).
			(ii) If such furniture is hired from a third party,
			The actual hire charges payable for the same as reduced by
			any charges paid or payable for the same by the employee during the previous year
2.	Where the accommodation is provided by any other employer	(i) 15% of salary in cities having population > 25 lakhs as per 2001 census;	The value of perquisite as determined  under column (3) should be increased by
	(a) where the accommodation is owned by the employer	(ii) 10% of salary in cities having population > 10 lakhs ≤ 25 lakhs as per 2001 census;	(i) If furniture is owned by employer,
		(iii) 5% of salary in other areas, in respect of the period during which the said accommodation was occupied by the employee during the previous year as reduced by the rent, if any, actually paid by the employee.	10% per annum of the cost of furniture (including television sets, refrigerators, other household appliances, air-conditioning plant or equipment or other similar appliances or gadgets).
			(ii) If such furniture is hired from a third party,
			the actual hire charges payable for the same as reduced by
			any charges paid or payable for the same by the employee during the previous year
	(b) where the accommodation is taken on lease or rent by the employer	Actual amount of lease rental paid or payable by the employer or	The value of perquisite as determined under column (3) should be increased by
		15% of salary whichever is lower, as reduced by	(i) If furniture is owned by employer,
		the rent, if any, actually paid by the employee.	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).
			(ii) If such furniture is hired from a third party,
			the actual hire charges payable for the same as reduced by
			any charges paid or payable for the same by the employee during the previous year
3.	Where the accommodation is provided by any employer, whether Government any  other employer, in a hotel.	Not applicable	24% of salary paid or payable for the previous year or
			the actual charges paid or payable to such hotel, whichever is lower, for the period during which such accommodation is provided as reduced by
			the rent, if any, actually paid or payable by the employee.
			However, where the employee is provided such accommodation for a period not exceeding in aggregate fifteen days on his transfer from one place to another, there would be no perquisite.

Notes:

• If an employee is provided with accommodation, on account of his transfer from one place to another, 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 perquisite value, as calculated above, for a period not exceeding 90 days and thereafter, the value of perquisite shall be charged for both such accommodations.

• Where the accommodation is provided by the Central Government or any State Government to an employee who is serving on deputation with any body or undertaking under the control of such Government,-
  • the employer of such an employee shall be deemed to be that body or undertaking where the employee is serving on deputation; and
  • the value of perquisite of such an accommodation shall be the amount calculated in accordance with Sl. No.2.(a) of the above table, as if the accommodation is owned by the employer.
• “Accommodation” includes a house, flat, farm house or part thereof, or accommodation in a hotel, motel, service apartment, guest house, caravan, mobile home, ship or other floating structure.
• “Hotel” includes licensed accommodation in the nature of motel, service apartment or guest house.

Meaning of Salary for Valuation Rules

“Salary” includes pay, allowances, bonus or commission payable monthly or otherwise or any monetary payment, by whatever name called, from one or more employers, as the case may be. However, it does not include the following, namely–

• dearness allowance or dearness pay unless it enters into the computation of superannuation or retirement benefits of the employee concerned;
• employer’s contribution to the provident fund account of the employee;
• allowances which are exempted from the payment of tax;
• value of the perquisites specified in section 17(2);
• any payment or expenditure specifically excluded under proviso to section 17(2);
• lump-sum payments received at the time of termination of service or superannuation or voluntary retirement, like gratuity, severance pay, leave encashment, voluntary retrenchment benefits, commutation of pension and similar payments;

(B) Motor Car [Sub-rule (2) of Rule 3]

If motor car is provided by the employer to the employee, it will be perquisite in the hands of specified employees only. However, the use of any vehicle provided by a company or an employer for journey by the assessee from his residence to his office or other place of work, or from such office or place to his residence shall not be regarded as a benefit given or provided to him free of cost or at concessional rate. [Explanation below section 17(2)(iii)]

But if the motor car is owned by the employee and used by him or members of his family wholly for personal purpose and for which employer reimburses the running and maintenance expenses of the car, it will be perquisite in the hands of all employees.

The value of perquisite by way of use of motor car to an employee by an employer shall be determined in the following manner –

VALUE OF PERQUISITE PER CALENDAR MONTH

Sl. No.	Circumstances	Where cubic capacity of engine does not exceed 1.6 litres	Where cubic capacity of engine exceeds 1.6 litres
(1)	(2)	(3)	(4)
(1)	Where the motor car is owned or hired by the employer and –
	(a) is used wholly and exclusively in the performance of his official duties	Not a perquisite, provided the documents specified in Note (2) below the table are maintained by the employer.	Not a perquisite, provided the documents specified in Note (2) below the table are  maintained by the employer.
	(b) is used exclusively for the private  or personal purposes of the employee or any member   of  his household and the running and maintenance expenses are met or reimbursed by the employer;	Actual amount of expenditure incurred by the employer on the running and maintenance of motor car during the relevant previous year including remuneration, if any, paid by the employer to the chauffeur as increased  by the amount representing normal wear and tear of the motor car and as  reduced by amount charged from the employee for such use.	Actual amount of expenditure incurred by the employer on the running and maintenance of motor car during the relevant previous year including remuneration, if any, paid by the employer to the chauffeur as increased by the amount representing normal wear and tear of the motor car and as reduced by any amount charged from the employee for such use.
	(c) is used partly in the performance of duties and partly for private or         personal purposes of his own or any member of his household and-
	(i) the expenses on maintenance and running are met or reimbursed by the employer	₹ 1,800 (plus ₹ 900, if chauffeur is also provided to run the motor car)	₹ 2,400 (plus ₹ 900, if chauffeur is also provided to run the motor car)
	(ii) the expenses on running and maintenance for the expenses on running  and maintenance for	₹ 600 (plus ₹ 900, if chauffeur is also provided by the employer to run the motor car)	₹ 900 (plus ₹ 900, if chauffeur is also provided by the employer to run the motor car)
(2)	Where the employee owns a motor car but the actual running and maintenance charges (including remuneration of the chauffeur, if any) are met or reimbursed to him by the employer and –
	(a) such reimbursement is for the use of the vehicle wholly and exclusively for official purposes	Not a perquisite, provided the documents specified in Note (2) below the table are maintained by the employer.	Not a perquisite, provided the documents specified in Note (2) below the table are maintained by the employer.
	(b) such reimbursement is for the use of the vehicle partly for official purposes and partly for personal   or private purposes of the employee or any member of his household.	The actual amount of expenditure incurred by the employer as reduced by the amount specified in Sl. No. (1)(c)(i) above (Also see note (2) below this table).	The actual amount of expenditure incurred by the employer as reduced by the amount specified in Sl. No. (1)(c)(i) above (Also see note (2) below this table).
(3)	Where the employee owns any    other automotive conveyance but the actual running and maintenance charges are met or reimbursed to him by the employer and
	(a) such  reimbursement is for the use of the vehicle wholly and exclusively for official purposes	Not a perquisite, provided the documents specified in the note (2) below the table are maintained by the employer	Not applicable.
	(b) such reimbursement is for the use of vehicle partly for official purposes and partly for personal or private purposes of the employee	The actual amount of expenditure incurred by the employer as reduced by the amount of ₹ 900. (Also see note (2) below the table)

Notes: 

(1) Where more than one motor car is provided - Where one or more motorcars are owned or hired by the employer and the employee or any member of his household are allowed the use of such motor-car or all of any of such motor-cars (otherwise than wholly and exclusively in the performance of his duties), the value of perquisite shall be the amount calculated in respect of one car as if the employee had been provided one motor-car for use partly in the performance of his duties and partly for his private or personal purposes and the amount calculated in respect of the other car or cars as if he had been provided with such car or cars exclusively for his private or personal purposes.
(2) Documents to be maintained in certain cases - Where the employer or the employee claims that the motor-car is used wholly and exclusively in the performance of official duty or that the actual expenses on the running and maintenance of the motor-car owned by the employee for official purposes is more than the amounts deductible in Sl. No. 2(b) or 3(b) of the above table, he may claim a higher amount attributable to such official use and the value of perquisite in such a case shall be the actual amount of charges met or reimbursed by the employer as reduced by such higher amount attributable to official use of the vehicle provided that the following conditions are fulfilled :- 
(a) the employer has maintained complete details of journey undertaken for official purpose which may include date of journey, destination, mileage, and the amount of expenditure incurred thereon;
(b) the employer gives a certificate to the effect that the expenditure was incurred wholly and exclusively for the performance of official duties.  

(3) Meaning of Normal wear and tear of a motor-car - For computing the perquisite value of motor car, the normal wear and tear of a motor-car shall be taken at 10% per annum of the actual cost of the motor-car or cars.

(C) Valuation of benefit of provision of domestic servants [Sub-rule (3) of Rule 3]

If servants are engaged by the employee and employer paid or reimbursed the employee for the wages of such servants, it will be perquisite in the hands of all employees. But if the domestic servants are engaged by the employer and facility of such servants is provided to the employee, it will be perquisite in the hands of specified employees only

• The value of benefit to the employee or any member of his household resulting from the provision by the employer of the services of a sweeper, a gardener, a watchman or a personal attendant, shall be the actual cost to the employer.
• The actual cost in such a case shall be the total amount of salary paid or payable by the employer or any other person on his behalf for such services as reduced by any amount paid by the employee for such services.

(D) Valuation of gas, electricity or water supplied by employer [Sub-rule (4) of Rule 3]

If gas, electricity or water connections are taken by the employee and employer paid or reimbursed the employee for such expenses, it will be perquisite in the hands of all employees. But if the gas, electricity or water connections are taken in the name of employer and facility of such supplies are provided to the employee, it will be perquisite in the hands of specified employees only. The value of benefit to the employee resulting from the provision of gas, electricity or water supplied by the employer shall be determined as follow:

Circumstances	Value of benefit
If payment is made to agency supplying of gas, electricity etc.	sum equal to the amount paid on that account by the employer to the agency supplying the gas, electric energy or water
If supply is made from resources owned by the employer	manufacturing cost per unit incurred by the employer

Where the employee is paying any amount in respect of such services, the amount so paid shall be deducted from the value so arrived at.

(E) Valuation of free or concessional educational facilities [Sub-rule (5) of Rule 3]

If school fees of children of employee or any member of employee’s house hold is paid or reimbursed by the employer on employee’s behalf, it will be perquisite in the hands of all employees. But if the education facility is provided in the school maintained by the employer or in any school by reason of his being employment at free of cost or at concessional rate, it would be perquisite in the hands of specified employees only. The value of benefit to the employee resulting from the provision of free or concessional educational facility for any member of his household shall be determined as follow:

Circumstances	Value of benefit
If the educational institution is maintained and owned by the employer	cost of such education in a similar institution in or near the locality. However, there would be no perquisite if the cost of such education or the value of such benefit per child does not exceed ₹ 1,000 p.m.
If free educational facilities are allowed in any other educational institution by reason of his being in employment of that employer
Others	amount of expenditure incurred by the employer in that behalf

Where any amount is paid or recovered from the employee on that account, the value of benefit shall be reduced by the amount so paid or recovered.

Note: The exemption of ₹ 1,000 p.m is allowed only in case of education facility provided to the children of the employee and not in case of education facility provided to other household members.

(F) Free or concessional tickets [Sub-rule (6) of Rule 3]

The value of any benefit or amenity resulting from the provision by an employer

• who is engaged in the carriage of passengers or goods,
• to any employee or to any member of his household for personal or private journey free of cost or at concessional fare,
• in any conveyance owned, leased or made available by any other arrangement by such employer for the purpose of transport of passengers or goods

shall be taken to be the value at which such benefit or amenity is offered by such employer to the public as reduced by the amount, if any, paid by or recovered from the employee for such benefit or amenity.

However, there would be no such perquisite to the employees of an airline or the railways.

(G) Valuation of other fringe benefits and amenities [Sub-rule (7) of Rule 3]

Section 17(2)(viii) provides that the value of any other fringe benefit or amenity as may be prescribed would be included in the definition of perquisite and taxable in the hands of all employees. Accordingly, the following other fringe benefits or amenities are prescribed and the value thereof shall be determined in the manner provided hereunder:-

(i) Interest-free or concessional loan [Sub-rule 7(i) of Rule 3]

• The value of the benefit to the assessee resulting from the provision of interest-free or concessional loan for any purpose made available to
  • the employee or
  • any member of his household

during the relevant previous year by the employer or any person on his behalf shall be determined as the sum equal to the interest computed at the rate charged per annum by the State Bank of India, as on the 1^st day of the relevant previous year in respect of loans for the same purpose advanced by it on the maximum outstanding monthly balance as reduced by the interest, if any, actually paid by him or any such member of his household.

“Maximum outstanding monthly balance” means the aggregate outstanding balance for each loan as on the last day of each month.

• However, no value would be charged if such loans are made available for medical treatment in respect of prescribed diseases (like cancer, tuberculosis, ) or where the amount of loans are not exceeding in the aggregate ₹ 20,000.
• Further, where the benefit relates to the loans made available for medical treatment referred to above, the exemption so provided shall not apply to so much of the loan as has been reimbursed to the employee under any medical insurance

(ii) Travelling, touring and accommodation [Sub-rule 7(ii) of Rule 3]

• If Travelling, touring, accommodation expenses are paid or reimbursed by employer - The value of travelling, touring, accommodation and any other expenses paid for or borne or reimbursed by the employer for any holiday availed of by the employee or any member of his household, other than leave travel concession or assistance, shall be determined as the sum equal to the amount of the expenditure incurred by such employer in that behalf.

• If Travelling, touring, accommodation etc. facilities are maintained by employer to particular employees only - Where such facility is maintained by the employer, and is not available uniformly to all employees, the value of benefit shall be taken to be the value at which such facilities are offered by other agencies to the
• Expenses on any member of household accompanying such employee on office tour - Where the employee is on official tour and the expenses are incurred in respect of any member of his household accompanying him, the amount of expenditure so incurred shall also be a fringe benefit or
• If official tour is extended as vacation - However, where any official tour is extended as a vacation, the value of such fringe benefit shall be limited to the expenses incurred in relation to such extended period of stay or The amount so determined shall be reduced by the amount, if any, paid or recovered from the employee for such benefit or amenity.

(iii) Free    or    concessional    food    and    non-alcoholic    beverages [Sub-rule 7(iii) of Rule 3]

• The value of free food and non-alcoholic beverages provided by the employer to an employee shall be the amount of expenditure incurred by such employer. The amount so determined shall be reduced by the amount, if any, paid or recovered from the employee for such benefit or
• However, the following would not be treated as a perquisite -

• free food and non-alcoholic beverages provided by such employer
  • during working hours at office or business premises or
  • through paid vouchers which are not transferable and usable only at eating joints,

to the extent the value thereof either case does not exceed fifty rupees per meal or

• tea or snacks provided during working hours or
• free food and non-alcoholic beverages during working hours provided in a remote area or an off-shore installation.

Exemption in respect of free food and non-alcoholic beverage provided by such employer through paid voucher would not be available in case an employee pays tax under the default tax regime under section 115BAC.

(iv) Value   of   gift,   voucher    or    token    in    lieu    of    such    gift [Sub-rule 7(iv) of Rule 3]

• The value of any gift, or voucher, or token in lieu of which such gift may be received by the employee or by member of his household on ceremonial occasions or otherwise from the employer shall be determined as the sum equal to the amount of such gift:
• However, if the value of such gift, voucher or token, as the case may be, is below ₹ 5,000 in the aggregate during the previous year, the value of perquisite shall be taken as ‘Nil’.

(v) Credit card expenses [Sub-rule 7(v) of Rule 3]

• The amount of expenses including membership fees and annual fees incurred by the employee or any member of his household, which is charged to a credit card (including any add-on-card) provided by the employer, or otherwise, paid for or reimbursed by such employer shall be taken to be the value of perquisite chargeable to tax as reduced by the amount, if any paid or recovered from the employee for such benefit or amenity.
• However, such expenses incurred wholly and exclusively for official purposes would not be treated as a perquisite if the following conditions are fullfilled.

• • complete details in respect of such expenditure are maintained by the employer which may, inter alia, include the date of expenditure and the nature of expenditure;
  • the employer gives a certificate for such expenditure to the effect that the same was incurred wholly and exclusively for the performance of official duties.

(vi)   Club expenditure [Sub-rule 7(vi) of Rule 3]

• The value of benefit to the employee resulting from the payment or reimbursement by the employer of any expenditure incurred (including the amount of annual or periodical fee) in a club by him or by a member of his household shall be determined to be the actual amount of expenditure incurred or reimbursed by such employer on that The amount so determined shall be reduced by the amount, if any, paid or recovered from the employee for such benefit or amenity.

However, where the employer has obtained corporate membership of the club and the facility is enjoyed by the employee or any member of his household, the value of perquisite shall not include the initial fee paid for acquiring such corporate membership.

• Further, if such expenditure is incurred wholly and exclusively for business purposes, it would not be treated as a perquisite provided the following conditions are fulfilled:-

• • complete details in respect of such expenditure are maintained by the employer which may, inter alia, include the date of expenditure, the nature of expenditure and its business expediency;
  • the employer gives a certificate for such expenditure to the effect that the same was incurred wholly and exclusively for the performance of official duties.
• There would be no perquisite for use of health club, sports and similar facilities provided uniformly to all employees by the employer.

(vii) Use of moveable assets [Sub-rule 7(vii) of Rule 3]

Value of perquisite is determined as under:

Asset given	Value of benefit
(a) Use of laptops and computers	Nil
(b) Movable assets, other than -	10% p.a. of the actual cost of such asset, or the amount of rent or charge paid, or payable by the employer, as the case may be
(i) laptops and computers; and
(ii) assets already specified

Note: Where the employee is paying any amount in respect of such asset, the amount so paid shall be deducted from the value of perquisite determined above.

(vi) Transfer of moveable assets [Sub-rule 7(viii) of Rule 3]

Value of perquisite is determined as under:

Assets transferred	Value of perquisite
Computers and electronic items	Depreciated value of asset [depreciation is computed @50% on WDV for each completed year of usage]
Motor cars	Depreciated value of asset [depreciation is computed @20% on WDV for each completed year of usage]
Any other asset	Depreciated value of asset [depreciation is computed @10% on SLM for each completed year of usage]

Note: Where the employee is paying any amount in respect of such asset, the amount so paid shall be deducted from the value of perquisite determined above.'

(ix)  Other benefit or amenity [Sub-rule 7(ix) of Rule 3]

The value of any other benefit or amenity, service, right or privilege provided by the employer shall be determined on the basis of cost to the employer under an arms' length transaction as reduced by the employee's contribution, if any.

However, there will be no taxable perquisite in respect of expenses on telephones including mobile phone actually incurred on behalf of the employee by the employer i.e., if an employer pays or reimburses telephone bills or mobile phone charges of employee, there will be no taxable perquisite.

(H)  Valuation of specified security or sweat equity share for the purpose of section 17(2)(vi) [Sub-rule (8)]

The fair market value of any specified security or sweat equity share, being an equity share in a company, on the date on which the option is exercised by the employee, shall be determined in the following manner -

• If shares are listed on recognized stock exchange - In a case where, on the date of the exercising of the option, the share in the company is listed on a recognized stock exchange, the fair market value shall be the average of the opening price and closing price of the share on that date on the said stock exchange.

If shares are listed on more than one recognized stock exchange -Where, on the date of exercising of the option, the share is listed on more than one recognized stock exchanges, the fair market value shall be the average of opening price and closing price of the share on the recognised stock exchange which records the highest volume of trading in the share.

If no trading in share on recognized stock exchange - Where on the date of exercising of the option, there is no trading in the share on any recognized stock exchange, the fair market value shall be -

• • the closing price of the share on any recognised stock exchange on a date closest to the date of exercising of the option and immediately preceding such date; or
  • the closing price of the share on a recognised stock exchange, which records the highest volume of trading in such share, if the closing price, as on the date closest to the date of exercising of the option and immediately preceding such date, is recorded on more than one recognized stock exchange.

“Closing price” of a share on a recognised stock exchange on a date shall be the price of the last settlement on such date on such stock exchange.

However, where the stock exchange quotes both “buy” and “sell” prices, the closing price shall be the “sell” price of the last settlement.

“Opening price” of a share on a recognised stock exchange on a date shall be the price of the first settlement on such date on such stock exchange.

However, where the stock exchange quotes both “buy” and “sell” prices, the opening price shall be the “sell” price of the first settlement.

• If shares are not listed on recognized stock exchange -In a case where, on the date of exercising of the option, the share in the company is not listed on a recognised stock exchange, the fair market value shall be such value of the share in the company as determined by a merchant banker on the specified date.

For this purpose, “specified date” means,—

• • the date of exercising of the option; or
  • any date earlier than the date of the exercising of the option, not being a date which is more than 180 days earlier than the date of the exercising.

Note: Where any amount has been recovered from the employee, the same shall be deducted to arrive at the value of perquisites.

(I) Valuation of specified security, not being an equity share in a company for the purpose of section 17(2)(vi) [Sub-rule (9)]

The fair market value of any specified security, not being an equity share in a company, on the date on which the option is exercised by the employee, shall be such value as determined by a merchant banker on the specified date.

For this purpose, “specified date” means,—

• the date of exercising of the option; or
• any date earlier than the date of the exercising of the option, not being a date which is more than 180 days earlier than the date of the

Tax on perquisite of specified securities and sweat equity shares is required to be paid in the year of exercising of option. However, where such shares or securities are allotted by the current employer, being an eligible start-up^**, the perquisite is taxable in the year

• after the expiry of 48 months from the end of the relevant assessment year
• in which sale of such security or share are made by the assessee
• in which the assessee ceases to be the employee of the employer,

whichever is earlier.

Definitions for the purpose of perquisite rules -

The following definitions are relevant for applying the perquisite valuation rules -

Term	Meaning
Member of household	shall include-
	(a) spouse(s),
	(b) children and their spouses,
	(c) parents, and
	(d)   servants and dependants;
Salary	includes the pay, allowances, bonus or commission payable monthly or otherwise or any monetary payment, by whatever name called from one or more employers, as the case may be, but does not include the following, namely:-
	(a) dearness allowance or dearness pay unless it enters into the computation of superannuation or retirement benefits of the employee concerned;
	(b) employer’s contribution to the provident fund account of the employee;
	(c) allowances which are exempted from payment of tax;
	(d) the value of perquisites specified in clause (2) of section 17 of the Income-tax Act;
	(e) any payment or expenditure specifically excluded under proviso to clause (2) of section 17;
	(f) lump-sum payments received at the time of termination of service or superannuation or voluntary retirement, like gratuity, severance pay, leave encashment, voluntary retrenchment benefits, commutation of pension and similar payments;

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