Perquisites

Salary packages often extend beyond just the basic pay and allowances. One such component that has gained prominence is "perquisites." Commonly referred to as perks, these benefits supplement an employee’s salary and enhance the overall compensation package. Understanding perquisites is crucial as they not only provide additional financial value but also have implications for taxation. This article delves into the concept of perquisites, their types, taxability, and their benefits.

What are perquisites in salary?

Perquisites, or perks, refer to the benefits or privileges provided by an employer to an employee over and above the regular salary or wages. These can be monetary or non-monetary in nature and are aimed at improving the employee’s well-being, job satisfaction, or performance. According to the Income Tax Act, perquisites include benefits such as rent-free accommodation, a company car, or contributions to employee welfare schemes. They are a form of indirect compensation, offering financial or utility value to employees.

For instance, a senior executive might receive a company-provided vehicle, a rent-free house, or reimbursements for utility bills. These perks are not only a part of the compensation strategy but also a tool for retaining and motivating employees.

Types of perquisites

Perquisites can be classified into different categories based on their nature and purpose. These include:

1. Monetary perquisites: These are direct financial benefits provided to employees. Examples include performance bonuses, employer contributions to provident funds, or interest-free loans.
2. Non-monetary perquisites: Non-monetary perks do not involve direct financial payouts but add value to an employee’s life. Examples include health club memberships, accommodation, or the use of a company car.
3. Taxable perquisites: These are perks that are subject to taxation under the Income Tax Act. Examples include rent-free accommodation, reimbursement of medical expenses, or club memberships.
4. Non-taxable perquisites: Certain perks are exempt from tax either fully or up to a specified limit. Examples include contributions to the Employee Provident Fund (EPF), medical insurance premiums, and free or subsidised food at the workplace.
5. Customary perquisites: These are provided as a matter of tradition or custom within an organisation. Examples include gifts on festive occasions or subsidised holiday packages.

Taxable perquisites

Taxable perquisites are those that are included in the employee’s taxable income and are subject to income tax. The employer is responsible for determining the value of these perquisites and deducting the appropriate tax at source. Common examples include:

1. Rent-Free accommodation: If an employer provides rent-free or concessional accommodation, it is treated as a taxable benefit. The tax liability is calculated based on the location and value of the property.
2. Company car: The use of a company-provided vehicle for personal purposes is considered a taxable perk. The taxable value depends on the engine capacity and usage.
3. Reimbursement of expenses: Reimbursements for expenses such as electricity, water, or gas bills incurred by the employee for personal use are taxable.
4. Club memberships: If the employer pays for the employee’s club memberships or subscriptions, it is treated as a taxable perquisite.

Perquisites taxable only by the employee

Some perquisites are taxable only in the hands of the employee and not the employer. These perks are usually personalised and directly benefit the employee without any shared utility. Examples include:

1. Educational expenses: If an employer pays for the education of the employee’s children in a private school, the amount is taxable for the employee.
2. Interest-free or concessional loans: Loans provided by the employer at concessional or zero interest rates are considered taxable perks for the employee. The taxable value is calculated based on the difference between the concessional interest rate and the prevailing market rate.
3. Gifts and vouchers: Gifts exceeding Rs. 5,000 in value are taxable for the employee. Vouchers for personal use also fall under this category.

These perks require employees to declare the benefits while filing their income tax returns to ensure compliance.

Tax-exempted perquisites

Certain perquisites are exempt from tax, either fully or up to a specified limit. These exemptions are provided to promote employee welfare and reduce tax burdens. Examples include:

1. Employer’s contribution to provident fund: Contributions made by the employer to recognised provident funds up to 12% of the employee’s salary are tax-exempt.
2. Medical reimbursements: Medical expenses reimbursed by the employer up to Rs. 15,000 annually are exempt from tax. However, proper documentation is required to claim this benefit.
3. Free food and beverages: The value of free or subsidised meals provided by the employer during working hours is tax-exempt up to Rs. 50 per meal.
4. Gratuity: Gratuity received at the time of retirement or resignation is exempt up to a specified limit, subject to certain conditions.

Employees should leverage these exemptions to optimise their tax liabilities effectively.

Perquisites benefits

Perquisites provide numerous benefits, both for employees and employers. Some of the key advantages include:

1. Enhanced employee satisfaction: Perks such as health insurance, flexible working hours, and subsidised meals contribute to improved job satisfaction, reducing turnover rates.
2. Improved productivity: By addressing employees’ needs beyond salary, perquisites create a motivated workforce that performs better.
3. Tax Savings: Tax-exempt perks help employees save on taxes while enjoying additional benefits.
4. Talent retention and attraction: Competitive perks make an organisation attractive to top talent and help retain valuable employees.

Trusted by 50 million+ customers in India, Bajaj Finserv App is a one-stop solution for all your financial needs and goals. 

You can use the Bajaj Finserv App to: 

• Apply for loans online, such as Instant Personal Loan, Home Loan, Business Loan, Gold Loan, and more.
• Explore and apply for co-branded credit cards online.
• Invest in fixed deposits and mutual funds on the app.
• Choose from multiple insurance for your health, motor and even pocket insurance, from various insurance providers.  
• Pay and manage your bills and recharges using the BBPS platform. Use Bajaj Pay and Bajaj Wallet for quick and simple money transfers and transactions.
• Apply for Insta EMI Card and get a pre-approved limit on the app. Explore over 1 million products on the app that can be purchased from a partner store on Easy EMIs.
• Shop from over 100+ brand partners that offer a diverse range of products and services.
• Use specialised tools like EMI calculators, SIP Calculators
• Check your credit score, download loan statements and even get quick customer support—all on the app.

Download the Bajaj Finserv App today and experience the convenience of managing your finances on one app.