Income Tax Rules, 1962- Proposed amendments 3.

Valuation of perquisites For the purpose of computing the income chargeable under the head "Salaries", the value of perquisites not provided for by way of monetary payment to the assessee or any member of his household (including his servants, dependents and guests) shall be determined in accordance with the following clauses, namely :(a) The value of rent-free residential accommodation shall be determined on the basis provided hereunder, namely:(i) Where the accommodation is provided-

(A) by Government to a person holding an office or post in connection with the affairs of the Union or of a State; (B) by a body or undertaking under the control of Government to any officer of Government whose services have been lent to that body or undertaking (the accommodation itself having been allotted to it by Government), an amount equal to(1) if the accommodation is unfurnished, the rent which has been or would have been determined as payable by such person or officer in accordance with the rules framed by Government for allotment of residences to its officers; (2) if the accomodation is furnished, an amount calculated in accordance with sub-clause (i) plus 10 per cent per annum of the original cost of the furniture (including television sets, radio sets, refrigerators, other household appliances and air-conditioning plant or equipment) or if such furniture is hired from a third party, the actual hire charges payable thereof; (ii) in any other case,-

(A) (i) the value of rent-free residential accommodation which is not furnished shall be a basic charge of a sum equal to 10 per cent of the salary due to the assessee in respect of the period during which the said accommodation was occupied by him during the previous year: (B) where the accommodation is furnished, the value of rent free residential accommodation shall be the aggregate of the following sums, namely:- (1) value of the accommodation arrived at in accordance with the provisions of sub-clause (ii)(A) as if the accommodation were not furnished; and (2) the fair rent for the furniture (including television sets, radio sets, refrigerators, other household appliances and air-conditioning plant or equipment) calculated at 10 per cent per annum of the original cost of such furniture or if such furniture is hired from a third party, the actual hire charges payable therefor. Notwithstanding anything contained to the contrary, for the purposes of this subrule, the perquisite value for accommodation provided to an employee including any

member of his family in a hotel shall be charged at the rate of two per cent of salary per month. Explanation 1.-"Salary" includes the pay, allowances, bonus or commission payable monthly or otherwise, but does not include the following, namely:(i) dearness allowance or dearness pay unless it enters into the computation of superannuation or retirement benefits of the assessee concerned; (ii) employer's contributions to the provident fund account of the assessee; (iii) allowances which are exempted from payment of tax; (iv) any allowance in the nature of an entertainment allowance, to the extent such allowance is deductible under clause (ii) of section 16. (v) Any payment and expenditure specifically excluded under section 17.

The value of residential accommodation provided at a concessional rent shall be determined as the sum by which the value computed in accordance with clause(a), as if the accommodation were provided free of rent, exceeds the rent actually payable by the assessee for the period of his occupation during the relevant previous year. Provided that nothing in this sub-rule would be applicable to any accommodation provided for the employee in the employeer's business premises and used by the employee solely in performing his duties or in a 'remote area'. Explanation-1:For the purposes of this sub-rule, "accommodation" includes a house, flat, farm house or part thereof, or accomodation in a hotel, motel, guest house, caravan, mobile home, ship or other floating structure. Explanation 2:"Remote area", for purposes of this rule means an area that is located at least 40 kilometers from a town with a census population of 20,000 to 1,00,000 (10,000 to 50,000 for a hilly area) or at least 100 kilometers from a town with a population of 1,00,000 or more (50,000 or more for a hilly area) . It must further have insufficient suitable residential accommodation and it should be customary for employees (as in mining, oil exploration, oil rig or ship etc.) to provide for accommodation to employees. Where, in exceptional cases, the circumstances so warrant, the Commissioner may declare an area as a "remote area". (b) The value of a motor-car provided by the employer for use by the assessee exclusively for his private or personal purposes shall be determined as the sum actually expended by the employer on the maintenance and running of the motor-car during the relevant previous year (including remuneration, if any, paid by the employer to the chauffeur) and, where the motor-car is owned by the employer, as the aggregate of such sum and the amount representing the normal wear and tear of the motor-car;

The value of a motor-car provided by the employer for use by the assessee partly in the performance of his duties and partly for his private of personal purposes shall be determined to be a sum equal to that part of the amount actually expended by the employer on the maintenance and running of the motor-car during the relevant previous year (including remuneration, if any, paid by the employer to the chauffeur)which can reasonably be attributed to the user of motor car by the assessee for his private or personal purposes or, where the motor-car is owned by the employer, the aggregate of such sum and of a sum equal to that part of the amount representing the normal wear and tear of the motor-car which can reasonably be attributed to the user of the motor car by the assessee for his private or personal purposes; so, however, that where a determination on the basis mentioned above presents difficulty, the value of the perquisite may be determined on the basis provided in the Table below:

TABLE ---------------------------------------------------------------------------------------Value of perquisite per calendar month --------------------------------------------------------------------------------------(1) (2) (3) -------------------------------------------------------------------------------------Where the h.p. rating of the car Where the h.p rating of the car does not exceed 16 or the cubic exceeds 16 or the cubic capacity capacity of the engine does of the engine exceeds 1.88 litres not exceed 1.88 litres. -------------------------------------------------------------------------------------------------------Rs. Rs. 1. Where the motor-car is owned or hired by the employer and all the expenses on maintenance and running are met or reimbursed to the assessee by the employer.

1200

1600

2. Where the motor-car is owned or hired by the employer but the expenses on maintenance and running for the assessee's 400 600 private or personal purposes are met by the assessee. ---------------------------------------------------------------------------------------------------(i) Provided that where a chauffeur is also provided to run the motor-car, the value of the perquisite as calculated in accordance with this Table shall be increased by a sum of Rs.600 per month; (ii) Where one or more motor-cars are owned or hired by the employer of the assessee and the assessee is allowed the use of such motor-car or all or any of such motor-cars (otherwise than wholly and exclusively in the performance of his duties), an amount calculated in accordance with the Table under sub-clause (ii) and the proviso

thereto, as if the assessee had been provided one motor-car for use partly in the performance of his duties and partly for his private or personal purposes: Provided that where two or more motor-cars are allowed to be so used and the h.p. rating of any one of such motor-cars exceeds 16 or the cubic capacity of the engine of any one of such motor-cars exceeds 1.88 litres, the assessee shall be deemed to have been provided by the employer with one motor-car of h.p rating exceeding 16; Provided further that where two or more motor-cars are allowed to be so used and a chauffeur is also provided to run any such motor car, the value of the perquisite as so calculated shall be increased by a sum of Rs.600 per month; Provided also that where two or more motor cars are allowed to be so used, the second and subsequent motor cars shall be deemed to be wholly for personal use and the valuation of such perquisite shall be charged to tax accordinly. (iii) (a) where the assessee owns a motor-car but the actual running or maintenance charges (including remuneration of the chauffeur, if any) are met, or reimbursed to him, by the employer, the value of the perquisite to the assessee shall be determined as the sum actually expended by the employer which, in the opinion of the Assessing Officer, can reasonably be attributed to the user of the car by the assessee otherwise than wholly and exclusively in the performance of his duties; (b) the value of a motor-car or motor-cars provided for the use of, or allowed to be used by the assessee,(otherwise than wholly and exclusively in the performance of his duties)at a concessional rate shall be determined as the sum by which the value computed in accordance with the forgoing provisions of this clause exceeds the amount actually payable by the assessee for the use of such motor car or motor cars for the period of use during the relevant previous years; (iv) the value of the free use by the assessee of any other type of conveyance provided by the employer shall be determined as so much of the sum actually expended by the employer on the maintenance and running of conveyance during the relevant previous year, and where the conveyance is owned by the employer as so much of the aggregate of such sum and the amount representing the normal wear and tear of the conveyance, as, in the opinion of the Assessing Officer, can reasonably be attributed to the user by the assessee, otherwise than wholly and exclusively in the performance of his duties; Where running and maintenance charges are paid for by the employer to the assessee as in (iii)(a) and (iv) above, by reimbursement of expenses and where complete details of travel and official use are available, the amount so attributable shall not be taken as a perquisite. In any other case, 50% of the amount reimbursed shall be taken as perquiste. (ba) The benefit to the assessee resulting from the provision by the employer of free services or services at a concessional rate for a sweeper, a gardener, a watchman or personal attendant, shall be the actual cost to the employer. (c) The value of the benefit to the assessee resulting from the supply of gas, electric energy or water for his household consumption free of any charge shall be determined as the sum equal to the amount paid on that account by the employer to the agency supplying the gas, electric energy or water.

Where such supply is made from resources owned by the employer, without purchasing them from any other outside agency, the value of perquisite would be the actual cost incurred by the employer. (d) The value of the benefit to the assessee resulting from the provision of interest-free or concessional loan in excess of Rs.20,000/- made available to the assessee or any member of his household by the employer or any person on his behalf shall be determined as the sum equal to the difference between interest payable on the maximum outstanding monthly balance when computed in the specified manner at the prescribed interest rate and the interest if any actually paid. Provided further that the prescribed rate shall provide for different rates of interest for housing loans, car loans, loans for tools of trade or profession and other loans. Prescribed rates are as follows: Loans for purchasing tools of trade or profession- 6% Housing loan - 10% Motor car and scooter loan - 12% Any other loan - 15% For the purposes of this rule 'maximum outstanding monthly balance' shall mean the maximum balance for each type of loan as on the last day of each month. 'The prescribed manner' is the sum of interests payable for the previous year on the 'maximum outstanding monthly balance' calculated by simple interest method at the prescribed rate. (e) The value of travelling, touring , accommodation and any other expenses paid for or borne or provided by the employer for any holiday availed of by the assessee or any member of his household, not being an official tour shall be shall be determined as the sum equal to the amount of the expenditure incurred by the employer in that behalf. Provided that where the assessee is an employee who is resident and ordinarily resident in India but carries out all or part of his duties outside India and where such duties have necessarily to be carried out side India for a period of at least 60 days in a year, the following shall not be chargeable as perquisite: (i) The full cost of travelling outside India borne or reimbursed by the employer(from and to anywhere in India to the place of his duties) for two outward journeys and two return journeys for each previous year for the asssessee. (ii) The full cost of travelling outside India borne or reimbursed by the employer(from and to anywhere in India to the place of his duties) for two outward journeys and two return journeys for each previous year for one or more members of the assessee's family. Provided further that in case of an assessee who is a foreign national not resident in India in the immediately two preceding previous years or who was not an employee in India in the two preceding previous years but carries out all or part of his duties for a period of at

least 60 days in the previous year, the following shall not be chargeable as a perquisite for a period of 5 years: (i) The full cost of travelling form his home country borne or reimbursed by the employer(to and from anywhere in India) for upto two outward journeys and two return journeys for each previous year for the asssessee. (ii) The full cost of travelling form his home country borne or reimbursed by the employer(to and from anywhere in India) for two upto outward journeys and two return journeys for each previous year for one or more members of the assessee's family. The full cost of medical expenses including medical checkups, inoculations and medical insurance borne or reimbursed by the employer irrespective of place of medical check up not exceeding two such instances in a previous year. (f) The value of any benefit or amenity resulting from the provision by any undertaking engaged in the carriage of passengers or goods to any employee of the undertaking or otherwise to members of his household of journey free of cost or at concessional fares, in any conveyance owned by the undertaking for the purpose of transport of passengers or goods shall be taken as the value of such ticket as reduced by any fare actually paid; Provided that where an official tour is extended as a vacation the above rules shall apply to such extended periods of stay or vacation. Provided further that any such facility provided to any member of the family accompanying the assessee on an official tour shall be deemed to be a perquisite. (g) The value of free meals up to Rs.50/- per meal during work hours, if such meals are provided on a reasonable scale and either all employees may obtain free meal or subsidised meals on a reasonable scale, whether on the employees premises or the employer provides free or subsidised meal or paid vouchers which are non-transferable and useable at eating joints by the staff for whom meals are not provided. Provided that tea and snacks during working hours shall be exempt. Provided further that this rule will not apply to meals provided in a remote area as defined in sub-rule (a), where no other arrangements are possible. (h) The value of the benefit to the assessee resulting from the provision of free or concessional education facilities for any member of his household shall be determined in a manner assuming that such expenses are borne by the employee, even though the employer may be running such an educational institution or the employer may be maintaining and running educational institutions or financing education through welfare trusts or otherwise for its employees or their wards. Provided that this sub-rule would not apply, if all expenses per child do not exceed Rs.500/- per month.

(i) The value of any gift, or voucher or token in lieu of which a gift may be received on ceremonial or any special function shall be determined as the sum equal to the amount of the expenditure incurred by the employer in that behalf, provided that where the value of such gift, or voucher or token as the case may be is below Rs.5000/in aggregate during the previous year the value of perquisite shall be taken as Nil. (j) The amount of expenses incurred by the employee and if charged to a credit card, is provided by the employer, shall be the value of perquisite chargeable to tax. Provided that in a case where an employee claims exemption for meal entertainment expenses for bona-fide reasons of business in performance of his duties he should be able to support the claim with reasonable records of the accounts spent on particular occasions, the nature of the entertainment, the persons entertained and the reason for entertaining. Provided further, where such meal entertainment expenses for such business attributable to the employer are not maintained, 30% of the amount incurred shall be treated as perquisite. (k) The fees paid annually and periodically to a club by the employer shall be chargeable as perquisite. Provided, that for use of health club, sports and similar facilities provided uniformly to all employees by the employer, the perquisite value shall be Nil. Provided further that for any one time corporate or institutional membership, or entitlement to use an airport lounge, the perquisite value shall be Nil. (l) For the use of moveable assets belonging to the employer perquisite for such user shall be chargeable at the rate of ten per cent. For computers and electronic gadgets, the perquisite value shall be taken at 25%. Provided that no perquisite shall be chargeable on movable assets owned by the employer for a period of ten years. Provided further that no perquisite shall be chargeable if the movable asset being a computer or electronic item is owned by the employer for a period of more than four years. (m) Where a moveable asset is transferred by an employer to his employee, the perquisite value shall be charged after estimating its costs on the date of transfer. For estimating the cost, ten per cent depreciation would be deductible for each year's user by the employer from the cost of acquisition by the employer. Provided that in the case of computers and electronic items, such depreciation would be estimated at the rate of 25%. Provided further that no value of perquisite shall be chargeable in case of transfer of such assets free of cost or at a concessional rate after a period of ten or four years respectively.

(n) The value of any benefit or amenity not included in the preceding clauses of this rule where the service, right, privilege is purchased by the employer under an arms length transaction, the taxable value of perquisite is the cost price to the employer as reduced by the employees' contribution, if any. In any other case, the taxable value is the amount that the employee could reasonably be expected to pay to retain the benefit under an arms length transaction, reduced by the amount of consideration, if any paid by the employee. Provided however, that subscription to professional journals, expenses on telephone including mobile phones actually incurred on behalf of the employee by the employer shall not be so included.