Perquisites are a benefit that the employees are entitled to because of the job or position they hold in the company. They can be in both, cash or kind. For instance, a car given by the company’s side, rent-free accommodation, etc. An employee can also exchange wages for some other benefit. It is known as ‘salary exchange’ and ‘salary packaging’. Perquisites do not include the reimbursement of expenses that you have incurred for office work.
Let’s understand all about perquisites (perks) below as we in this glossary cover-
- Perks Meaning
- Perquisites types
- Difference between allowance and perquisites
- Perquisites Calculation
Let’s look at them one after the other.
Perks are anything that the company offers to an employee apart from money or the salary they earn. They can be taxable or non-taxable depending on the perk type. For instance, Travelling abroad at the company’s expense and even the small winter workplace perks like work from home, hot beverages in the office, free lunches that aren’t included in CTC. Perks help a company in bettering its R&R strategies.
As mentioned earlier some perquisites are taxable and some aren’t. So, perquisites can be categorized basis tax levied on them in the following types-
- Taxable Perquisites Examples
Rent-free accommodation, professional tax of employee, medical expense reimbursement, the salary of a servant at the employee’s residence, gas, water, electricity supply are examples of taxable perquisites. Moreover, gifts above 5k, gym facilities, and more are also taxable.
- Exempted Perquisites Examples
Travel allowance, refreshments, assets provided by the company like a laptop, use of sports club, Interest-free loan provided by the employer, contribution to PF, recreational activities and more are all a part of fringe benefits that come under exempted perquisites.
- Perquisites taxable from employees
This prerequisite type covers companies car that the employee is using, and the education funded by the company for their children, etc.
Difference between allowance and perquisites
Here are the major differences between allowance and perquisites. Give them a read.
- Allowance is a fixed amount given at regular intervals to the employee apart from the salary and it is monetary in nature. On the other hand, perquisites are the benefits that the employer provides the employee apart from the salary free of cost.
- In terms of the taxability of both, allowances are taxable whether they are paid along with the salary or in its lieu. They are to be paid on a due and accrued basis. Perquisites might or might not be taxable from the employee’s hands depending on their type.
- Allowance examples can be transportation, phone allowance. Perquisite examples can be rent-free accommodation provided by the company and refreshments provided in the office.
Ideally, taxes on prerequisites are decided on the basis of the average income tax. It is calculated taking into consideration the rate of tax in the fiscal year, the value of prerequisites against the amount of tax borne by the employer, and income that is charged under salaries. You can check the same in the payslips generated once payroll is processed in the payroll software and salaries are credited to employees.
Here is the tax rate for some common prerequisites provided by the employer-
- If a small car (below i.6 l) is provided by the employer, tax is Rs. 1800/ month and if it is a big car (above 1.6 l) then it is Rs. 2400/ month.
- If the accommodation provided by the employer is on lease then actual rent paid or 15% of the tax percentage, any of the two that’s lower. If the accommodation is provided for more than 15 days in a hotel then 24% of the tax percentage
- On the other hand, if the property is owned by the employer then based on the city’s population the perk is taxable. If the population is more than 25 lac., 15% of the tax percentage would be charged. Between 10-25 Lac- 10% would be charged, and if the population is below 10 lac then 7% of the tax percentage.