173

Chap. 5 Computation of Total income and Income under Head Salwy

(b) Medical treatment outside India: The following
expenditure incurred hy an
outside fndia is
employer on treatment of the employee, or hi s family members
also a tax-free perquisite:
member of hi s
l. Expenses on medical treatment of the employee or any
perquisite to
family outside India. However, such expenses shall be tax free
the extent permitted by Reserve Bank of India.
of his family for
2. Expenses on stay abroad of the employee or any member
patient in
medical treatment with one attendant who accompanies the
be tax free
connection with such treatment. These expenses shall also
perquisite to the extent permitted by Reserve Bank of India.
member) and one
3. Travel expenses of the patient (employee or his family
treatment. It
attendant who accompany the patient in connection with such
whose gross total income
shall be tax-free in the case of those employees
does not
(before including therein such travel expenditure as perquisite)
the employee
exceed t 2,00,000. In other words, if the gross total income of
accou nt of travel
before including the taxable medical perquisite on
t as well
expenditure exceeds t 2,00,000, the expenses on travel of the patien
as of the attendant shall become taxable.
not apply in
Exception: This clause of Medical treatment outside India shall
her due, paid or
case of employee whose income under head Salary (whet
of non-monetary
allowed by one or more employers) excluding the value
perquisites does not exceed t 2,00,000.
Important points:
:
► 'Family' for the purpose of valuation of medical facilities means
children may be
• the spouse and children of the employee. However,
dependent or independent, married or unmarried.
wholly or mainly
• Parents, brothers and sisters of the employee, who are
dependent on such employee.
► the expenditure on medical treatment
by the employer may be by way of
payment or reimbursement (Circular No. 603, dated 6-6-1991).
► Any medical allowance given by the emplo
yer is fully taxable irrespective of the
yee on medical
actual expenses which might have been incurred by the emplo
treatment.
5.5.c Types of perquisites
It is important to note that perquisites can be of two types:
(i) Taxable perquisites
(ii) Tax free perquisites
(i) Taxable perquisites:
the hands of specified
It is important to note that perquisites may be taxable in
of two types:
employees or all employees. Accordingly, taxable perquisites are
(a) perquisites Taxable in the hands of specified emplo
yees;
(b) perquisites Taxable in the hands of all employees
(specified or Non-specified)
(a) Perquisites Taxable in the hands of specified emplo
yees:
ied employees it is
Before knowing perquisites taxable in the hands of specif
important to know who is a specified employee.
 174 <1hup. S
'fitxutio11 / ,r,ws
SJ1et;{{fotl emf}loye,,.,·: It mcam, an l!rnployt;c rn1.-:11tio11cd under scc lii)JI 17(2Hiii)
whid1 in~ludc followin g:
• A dirt'ctor 4 a ,·ompa11y who is e1111,toyN' 4 that cmnp11ny . It is irnn1nll? iill
whcllK'r employee is full time dircc l.or nr p:irl Lirnc tlircdor wl~cllt_cr he _is a
nornincc or niaru,µcmcnt. worker. government or finum: ial inst1t11tmn o l tlw
hoard . Similarly it is also i111rnatcrial whclhcr ltc is director lliroughout the
Previous Year or nol.
• !\fl em11loyet' wlro lras suh.,·tmLtial interest in the cmnpany . Substantial ir~t crL'Sl
here mea ns owner or eq uity share carryin g 20 % or more votin g pOWl:rs ~n lite
employer co111pany. It is irnport:int LP note thut beneficial ownership is tl,c
criterion lo he adortcd rather 111:111 legal owrwrship. Thc rcf'orc, an c inployct·
holdi11g even 111i1,iority or cq11ity shares i11 the crn ploycr <.:ompa11y shall nol he :i
specified employee if he has no suhstunti:rl intcrcsl in the shares. On the other
h;1nd , an employee who is nol a registered shareholder shall he a specified
c111ployce ii' he has hcncl'icial interes t in 20 % or nion: cquily shares in the
employer eornpa11y .
• A11 <'fllployee dmwing in ,·xccs.,· ,f
r 50,000. An employee (who is nol covered
u11Jer above twt> categories) whose income chargeable under head salary exceed
~ 50,000 is a spcciricd cmploycc. However, l'or calculJLing ~1 50,000 foll o win g
shall ht; c.:xc ludcd:
• All 11011 -rturnct..iry benefits
•
Monetary hc11cl'ils whi ch arc not taxabl e under section 10
• Ded uction 011 al'.co unt or
cntcrtainrnenl allowance and on ~,ccount or
professional tax .
Where s'.rlary is rc(;c_ivcd from rnc ~n: lhan one ~;111ploycr the aggregate salary from the
en 1ployas wrll he tak en 11110 acco1111t lor dclcrminin g ~ 50,000.
111 cas,· or spec ified ('lllployccs all perquisites given under section I 7(2)(i)-(1'ii) shall
he l:1 xahlc.
(/,) Puquisiles laxahll' in the hand.,· o.f' all em11/oue,:.,·
J 1 .,.1, "'"
✓,L'{·t·,·~u.
..,. ./ as well ,,... ,,,.,,
,\'/J(lf(/i',,,, I: ' , -
Nori-.,·1-1ec(/icd m1111/oy,·,1: II m•''111s
~ · , ii· ,, y cmp Ioycc w I10 is not s1,ec i r1"'d ,·s :1 ,1<)11
spcd fi cd employee. ..., •
/\11 . perq11isilcs given 1111dcr sec tion 17(2)(i) , (,..' ), (')
rv. (v) (vr)· ·rncJ ( 11..) I I I
taxable 111 lite h1111ds or all cn ,ployccs. Thcrc forl' 1 • . . .· • , ' · ' . " s 1:1 I w
1101 l11x nhl l' in I hei r ha11d~. 1c l ljlllSllcs unucr section I 7(2 )(ih) arc

Tuxnhk fl('l'<folsiks under scd ion 17(2) S1>cdfit•d Employt•c Non- Spt<'ifit·d
Emplov<.·c
Hc11t l'n·l-· arrrn11JnlH.lal ion ISerl ion 17( 7. )(i) I
Taxnhlc Ta:<.ahle
C(l11(Tss ion in J< cnl l ,'-;e('tinn 17(2)Ui)I
Tax.able Taxahh-
/\~ 1y ;)IIH'llil y' ol' lwrwl'il i•/a 1.1lcd fr('c or l'llst
o, ill ('fl llt' eSH Hirt: il lllll' 1sl'('(11,11 17( 2)(iii)I
Taxahk Nol taxahlc
Oldi1 1,ati11n ol r11 111l(IYl''~ ' 1•·t1'll
·1 ll. ) 1 crnplo yn
I StT li {) fl l '/ () )(i11)I la x:ible 'L1xahk
 ( '1 ,,,,,1,1111ii1111 11/ /'f I( II., , Ill ill/If' 1111,/ /II( fl///1 ' 1111,/1•1 I 1,,111/ 'I /II' / f f/ y J/ ',

1
'1'11
1 1
011•1• 1•• 1•,1ulNlh1111 111111,,,. ,11,,,,11 111 l"/f/,) ,"ltwdfl, •tl l',rttJJlo,yc•i• N,;rt ~)J~, lfH t1
,~,,;,,11, y,,,.
1\111 ,,11111 1,11 y,11ll11 1, y 111 11pl11 y,,, 1111,111,,,1, Ii
111nd , 11111 1 111 1111 rt111IJ1n1 11,t1 l'III Vid, 111 11111 ,i
1

,1i :1p11111 v1·d 111qH 111111111 11111111 1111 ,d, ,.1,

l,"\,1, 11,111 I /() If t'll
·1.·1w v11 h11 •, 111 , 1111 y ,qw(' llwd llt•n 11 1, y ,,r
sw, 111 h11111 ,v S l11111 •1, :ilh1ltl'd 111 1, u1,,11,·i, ct1 ,
dtl l'I tl y Ill 111dii1 1 tl y. hy 1111' !' 111pl11y,·1. 1)1
1

h1111w1 1 111pl11ye1. l1t '1'

1 nl ,·1,1,1 r,r ;11
, 11111 ·,·~:d111111I 1111,• 1, ., tlw HrHi l 'll!•lT Si·r ti1 111
1/L1lt 1·,0I
'1'111 111111111111 111 1111y 1'111111 ili11l io11 '" 1111
1

11pp111 Vl' d ii 11p1·1t11111u111i1111 l\111d l,y llu.:

,·111pl,, yr1 111 11•:'lwrl 111 1111· :11,f..r :,ri1T. 10 llw
"' '' ' ''' 11 1·.~~•rrd :1 lllir lit kl1 11qw1 ·11. IScr li1J11
t /() )(d,)I

llil' v11 hlt' ol 1111y '1Pl'l' il1cu tll~l'llt'it y Ill Swc:il

1:.q111l y Slm1r~, 11llu11nl 01 1n1111,lcrn.:d,
d11l ,·1l y 111 i1111irectl y, t,y tlw employer , , 11
1

li 111111·1 rn1ployn , In·,· of' L'll!il o, al

,.,11w,·ss i1111:il l'llll' 111 I he 11 ssc;-.: Heel Sect ion
I 7( ) )(, ,;I I
1hr :11111111111 111' a11y c11111ril>u1io11 to :111
11ppr11vcd s11pcr:i1111ua1 i1111 ru11d hy the
r111plnyr1' i11 respect of the :isxessec, lo the
l' Xll'lll it cxc1c:1·ds 1>11c lakh rupees IScdio11
17(2)( vii) I.
i\11y other frin ge henclil or amenity Taxahlc Taxable
(excl uding l'ri11gc hc11clit under Chapter XII
11) ISci,;tion l 7( 2)( vii)I
(ii) 'f oxJre,1 Perquisites (/,,,. all employee ,\·):
I . Medic:alfucility or medical reimbursement :
(a) First-aid rncdical facility: The value of any medical treatment provided to
an employee or any member of' hi s family in a hospital , dispensary or a
nursing home 111,1intai11cd hy the employer.
(h) Medical reimbursement: Any sum paid by the employer in respect of any
expenditure incurred by the employee on hi s medical treatment or treatment
of any member of his family subject to maximum of ~ 15,000 in the
previous year.
2. Food and beveraie,1· provided to employees: the following shall be a tax free
perquisite in the hands of the employees --
(a) Any food or beverages provided by the employer to his employees in the
office or factory.
(b) Any food or beverages provided to the employee by the employer through
paid voucher which are not transferable and usable only at eati ng joints.
176 Lhap.5
Taxation Laws
Where the employer is not liable to pay FBT ·
under Chapter XII -H, the
exemption shall be upto <50 per meal. d
3. . , ·TtI prov ide to a group of
Recreational faciliti es: Any recreat1onal faci Y ees) by the employer L~
employee (not being restricted to a selected few cmp Ioy
not taxable . [Circular No. 33, dated O1.08. l 95 5] fi th
4. Loans to employees: fn the followi.ng cases t h,e value _.of bene it to e assessee
I loan shall be nil. ! /
resulting from the provisions of interest free or concesswna
(a) Where the amount does not exceed m • the ag gregate <20,000;
(b) Loans for medical treatment of diseases specified in Rule 3A
~f t~e Income~
tax Rules. However the exemption so provided shall not app Y O so m~c
of the loan as has 'been reimbursed to the employee und er any medica
l
insurance scheme.
5. Perqut·slles
· provtd · ed outside
· In d'.ta: perqu1s1
· ·tes provided by
. the Govern. ment
. to
·its employees, who · · f I d' r dering service s outside India.· are
are c1t1zen s o n 1a 1or ren
not taxable. [Section 10(7)]
6. Training of employees: any expenditure incurred by the employer, for providi
ng
training to the employees or by way of payment of fees of refresher
cou_rses
attended by the employees. In this case, the employer shall have to pay
fnnge
benefit tax on such expenses as employees welfare in certain cases.
7. Rent free House/Conveyance facility: Rent free official residence
and
conveyance facilities provided to a judge of the Supreme Court/High
Court is
not a taxable perquisite.
8. Residence to officials of Parliament, etc.: Rent free furnished residen
ce
(including maintenance thereof) provided to an officer of the parliam
ent, a
Union Minister or Leader of Opposition in Parliament, is not a
taxable
perquisite.
9. Accommodation in a remote area: The accommodation provided by
the
employer shall be a tax free perquisite if the accommodation is provid
ed to an
employee working at mining site or an onshore oil exploration site or a
project
execution site, or a dam site or a power generation site or an offsho
re site
which -
(a) being of a temporary nature and having plinth area not
exceeding 800
square feet, is located not less than eight kilometers away from the local
limits of any municipality or a cantonment board; or
(b) is located in a remote area.
JO. Educational facility for children of the employee: Where the educat
ional
institution itself is maintained and owned by the employer and free educat
ional
facilities are provided to the children of the employee or where such
free
educational facilities are provided in any institution by reason of his
being in
employment of that employer, there shall be no perquisite value if the
cost of
such education or the value of such benefit per child does not exceed
~ 1,000
p.m.
I 1. Use of health club, sports and similar facilities provided by the emplo
yer to his
employee: In this case, employer shall have to pay fringe benefit tax on the
value
of such facility provided. However, i~ the employer is not liable to pay
FBT the
value of such facility shall be taxable m the hands of the employee.
'
176
Taxation Laws Chap. s
. . a FBT und er Cha pter Xll-H,
Where the employer is not hable to the
PY
exemption shall be upto t 50 per mea
l. .. .
3. Recreational facilities: Any recreatw · I fac1hty pro vide d to a 00 roup of
employee (not being restricted to a na ~ mpl oye es) by the employer is
selected ew e
not taxa·ble. [C1r
· cu Iar N 33 d t d0l 08. l 955 ]
o. - , a e · t· ben efit to the assess
4. Loans to employees: In the followi•ng case the value o
resulting from the provisions of interest s essi onal loan shall be nil. ee
free or cone ' .
(a) Where the amount does not exc
eed in the aggregate t 20 '000 A' f h
(b) Loans for medical treatment of . cified in Rul e 3 o t e 1ncome-
d~seases spe 'ded shall not app ly to
tax Rules. However, the exemption so much
of the loan as has been reimbursed so prov i loye e und er any medical
to the emp
insurance scheme.
5. Perquisites provided outside Indz.a: P~r · · ovid ed by the Government to
its employees, who are citizens of Indi qmsites pr. • out side India a
a for rendering serv ices
not taxable. [Section 10(7)] ' re
6. Traz·nzng
· of employe
es: any expend'1ture ·mcurre d by the emp loy er, for providing
· ·
trammg to the employees or by way f
o paymen t of fees of refr esh er courses
attended by the employees. In this case .
, the empl~yer sh~ll hav e to pay frmg
benefit tax on such expenses as employe e
es welfare m cert am case s.
7. Rent free House/Conveyance facility:
Rent free offi cial res~dence an_d
conveyance facilities provided to a
judg e of the Sup rem e Cou rt/H igh
not a taxable perquisite. Court 1s
8. Residence to officials of Parliament,
etc.: Ren t free furn ishe d residence
(including maintenanc
e thereof) provided to an officer
Union Minister or Leader of Opp of the parliament, a
osition in Par liam ent, is not a
perquisite. taxable
9. Accommodation in a remote area:
The acc omm oda tion pro vid ed by
employer shall be a tax free the
perquisite if the acc omm oda tion is
employee working at mining site or pro vid ed to an
an onshore oil exp lora tion site or a
execution site, or a dam site or a project
power generation site or an offshor
wh ich - e site
(a) being of a temporary nature
and having plin th area not exc eed
square feet, is located not less than eight ing 800
kilometers awa y from the local
limits of any municipality or a cantonm
ent boa rd; or
(b) is located in a remote area.
JO. Educational facility for children
of the employee: Wh ere the educati
institution itself is maintained and owned by the emp loy onal
facilities are provided to the chil er and free educational
dren of the emp loy ee or whe re
educational facilities are provided such free
in any institution by reas on of his
emp loym ent of that employer, ther being in
e shall be no perq uisi te valu e if the
such edu cati on or the value of suc cost of
h benefit per chil d doe s not exc eed
p.m. 1,000 <
11. Use of health c~ub, sports and sim
ilar facilities provided by the employe
employee: In this ca~e, employer sha~l r to his
have to pay fringe ben efit tax on the value
of such facility provided. However,
if the emp loye r is not liab l t
value of such facility shall be taxable FBT the
in the hands of the em e O pay
p 1oyee. '
 ChHP• 5 Compurarim1 of Total Income an.d In come under Head Salary
177
1-1 · Use
·
of any movea ble prope rty: by the emplo yee or any memb er h' . h
d , · CJf.
ot I:iptop s an computers belonging to the employer or hired by him.is ouschold
/3. Lt?avc Travel Concession [Section 10(5)]:1 The value of any travel
· · d b · d' • . .
c , ,·
assistance receiv e y an m 1V1dua l, or due to, him oncess1on or
1s exempted in follow ing
cases:
(a) fro m his emplo yer for himself and his family , in connec
tion with his
proceeding on leave to any place in India;
(b) from his employer or former employer for himsel
. . h h' f and his f ·1 ·
con~ectton ~1t 1s pro_cee ct· .
. mg to _any place m India after retiremam1 Y, m
ent from
service or after the ternunation of his service.
J-1. The premium paid by rh~ employ~r on an accident p~licy:
The premium paid by
the employer on an a_c:1dent policy taken out by 1t m respect
of the employee
would not be a perqms1te. [CIT v Lala Shri Dhar (1972) 84 ITR
192 (Del) and
CITv Vinay Bharat Ram (1981) 129 ITR 128 (Del)].
15. Allotmenr of shares or debentures under any Employees Stock Plan
or Scheme
of the company: Allotment of shares or debentures under any Emplo
yees Stock
Plan or Scheme of the company when these are offered to
employees in
accordance with the guidelines issued in this behalf by the Central
Government.
However, the employer shall have to pay FBT on the value of the same.
16. T(Lt paid by the employer on non-monetary perquisites: Tax
paid by the
employer on non-monetary perquisites of the employee shall be
exempt in the
hands of the employee. [Section lO(lOCC)]
J 7. Motor car or expenditure on motor car: Motor car provided
by the employer to
the employee or expenses incurred by the employer in connection
with motor
car belonging to the employee (for purposes other than exclusively
for personal
purposes) shall be a tax free perquisite in the hands of the employee
although the
employer shall have to pay fringe benefit tax on the value of such
fringe benefit.
Howe ver, if the employee is not liable to pay FBT, the value of
such facility
shall be taxable in the hands of the employee.
J8. All other perquisites: All other perquisites provided by
the employ~r to
employee shall be tax free perquisite as no valuation rule~ have been
prescnbed.
However in this case, the employer shall have to pay fringe benefit
tax on the
value of ~uch fringe benefit. Further, if the employer is not liable
to pay FBT,
the value of such facility shall be taxable in the hands of the employ
ee.
,1aluation* oif rent free accommodation _or accommodation provid
5.5.d YI ed at
concessional rent:
• · t
For determining the value of rent free ac~ommodation or valu~ ~!o~o
::;s~:nd\:;;;d
when accommodation is provided at concessional rent, accommo
ai
into following parts:
(I) Accommodation provided by the government;
(II) Accommodation provided by any other employer;
th r employer in a hotel;
(IfD Accommodation prov1'ded bY the govern ·
ment or any o e
other employer at new
.d d b the govern ment or any
( IV) Accom moda tion provi e Y . h commodation at ear1·ter Place.
. loyee retains t e ac
place of posting wh11e emp

1 See para 3.1.d.

1... 150
IN co ~ 'l'h
~~ ¼
(3) trave l and stay abroad of one atte nda nt who acc omp anie s the patient
.zn
with such treatment. . co '
b. t t the condition that the expenditure . 1111
ecliri~
on trav el
s~ 'll~c °·
o1 t us c1aus ·
e shal l be excl
refe rred
uded from perq uisi te only in the case of
to zn sub-clau
an employ:es (2) ana r
total income, as com pute d befo re incl udin . h "d e Who 3!
g ther ein t e saz expenditure, does no;e
~~~~ gross
respect_·o f any ex1:endz~re actually incur ~
(vii) any sum paid by the employer in .
oyee fior any 0 E the purposes specified m clau red b
emPl 'J se ( vz) sub ject to the conditio Y the
in or under that clause ; ns spec~ 1
Explanation : For the purposes of clause ed
(2) : . . .
(i) "hospital" includes a dispensary or
a clmzc; or a nursing home ;
(ii) "family", in relation to an individual,
shall hav e the sam e meaning as in clause
of section IO ; and (S
(iii) "gross total inco me" shall have the . . )
same mea ning as m clause (5) of section
The value of all perquisites is included
in the total inco me of an employee unde 808 .
'Sal ary' . r the hea~

TYPES OF PERKS
Perks can be divided into three cat
egories
A. Perks exempted for all employees ;
B. Perks taxable for all employees ;
C. Perks taxable only for specified emp
loyees.
A. Exempted From Tax
Value of following benefits is not added
in salary inco me :
A-1. Free medical facilities or reimbursem
ent of medical expenditure : Exemption
section shall be allowed for treatment of under this
self, wife, chil dren (children may be depen
independent, married or unmarried) parents, dent or
brothers and sisters (who are mainly dependent
upon him). With effect from assessment
yea r 2019-20, the exe mpt ion regarding
re-imbursement has been discontinued whe medical
n treatment is take n from a private/unappr
hospital, nursing home etc. and hence med oved
ical re-i mbu rsem ent by employer will be
as a perquiste and will be taxable. treated
Medical Facilities in India :
(i) If treatment was taken from a hosp
ital mai ntai ned by emp loye r : Fully Exem
(ii) If trea tme nt is take n from a hos pted
pita l mai ntai ned by Cen tral ,
State Govt., loca l authority or a hos pita
l is app rove d by the
government for the purpose of medical
trea tme nt of its
employees
(iii) If treatment is taken in resp ect Fully Exempted
of pres crib ed dise ases or ailments
sp~cified in ~u~e 3A, in a~y hospital app
rove
Chief Commissioner or Chi ef Com mis sion d by the Prin cipa l
er
Note : No exemption shall be allowed
if
(a) Treatment is taken from an approved \
hospital but disease is not specified in Rule 31
(b) Disease is specified in Rule 3A but treat
ment is take n from a private/unapproved
I \ n1
bosp1 ,.
(iv) In case e~p lore r, under a scheme
approved by the Cen tral Govt.
pays medical msu rance Prem ium of emp loye es :
(v) In case any heal th insu ranc e prem Fully ExeillPted
ium is paid by emp loye r to l
General lns~ anc e Corporation under noti

I
fied sche me (Me dicl aim
u/s. BOD) _t? msure the health of its emp
their families : loye es and mem bers of pted
Fully ExeJll
 ,aoM SALARIES
~co-- S
. T AX AB ILI TV OF PERQUISITE

(A) Exempted for All (B) Taxable for All

(C) Taxable I'. Specified
Employees Employees E Jor
rnployees On:ly
·c·tl f'tcililie s as given u/s 17(2 ) I • Rent free hou se.
. n,edI ' • I . Car or
2. ConcessionaJ Rent H ,
'
1. free . ) (see deta1Js on nexk' t pag es). ' . any o the •
prov iso .ng wor mg hours . auton:iou ve conv eyance. .
( nents duri. . . 3. Obligation of emp lo~ ~;\net
ree re,1i; -eslu . by employer.
2. Servic es of d ome st1. c
2. F recreational fac1 11t1es. serv ants including sweeper
bas te or
J. free. . 11 of telepho ne whe ther 4. Any ~mount of life insurance watch -man, gardn er'
cial use .
J. provi sio exclusively . for offi premmm paid by employer on personal attendent prov ided
ellu 1ar provided m remote area or at the life of employee during
c eats • II
by employer.
5• free 01 '
. h re installation are tu y exempted. the previous year. 3· Gas, water and electricity
offs o ucation, trarnrng or re f res h er
. .
5. Value of specified security or facility.
ed
6· freers·e for employees. . sweat equity shares allotted or 4. Education facility fo r
cou e Travel Concession . I'f giv . en twic e transferred . children.
7 LeaV
. in a block of 4 ~ears. 6. Con trib utio n to app rov ed 5• Free transport allow'ed by
B. free ration received by member
s of superannuation fund of the emp loy er engaged rn
employee in excess of Rs. transport business.
armed forces. 1,50,000.
Perquisites allowed by Governmen
t 6. Medical facility
9
· t its employees posted abro ad. 7. Other fringe benefits :
ice r (i) Inte res t free or
JO. ;en t free house gi~ en to_ a_n off cess ional loan .
Um on Mm 1ster, and con
of Parliament, a Tou ring ,
Par liam ent. (ii) Tra vel ling ,
leader of Opposition in
ce fa- Accomodation.
ll. free residence and Co nve yan
rt (iii) Food or beverages facility.
cilities to Judges of Supreme Cou
(iv) Gif t or Voucher or Token
and High Court. facility.
loy er
12. Free conveyance provided by emp
g ( v) Credit card facility .
to employee for going to or cornin
(vi) Club facility .
from place of employment.
plo yer (vii) Use of movable assets.
13. Any amount con trib ute d by em
u- (vii i) Tra nsf er of mo vab le
towards pension or deferre ann d
assets.
ity scheme.
gro up (ix) An y oth er ben efit or
14. Employer's contribution to staf f amenity
insurance scheme.
15. Computers, laptops giv n to [no
t trans-
--
ferred] an employee for official/per
sonal use.
ter,
16. Transfer of a moveable asset [compu
10
car or electronic items] mo re tha n
years old without conside rati on.
d by
17. Accident insurance premium pai
employer for his own benefit.
sional
l8. Interest free loan or loan at conces
rate of interest taken by employee from
s
employer if amount of Joan doe
n is tak en
not exceed Rs. 20,000 or loa
for medical treatme nt
19 V . ·
en
· alue of any shares or debentures giv
rate to
free of cost or at con cessio nal
employees under stock option scheme
20 Tapproved by the Central Govt.
21 . R
ax on perks pru'd by employer.
. ent free acco modat10 . n g1.ven m . remote
~ ffshore areas.
 fl/
Medical facilities outside India : ·f h. family goes outside India
membe r o is Fully exeth
(i) If the emp1oyee or_ an Y aid or reimbu rsed by emplo yer
for treatme nt, medica l expens es P b ut to the"•Ptect
. extent .
is permitted b it
RBI. Y the
(ii) Expens es on th e s tay o f the Pall.ent and one attenda nt paid or Fully exem
reimbu rsed by employ er but again up t Ptect
0 the
amount perrn.itt
by RBI. ed
.
(iii) Expens es mcurre d b y e mploye r on the travelli ng to the foreign
. . . Fully exempted
country o f th e pat1·ent and one .
attenda
.
nt withou t mcludm
.
g provide d gross
therein the said expend iture but mcludm g the taxable portion
total income of the
of the said expend iture employ ee does not
exceed ~ 2,00,00()
p.a. without includ.
ing therein the said
expenditure
Notes : ( J) Any other expenditure incurred by employ er to ~rovid~
medical facilities to an
employee or there is re-imbursement of such expen~1ture, it s?all be full~ taxable
and
in case treatment is taken from a private or unrecog msed hospita l, exemption
available
upto A.Y. 2018-19 of~ 15,000 p.a. has been abolish ed and hence will be fully
taxable
in future.
(2) Value of this perk will not be taxable if employ ee is a non-specified
employee.
A-2. Free refreshment supplied by employ er to its employ ees during
Fully exempted
office hours in office premis es except free meals.
A-3 . Free meals given at remote area or offshor e installa tion
shall be. Fully exempted
A-4. Free recreational facilities provide d by employ er
to its employ ees. Fully exempted
A-5. Provis ion of teleph ones includ ing mobile phone
s given by the
employ er to employ ee to facilita te the busines s of the employ er.
Fully exempted
A-6. Free education which is provided by
employ er from its own resourc es
who is engage d in such busines s provide d value of such benefi t does
not exceed t 1,000 p.m. per child.
A-7 . Cost of refresher course Fully exempted
attende d by employ ee met by employ er. In
case employ er meets expend iture of higher educat ion or trainin g
whether in India or abroad.
A-8. Any rent-fr Fully exempted
ee residential accomm odation to Judges of High Court or
Suprem e Court.
A-9. Fully exempted
Goods sold by an employ er to his employ ees at conces sional rate.
The amount of conces sion given.
A-10. Free ration receive Fully exempted
p . . d by membe rs of armed for
A-I 1. ces. Fully exempted
erqms1tes allowe~ by Govt. to its employ ees posted abroad .
A-12. Fully exempted
Rent free house given to an officer of Parliam e
and leader of oppo ·t·
s1100 m. p .
ar1tament .
.
nt, a Umon Mm1st er,
. . \
A- 13. Fully exempted
Conveyance facilities to Judges of Suprem e Court d H' h C
A - 14. Free conveyance Fully exempted
provide d by em lo er an ig . ourt.
comi ng from pla·ce of
emp 1oymen t.P Y to employ ees for gomg to or
A-15. Any amoun
t contrib uted b em 1 Fully exen1P tcd
annuity scheme . y p oyer toward s pensio n or deferred
red
Fully exetnP

i•
J
 \IE FJlOM SALARIES 1.153
~ . . . .
£nip)o)"er s contribution to staff group msurance schem e. Fully exemptoo
_,\· t 6. . [
Coniputers, laptops given to no transferred] an employee for official/
,\ · I ~.
per-<ona.l use . Fully exempted
transfer of a moveable asset [computer, car or electronic items]
.
..\-l ~- ,\·jthout consi derat.1011 to an emp l oyee after such asset had bee n use<l
b,· the employer for more than l O years. Fully exempted
~rcident insurance premium paid by employer for his own benefit.. Fully exe mp{ed
10
,-\ · · in case such premium is paid for an insurance whose benefit is to accrue
w the employee. it will be taxable.

_.\- :O' 1nrerest free loan f all 1 ak

oans t en by an employee from his
(a) In case total amount o
employer does not exceed t 20,000 Fully E'-emptoo
~ : In c.ase the employee takes another loan from bis employer and so total amount of loan
exceeds f 20.000. then interest will be calc~ated on the total amount of Joan and ii "'ill I
be calculated from the date of second loan is taken. For e.,ample. employee bas mken • ,
loan of f 15.000 on 10th April 2019 and another loan oft 15.000 is taken on 15th w
September. then interest will be calculated o.n the entire amount of loan. of ~ 15.<XX.t ~
f 15,000 = t 30,000 and from 15th September 2019 to 31-3-2020.
(b) In case loan is taken for treatment of notifies illness {...\ids. cancer.
mental disorders, renal failure. hemophilia. thelessemia] and no
claim is received from insurance company Fully exen\_Ne-d
In case any insurance claim is received. such am ount shall be
treated as loan and difference between rate of interes t charged by
employer and rate fixed by SBI on 1-4-2019 shall be taxable .
tc) In case loan is taken for any other purpose and rate of interest i~
equal to or higher than the rate prescribed by SBI on 1+20 1Q.
A-21. Income tax on perquisites if paid by employer. Fulty .::xc:>-mpted
A-22. Any unauthorised use of a benefit. Fully ew-mpt,'e<l

Taxation of Sweat Equity shares or Employee s Stock Option (ESOPs}

1

The value of this benefit will be taxable as perquis.ite in the htmds 1Jf the emplt)~·ce.

ILLUSTRATION 13
From the following infom1ation, explain the treatment of the f0ll0wing mc'liicn.l ~n,-.fi~ rt'-.' ,'.ivc-d
by Mr. X. an employee having monthly salary of t 60,000.
0) Rec-eived ~ 500 p.m. as medical allowance.
(l ) During the year Mr. X met with an accident and his e-mployt' r mndc:' tik' fn,lkn\,n~ ~iyn~nt~ :
(a) Directly paid to a private specialist doctor's ho:!-pirnl ~ 20,000.
tb) Reimbursed medical expenditure incurred by en\plu)'C'l' in fill :\{' Pf\W t'\i lh'-~ptt~il
~ 50,00U for a non-notified disease.
(J) Employee was referred to a specialist doctor in London and employa l\lt \ lfK' f,)H\)\\ it\~
expenses in this connection.
~,:) Expenses on travel1ing of the employee il nd t.'IHt' ntcc-thJ:n\t ~ N.t()t\l'.t
t~) Operation fees of the specialist doctor , 50,000.
m) Expenses on medicines and hospitahzat-ion t RO,()f)(l.
( ) ~es~rve Bank of India pemlitted un expendi ture pf t 1X~).000.
4
:g tbe year employer also reimbursed the following e,1x•nst·s h,1.·n1,\.¾.1 \ll\ llw m,"--\,-::~,l
tment of members of employee' s family.
 an d Income under R ead .JG (' l a,y
Comp uta tion of Total Income 177
Chap. 5 mb er f h. h
ty: by the employee or any me
J2. Use of any mo vea ble proper o 15 ousehold
h.
d b em plo yer or hir ed b y 1m.
o I· 1aptops an computers elo
nging to the
ue of an t ·I .
vel Co nce ssion [Section 10(5)]: The val .
1
Y rav e conces sion or
J3. Lea·ve, Tra . · d b . . . mpted in following
,
ista nce rece1v e y an md 1v1dual, or due to, him is exe
ass
cases:
connection with his
fro m his em plo yer for him sel f and hjs family , in
(a) ce in India;
pro ceeding on leave to any pla
f and his farnjJy , in
m hi_s em ~lo y~r or for ~e r employer for him sel
(b) fro rement from
tio n wit h his pro cee dm g to any place in India after reti
connec
of his service.
service or after the termination
rnjum paid by
miu m pa id by the em plo yer on an accident policy: The pre
J4. The pre t of the employee
policy taken out by it in respec
the em plo yer on an accident (De]) and
be a per qui site . [ CI T v La la Shri Dhar (1972) 84 ITR 192
would not
129 ITR 128 (Del)].
C/ Tv Vinay Bharat Ra m (1981) or Scheme
of sha res or deb ent ure s und er any Employees Stock Plan
J5. Allotment Employees Stock
shares or debentures under any
of the company: A11otment of employees in
Sch em e of the com pan y when these are offered to
Plan or Central Government.
s issued in this behalf by the
accordance with the guideline of the same.
have to pay FBT on the value
However, the em plo yer shall
sites: Tax paid by the
yer on non-monetary perqui
16. Tax pa id by the emplo exempt in the
yer on non -m one tar y per qui sites of the employee shall be
emplo
n 10(10CC)J
hands of the employee. [Sectio
by the employer to
car or exp end itu re on mo tor car: Mo tor car provided
17. Mo tor h motor
or exp ens es inc urr ed by the employer in connection wit
the employee ively for personal
(for purposes other than exclus
car belonging to the employee ough the
sha ll be a tax fre e per qui site in the hands of the employee alth
purposes) such fringe benefit.
ge benefit tax on the value of
employer shall have to pay frin such facility
if the em plo yee is not liab le to pay FBT, the value of
However ,
the employee.
shall be taxable in the hands of
by the employer to
oth er per qui site s: All other perquisites provided
18. All scribed.
ll be tax free per qui site as no valuation rules have been pre
employee sha benefit tax on the
, in this cas e, the em ployer shall have to pay fringe
Ho we ver to pay FB T,
h frin ge ben efit . Fu rth er, if the employer is not liable
value of suc employee.
val ue of suc h fac ilit y sha ll be taxable in the hands of the
the vided at
of ren t fre e acc om mo dat ion or accommodation pro
5.5.d Valuation*
concessional rent: cession in rent
ini ng the val ue of ren t free accommodation or value of con
For detenn ided
vid ed at con ces sio nal ren t, accommodation may be div
~hen accommodation is pro
into following parts:
by the government;
(I) Accommodation provided
(II) Accommodation provid
ed by any other employer;
yer in a hot el;
mo dat ion pro vid ed by the government or any other emplo
(HI) Accom at new
pro vid ed by the gov ern ment or any oth er em plo yer
OV) Accommodation ear lie r place.
of pos ting wh ile em plo yee retains the accommodation at
place

l See para 3.] .d.

178 Chap. 5
Taxation Laws
I. . employees: Where the
Accommodation provided by the Government to as t t their employee s
accommodation is provided by Union or State. Governr; t~ of Union or State
either holding office or post in connection with t.he a ~irs t~ control of such
Government or serving with any body or undertakmg un er ed .
Government on deputation , then value shall be determined as un er. .
.
(a) Where the accommodation is unfurnished: T_he va1ue s hall f
be the licence fee
mmodatio n in
determined by Union or State Government m respect O a~co db the rent
accordance with the rules framed by that government as re uce Y
actually paid by the employee.
(b) Where the accommodation . LS. furnzshed:
. The va Iue of perquisite shall be
. d
determined as if it is an unfurnished accommodation (i.e. value _determme
as per clause (a) above) Such value shall be increased by following:
Situation Amount
1. if such furniture IS 10% of the cost of furniture (includin g
owned by the employer television sets, radio sets, refrigerators, other
household appliances, air condition ing plant
or equipment)
2. if such furniture IS the actual hire charges paid or payable for the
hired from a third party same.
However where house is provided at concessional rate of rent then value of
furniture as determined above shall be reduced by any charges paid or payable
for such furniture by the employee during the previous year.
II. Where the accommodation is provided by any other employer: Where
accommodation is provided as rent free or at concessional rate by any employer
other than government then it may be owned by the employer or taken on lease
or rent by the employer. However, the value shall be determined as under:
(a) Where the accommodation is unfurnished:
Nature of Accommodation Accommodation Accommo dation
Accommo dation provided in a city provided in a city provided in any
having population having population other city having
exceeding 25 lakhs exceeding 10 lakhs populatio n not
as per 2001 census but not exceeding 25 exceeding 10 lakhs.
lakhs as per 2001
census
1. Where the 15% of salary in 10% of salary in
accommodation respect of the period 7 .5 % of salary in
respect of the period
is owned by the during which the said respect of the period
during which the said during which the
employer accommodation was accommodation was
said accommod ation
occupied by the occupied by the
employee during the was occupied by the
employee during the
employee during the
previous year previous year
previous year
2. Where the • Actual amount of • Actual amount of
• Actual amount of
accommodation lease or rent paid or lease or rent paid or
lease or rent paid
is taken on lease payable by the payable by the
or payable by the
or rent by the employer; or employer; or
employer; or
employer • 15 % of salary • 15 % of salary • 15 % of salary
whichever is lower. whichever is lower.
whichever is lower.
Ch.ap. 5

L 1i ~UL h fJITc ~me i~ o ;;,·ne<l j(J) , ()(t }f.f; u~: uf fo:rn:tr t 1 £.-;L:~.':,;2. .
- ~ -- ~ - •r ,,, ..• -,. ,,
~,__,. ;() ~-"~ , •~-~
_.i , . ::, ..,,,_ ~
,,,., ,,_,. ;._ J·()-, ., c,_,,,;,
~. ~r1e empl0 :;er
;Jl'"-"t,,c_.,. .
"-'-' v ~ .. > ."7L-.:.. ✓ ~ .1 -MV~

;.~ ~::,(; r:<.hJ aw:~~ ~, >.:..1

()tr.e r
cor:iduir;nj:-:.£ p!.a.r1: rr, cq-..ir,:~: 1
- - - - - - - -
: (Jla ; gt;~ pak r;.- 00~ ~:t
-·---- - -
2. ii s.uch furn iture :\ hired ::-•.e c.ctna.i hire
~rom a third JYdrt~, for the ,.,a.rrJf:-.
ed A-: rd!i: of rtw tl:.::-:-.
UJ:": Ce:O:..:~ :-.£t~
Ho:;.ever, v. her t house \ pro-.·id. ~~c
~t sha ll be reduced b:i an) cr;E:.:rjb.!
\ alue of furniture a'.l> <ie:er;;;.;r.ec abo ;·t:a!.
or payabl e for ~uch fumiw re U)'
the em pJoyre dur ing Ult prtviou~
une nl ur (jJh a
prm,i ded 17:,: the emp!,o;·er (Go w:n
Ill Where 1he accommod£J1ion is 7 i~
a hol e!: ii i~ imp ort.am w note th.ai -;..-he re ~ 'J., m. ~:~
1?mp !.r.1ye rJ in ...t: ri,
t or any 011:er J in 2 hate) trien tire ·,c..1
pro\·jded by any emp fOj er (gov ernmen
~.he acco mrncxla1ion shaJJ be:
pe foc d.11rir.g
fa; 24 ':k o f ~ paid; or pay
able fm lhe pre·ioi1s yt:hl, for tr.t
·x hic h such accommodat ion is pro
vided; or
able to such note J,
(b; I'ne actua l cha rge s paid or pay
,;.fo ch eve r is Jo \ver.
any ren t, the \'afo e ~ deternrine
ci snaJ I be
HoweYer, if rhe emplo} ee pays
or payable by th e emp ioyee.
reduced by the rent, actualJy pai d \'Vhzn
el is not ta.xahl,e per qui site:
Wh en acc om mo dation in a hot. quisire or
el it will no~ be a taY.ahle pe-r
accommodation is pro vided in a hot
owing tv.-o conditions are fulfilled
perquisite valu e wiH be nil if the foll
exceed ing 15 days; and
(aJ Such accom modat ion is pro \·ided for a per iod not
place to
(bJ It ha.s been provided on the
transfer of the employee from one
another.
new pku :e ofpos ting on tran sfer
wh ile retaini ng
I V. Acc om mo dat ion pro vid ed at a
ce [Pro viso ] Jo rule 3(l )J
the acc om mo dat ion aJ the oth er pla plo yee is
from one pla ce lO another. the em
\\-'here on acc oun t of his tran sfer and he also
the new place of posting
pro vided with accommodation at
retains the accommodarion at rhe
pre vi6us place;
detennined \i,:ith reference to onfy one
then the value of perquisi te sh1111 be e to
Iov.,er rnlue (as dete rmj ned acco rdin
such accommoda.tion whi ch has the ~he
exceedi ng 90 day s and thereafter
the abo ve pro visions) fo r a period not s.
d for both such acc om mo dat ion
vaJue of per qui site shall be cha rge
ich is
mo dat ion whe n tax free per quisiJe: The acc ommodation ""-h
IJze acc om rqu isite valu e nil) :
e shall be a tax free perqui sjte (pe
provided by the emp loy er to emp loye
180
Chap. 5
Taxation Laws . . •
(a)
.
if the accommodation is provided to an em ployee wor k ing at mmmg
. site or an
. site or a dam site or a power
offshore oil explorat10. n site
. or a proJ_
·ect execution '
generation site or an offshore site which- . . th area not exceeding 800
d having P 1111
o being of a temporary nature an
l than
. k"l meters ' c.
away it"om t he loca I
square feet, is located not ess e1oht l o
O
t board· or
limits of any municipality or a cantonmen '
ois located in a remote area. kilometer s away from a
"Remote area" means an area that is . located at least 40 .
. based on latest published all
town having a population not exceedmg 20 ,000
India census.
(b) If Hotel provided after transfer for 15 days. . h .
(c) If Rent free accommodation . to Judges
. f S
o up reme Court or H1g courts, union
minister or leader of opposition .
Importan t Points: 11 b
► .
' Salary' for the purpose of Section 17 (2)(")
1 1· ncludes the pay ' a owances,
t onusd
or commission payable monthly or otherwise or any monetary paymen , ca 11 e
by any name, 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 computat ion of
superannuation or retirement benefits of the employee concerne d;
(b) employee'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 Section 17(2) of the Income-t ax Act;
(e) any payment or expenditure specifically excluded under proviso to Section
l 7(2)(iii) (relating to Employees Stock Option Plan or Scheme) or proviso
to Section 17 (2) (relating to medical facility or reimburs ement of medical
expenses);
► "Accommodation" includes a house, flat, farm house or part thereof, or
accommodation in hotel, motel, service apartment, guest house, caravan, mobile
home, ship or other floating structure;
► "Hotel" includes licenced accommodation in the nature of motel, service
apartment or guest house;
► If the employee_ receives salary from more than one employer , the aggregate of
the salary r~ce1~ed fro_m both the employers, for the period for which the
accommodation 1s provided, has to be taken into account for valuation of rent-
free accommodation even though the accommo dation has been provided only by
one employer.
5.6 Profits in lieu of salary or in addition to salary [Section 17 (3)]
Profit in lieu of salary or in addition to salary includes following:
(a) The amount of ~ompensation due to _or received by the employee from his
employer or prev10us employer at the time of or in connectio n with termination
of service.
(b) The amount of ~ompensation ?ue to or. received by the
employee from his
employer or previous employer m connect10n with the modificat ion of terms and
conditions of employment.
Chap. 5 Computation of Total Income and Income under He d S l 181
a a ary
(c) Any lump sum amount received prior to employme t ft .
employmen t. n or a er cessation of

(d) .T he lump sum amount received by assessee from Unrecognized p rov1·ctent Fund
, , . . .
tothe ex tent o f employer s contnbut10n and interest on that.
(e) Any amount (including bonus) received under a Keyman Insurance p 1icy ·
(KIP). o

(J) Any lump sum due to or received by an assessee from his employer or previous
employer beyond exempted Jimjt in following cases;
• retrenchme nt compensati on under Section 10( 10B)
• Recognized Provident Fund (RPF) under Section 10(12)
• approved superannuation fund under Section 10( 13)
• HRA under Section 10(13A)
Income from salary = Gross annual salary - Deductions under section 16
Gross annual salary = Basic salary + any amount under section 17 + Allowances +
Any other amount received by the employee from his employer and not exempted such as
bonus, overtime salary, etc.
5.7 Deductions under section 16
(a) Deductio11 regarding entertainment allowance [Section 16(ii)]: Entertainment
allowance also known as sumptuary allowance, which is received by the
employee from his employer to entertain guests, is deductible from Gross annual
salary.
Important points:
► Only governmen t employees are entitled to claim this deduction.
► Amount of deduction is the least of the following:
(a) The amount actually received as entertainment allowance; or
(b) 20% of salary (Basic salary and dearness allowance if permitted
according to service rules); or
(c) ~5,000.
► The amount actually spent to entertain the guests is not important tot decide
the amount of deduction.
(b) Deduction regarding professional tax [Section 16(iii)]: The professional tax
paid by assessee during Previous Year is deductible from Gross annual salary.
Important points:
► According to Article 276 of the Constitution, maximum professional tax
which can be levied by the local authority is ~ 2,500.
► If tax is paid by the employer on behalf of employee then it would be added
into the salary of the employee as perquisite under section 17(2)(iv) i.e. , (the
obligation of the employee paid by the employer) and then employee would
claim deduction under section l 6(iii).
5.8 Allowances
Allowances are fixed monetary amount received by the employee from his employer
for specific purpose which may be official or personal. Allowances are always given
under the contract of employment and the word "Allowance" is always attached to that
amount.
182 Chap . 5
Taxation Laws
S.8.a Types of Allowances
(a) Exempted Allowances [discussed in detail under
chapbt~r. E~e~ pt~d
Income]: Certai n allow ances are exemp ted and he nce not taxa_
e dtn t cd' anh _s
· ·
of assessee (empl oyee) . Howe ver, limit · · · me nuone un e r t 1s
of exe mptio n is
Act. Fu1iher exemp ted aJlowances are of two types :
(i) exempted in general
(ii) exempted in special cases
(i) Exem pted ·m general (Discu
· · detail· ·
ssed m · d ·
rn Exem pte mco me)··. allow ances
.. .·
exem pted in general includes: HRA [Secti on 10(13 A)] and
Notif ied special
allow ance [Secti on 10(14)]
(ii) Exem pted in special cases: Allow ances exem pted in
speci~I cases incl~de
allow ances to Indian citizens given by Gove rnmen t of India
for ren_denng
servic e outsid e India [Section 10(7)J; allow ances to Mem
ber of Parlia ment
[Secti on 10(17)]; allowances from UNO (Acco rding to notifi
cation issued
by the Tax Depar tment Salary, perquisites are also exem pted
in additi on to
allow ances received by a person from UNO )
(b) Deducted Allowances: Certain allowances are deduc table
i.e. first these are
included into gross salary and then deduc tion is given
. Howe ver, limit of
deduc tion is also fixed. Exam ple is entert ainme nt allow ance
[Secti on 16(ii) ].
(c) Partly taxable allowance: If assessee receiv es exem pted
or deduc ted allow ance
which is beyon d the exemp ted or deducted limit then balan
ce would be taxabl e.
Exam ple: Maxim um limit in case of Enter tainm ent allow
ance [Secti on
16(ii)] for deduc tion is < 5,000 theref or if assess ee is receiv
ino ~ 6 000 as
Enter tainm ent allow ance then < 1,000 will be taxable. e, '

(d) Fully taxable allowance: It is impor tant to note

that any allow ance not cover ed
above is fully taxable. Howe ver, following are fully taxab le
allow ances :
• Dearness allowance
• Medical allowance
• Lunch /Tiffin allow ance
• Ward en allow ance
• Serva nt allow ance
• Overt ime allow ance
• NPA (Non- Practi cing allowance)

• Famil y allow ance

5.9 Difference in Perquisites and Allowances
Whet her Perqu isites and Allow ances are same or different?
There are two views regard ing this question:
(i) Allow ances and perqu isites are same and Allow ances are perqu
isites in cash.
(ii) Allow ances and perqu isites are different and follow ing
are the differ ences :
a) Allow ances are fixed.
( . .fi, mone tary amou nt receiv ed by. the emplo yee from h.1s
emplo yer for spec1 JC purpo se w h.,c h may be officia l or perso nal where as
perqu isites are_ casu~l- emolu ments or benef its attach ed
to an office or
positi on given m add1t10n to salary or wages.
 e under Head Salary
Chop. 5 Computation ,f fora! Inco me and In com 183
e under. [ncome- tax Act , 1961 but •und er 1ncome-
(b) Allo wances arc not ta xabl .
taxable under section I 7(2) of
tax Rules, 1962 whe reas Perqu1s1tes are
Inco me- ta x Act, J 961.
.
(c) Allo wa nces arc always in cas h
whe re as perquisites can be in cash or kind
reas
(c/) Allowances are always give
n under the contract of employment whe
ntarily or under the con tract of
perquisites can be give n eith er volu
employ ment.
n i.e.,
te) The.: word "Allow ance'' is
always attached with the amount give
etc. whereas word "Perqui site" is
Dearness allo wance, Medical allowance,
not always attached with the benefit.
5. l OProvident Fund of
Meaning of Pro vide nt Fund: Providen
t Fund is a welfare scheme for the benefit
of retirement/
the employee whe re bene fit isreceived by the employee at the time
r
ination). Under this scheme the employe
discontinuation of service (resignation/term e some
e opens his account (PF Account). Her
maintain s Provident Fund and employe unt
loyee from his taxable salary and sam amo
e
amo unt is annually contributed by the emp er's
r. The total annual contributions (Employ
is annu ally contributed by the employe interest on that
) are invested or deposited and
Contribution and Employee's Contribution s on
Account. Therefore, the balance keep
is also credited to the employee ' PF e at the
p sum amount is received by the employe
accumul ating from year to year. The lum
ice (resignation/termination).
time of retirement/discontinuation of serv
5.1 O.a Types of Pro vide nt Fun d
t Fund:
There are following four types of Providen er
d (SPFIGPF): This fund is set up und
(1) Statutory or Gen eral Provident Fun
fund is mainly established by the
The Provident Fund Act, 1925. This
ns, universities/educational institutions
Gov ernment, Semi-Government institutio
the statute.
affiliated to the universities established by
(RPF): This fund is set up under The
Employees'
(2) Rec ogn ized Pro vide nt Fun d
isions Act, 1952 (The Provident Fund
Provident Funds and Miscellaneous Prov
employs twenty or more than twenty
Act , 1952). Under this any person who
er this Act and to start RPF scheme
employees, is bound to register himself und
r three years of its establishment.
for his employees in his organization afte
so agree, this fund can be established
However, if the employer and employees
ty or period of establishment is less
if number of employees is less than twen
tion has two options:
than thre e years. Therefore, such organiza
(i) To establish PF under the Providen
t Fund Act , 1952;

(ii) To establish its own PF scheme.

For this employer would open a trust for
Commissioner of Income Tax and
running such scheme and approval of the
ory. Here fund s of the trust are
Commission er of Provident Fund is compuls
income of such trust is exempted
to be inve sted in a particular manner and
granted by the Commi.ss ione r of
under Income-tax Act. If approval is
Provident Fund sche me.
Income-tax then it is known as a Recognized
(VRP_F): A PF scheme whi ch is not app
roved by
(3) Unrecogni~e~ Provident Fun d
n as unrecognized prov ided fund.
the Comm1 ss1oner of Income Tax 1s know
oved or not by the Provident Fund
However, it is imm aterial whe ther it is appr ·
Commiss ioner.
 ~ME _
IIY Taxable
FR~O~M~S RIEs==---------------_:
~ALA-===
Allowances
... FU• h . .
1.141

(S) Flu Dearness Allowan ce/Add ition al Dearness Allowanc 'Cl
· · fi d · " mos t due to . .
. f Employees havi ng 1xe mco me suue r the ing but an dnds~ _m pnce s and to compensate their
J{eUe h. are paid such allow• ance s. So D.A. is noth
t ey
10s 5· some times it is ment10ned that :
fits; or
(i) D.A. enters ~nto pay for sez:rice bene
fits; or
(ii) D.A. enters mto pay for retrr eme nt bene
loym ent; or
(iii) D.A. is give n unde r the term s of emp
(iv) Dearness pay,
B C
A
Full y Taxable
Fully Exempted
1. Dear ness Allo wanc e
~ig n Allow:ince
only in case ot
Addi tiona l Dear ness
Government employees
allow ance
High Cost of livin g
posted outside
allow ance
India
ance 2. City Com pens atory Allowance
2. House rent allow 3. Capi tal Com pens atory
2. House rent allowance Allo wanc e
given to judges of High
4. Lunc h Allo wanc e
Court and Supreme
5. Tiffi n Allo wanc e
Court
3. Sumptuary Allowance 6. Marr iage Allo wanc e
7. Fam ily Allo wanc e
given to judges of High
Court and Supreme Cour t 8. Depu tatio n Allo wanc e
9. Ward ensh ip Allo wanc e
4. Allowances from U.N.O.
10. Non prac ticin g Allo wanc e
5. Allowance to teacher or
11. Proje ct Allo wanc e
professor from SAA RC
12. Over time Allo wanc e
member States
13. Fixe d Med ical Allo wanc e
6. Allowance to member of
14. Ente rtain ment Allo wanc e for non-
Union Public Service
Commission Govt. empl oyee s
15. Wate r and Elec tricit y Allowance
16. Serv ant Allo wanc e
17. Holi day Trip Allo wanc e
18. Tran spor t Allo wanc e for normal
empl oyee s [w.e.f. A.Y. 2019-20]
19. Any othe r allow ance which is
neith er fully nor parti ally exempted
.nig cost of living all owance/lnterim
.
a 1t10nal salary an d It· 1s·
fully taxable.
Partially Taxable
1. House Rent Allowance
2. Entertainment Allowance for Govt.
employees (see details)
3. Allowances covered u/s 10(14)(i)
read with Rule 2BB (l)
(i) Helper Allowance
(ii) Uniform Allowance
(iii) Academic Allowance
(iv) Conveyance Allowance
(v) Travelling Allowance
(vi) Daily allowance
4. Allowances covered u/s 10(14)(ii)
read with Rule 2BB(2)
(i) Any special allowance in the
nature of Composite Hill
compensatory Allowance or
High Altitude Allowance or
Uncongenial Climate
Allowance or Snow Bound
Area Allowance or A vlanche
Allowance
(ii) Any Special Compensatory
Allowance in the nature of
border area or remote area or
difficult area or disturbed area
Allowance
( iii) Transport Allowance for specified
handicapped employees
(iv) Tribal Area Allowance
(v) Running Allowance given to
employees of transport sector,
(vi) Children Education Allowance
( vii) Hostel Expenditure Allowance
(viii) Com pens atory Field Area
Allowance
(ix) Com pensatory Modified
Field Area Allowance
(x) Special Allowance in the nature
of coun ter insurgency allowance
given to the members of armed
forces operating in areas away
from their permanent locations for

.____ _ _ _ _ _ _- - -~ = -- -- -- -
a perio d of more than 30 days .
....____