In my previous post on Tax Savings, we discussed How Allowances can help in Tax Savings. In this post, we will discuss Perquisites and Tax Savings. Perquisite is non-cash benefit given to employee by the employer in addition to salary. This benefit is normally attached to employee’s designation. Some perquisites are across the board, example food coupons. An intelligent mix of allowances and perquisites in the CTC (Cost to Company) can help in effective tax savings of upto 25%. In my opinion, these 2 components are low lying fruits which leave more money in the hands of a salaried employee for financial planning. As perquisite is non-cash benefit therefore tax savings should not be the only consideration while opting for any perquisite. There should be practical utility of that component for employee else employee will not benefit. Please remember that under CTC concept, perquisite value is part of CTC and is reduced from the total CTC. It should be not be misunderstood as additional benefit from employer’s end. An employer in only helping employee in tax savings. Under Income Tax Act there are 25 perquisites which are allowed but not all are relevant. Some of them are allowed under specific conditions. In this post, we will discuss only those which are simple to avail and provide max tax savings.
Perquisites and Tax Savings
Food Coupons: Most of the employees are familiar with Sodexo and Ticket Restaurant food coupons. For tax savings, food coupons is most popular perquisite option. Every month, employer handover food coupon worth Rs 2000 which can be used in restaurants or buy grocery / food items. The logic behind Rs 2000 food coupons is that employer can provide non-transferable paid vouchers which can be used only at eating joints / buy food items. Amount is non-taxable if the cost to the employer is Rs 50 or less per meal per day. Assumption is 2 meals per day for 20 working days in a month excluding holidays, Saturdays and Sundays. If your Saturday is working than no of working days can be 25 in a month therefore you can avail food coupons worth Rs 2500/= per month. The food coupons help in 100% tax savings on the perquisite value.
Gift Vouchers: An employer can gift upto Rs 5000/= per annum through gift vouchers or coupons. As there are “No Free Lunches” in this world therefore employee can opt for Sodexo Gift Voucher of Rs 5000/= from CTC. This amount is non-taxable. The gift should be in kind therefore only gift vouchers / actual gift is exempted from tax. Gift in cash or which can be converted to money is taxable. These gift vouchers are accepted only at select retail outlets which have tie up with Sodexo. So enjoy your Diwali gift sponsored by company from your own salary which is tax free :).
Interest Free/Concessional Loan: One of the perquisite only given by cash rich / profitable companies linked to tenure of employee in company. Loan is non-taxable only if the total loan amount is less than or equal to Rs 20,000 or Loan is provided for treatment of diseases under Rule 3A of income tax act. In most of the cases, loan is at concessional interest rate of as low as 1%. This facility can be utilized by junior employees for tax savings i.e. loan amount of upto Rs 20,000 can be part of CTC.
Movable Assets of Employer: Recently there was lot of buzz on BYOD i.e. Bring your own devices at work. In this case, employer allow employee to buy own device i.e. laptop or tablet which can be used for both personal and professional purpose. It can help you in tax savings. The advantage is that taxable value of perquisite is NIL for employee. Best part is that employer can claim 50% depreciation for each completed year of usage by the employee i.e. after 2 years the asset is virtually FREE for employer. When you leave the job, these assets can be transferred from employer to employee or retained by the company. Besides laptop, tablet and computer, depending on your job profile you can also buy other movable assets. For other movable assets, taxable value of the perquisite is 10% of movable asset. For example, if you are working from home and need LED TV for client conference etc. Assuming LED cost is Rs 1 lakh, you will be taxed only 10% of 1 lakh i.e. Rs 10,000 only. If you are in 30% tax bracket then you will be buying the same from salary already taxed 30% i.e. indirect tax will be Rs 30,000. Effectively there is a tax savings of Rs 20,000.
Company Leased Car: One of the best and substantial component for tax savings. It can cut down your tax outflow because employee is only taxed at the perk value of the car. The perk value of the car is Rs 1800 per month if the car is upto 1600 cc. For cars of more than 1600 cc, perk value is Rs 2400 per month. You can use the car for both personal and official purpose. Company can claim depreciation and at the time of leaving the job, you can either return the car or buy back at depreciated value. Trust me depreciated value will be much lower compared to market value of the car. Company Leased Car is most common perquisite for tax savings purpose. Some companies provide this component only to middle managers and above. This component is tax free against bills. Tax Savings party does not end here. If you are lucky one to have Company Leased Car you can save more tax, Check out next few points.
Driver / Chauffeur Salary: If your company agree to provide chauffeur to run the car than driver salary is also excluded from taxable income as a perquisite. Normally driver’s salary is restricted upto Rs 12,000/= per month to avoid misuse of tax savings. The perk value of driver’s salary is only Rs 900 per month irrespective of capacity of car. This component is tax free against bills. You can imagine the quantum of tax savings.
Maintenance and Running Expenses of Company Leased Car: Employee can claim reimbursement at actuals towards maintenance and running expenses including fuel cost. Remember car can be used by employee for both personal and official purpose. Perk value is Rs 600 / Rs 900 per month for 1600 cc / Above 1600 CC car respectively. In most of the cases, maintenance and running expenses are restricted to Rs 15,000 per month to avoid misuse of this tax savings perquisite. This component is tax free against bills.
Services of Domestic Servant: You can save tax on, salary you pay to domestic servant including sweeper, gardener or personal attendant. Taxable value of the perquisite is salary paid by the employer minus amount recovered from employee. It can help in tax savings towards salary of domestic servant. For example, if your servant’s salary is Rs 7,000 per month and your employer is recovering same amount from your salary. In this case, taxable value of the perquisite is NIL.
Free Recreation / Club Facilities: If as an employee you avail membership of health club, sports or other facility for recreational purpose provided it is available for all employees of organization. It will be fully exempted from income tax. It also include club membership, provided it is for official purpose and / or part of group benefit to all employees.
Education Facilities: If your company is willing to sponsor your higher studies or professional course, the taxable value is only 10% of total course fees. Though company can include the same in your CTC but it will help you in tax savings of 20% if you are in highest income tax bracket.
Hope you liked the post. I tried to cover almost all relevant perquisites in this post. You may share your experiences on how to make tax savings more effective.
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