TAXABILITY OF VARIOUS COMPONENTS OF SALARY AND PERQUISITE BENEFITS UNDER FINANCE ACT 2020

[Nearly, 104 amendments are made either by amending/omitting existing sections or by insertion of new sections. In this article, the amendments, which are most relevant to salaried persons, are covered.]

Your total salary income comprises both monetary income and non-monetary income. Monetary income means income chargeable under the salary but excluding perquisite value of all non-monetary perquisites. While calculating your income-tax liabilities, taxable allowances and perquisites are added to your taxable income, and exemptions are deducted from total income to arrive net taxable income.

As a general rule, the taxable value of perquisites in the hands of the employees is its cost to the employer. However, specific rules for the valuation of certain perquisites have been laid down in Rule 3 of the I.T. Rules. When an employee obtains a prerequisite during the course of employment, the perquisite availed may be fully taxable, partially taxable, or fully exempt from tax as a part of the assessment of the employee’s income tax.  These are briefly given below.

With the insertion of section 115BAC to income tax Act 1961 in the financial act 2020, individuals and HUF have the option to choose the old or new tax regime from FY 2020-21. The new tax regime with lower tax slabs removes the claim for about 70 deductions and exemptions. The salaried person who opts for a new regime under section 115BAC is not eligible to claim deductions and exemptions like, standard deduction, professional tax and entertainment allowance on salaries, Leave Travel Allowance (LTA), House Rent Allowance (HRA), Minor child income allowance,  Helper allowance, Children education allowance,  Other special allowances [Section10(14)], Interest on housing loan on the self-occupied property or vacant property (Section 24),  Chapter VI-A deduction (80C,80D, 80E and so on) (Except Section 80CCD(2) and 80JJAA),  Without exemption or deduction for any other perquisites or allowances,  Deduction from family pension income.

As mentioned above, the salaried person who opts for a new regime under section 115BAC is not eligible to claim the above-mentioned deductions. However, in the case of a specially-abled person, an assessee under the new regime can also claim tax exemption for transport allowances.

We will now find out from the following posts which are the allowances and perquisites provided by the employer is taxable or partially taxable or exempt from taxes. CLICK the items listed below to know the details.

TDS deduction on perquisite:

1	List of employee benefits not included under the head of Salaries for the tax treatment
2	How to calculate tax relief on salary arrears under Section 89(1)?
3	The tax calculation for Concessional or interest-free loans are given by an employer
4	Calculation of Income Tax benefit available on House Rent Allowance
5	Calculation of tax components on the perquisite value of rent-free unfurnished/furnished accommodation/hotel charge
6	Perquisite value of motor car expenses paid/reimbursed by the employer
7	Income Tax treatment in case of provided with medical benefit
8	What is the tax exemption limit for Transport allowance, Conveyance allowance, and Relocation Allowance?
9	Income Tax Benefit on LTA/LTC under section 10(5)
10	Tax benefit for working in a hilly area, tribal area, border area, and disturbed areas
11	Tax Benefits available on Children Education Allowance, Hostel allowance, Tuition fees
12	Tax benefits on retirement, VRS, and retrenchment of salaried persons
13	What is capital gain and how capital gain tax has arrived?
14	Tax deduction benefits on the standard deduction, entertainment allowance, and employment/professional tax from salary
15	The taxable value of perquisite in respect of “sweat equity shares” or ESOP
16	What are the tax benefits under NPS?
17	Do you know these incomes are fully exempt from Income tax?
18	What happens to your tax liability when you opt for a new tax regime?
19	Do you know the incomes that are exempted from income tax even in the new tax regime?
20	Do you know these incomes are fully exempt from Income tax

 

1

On account of the perquisites, if the taxable income of the employee exceeds the basic exemption limit, the requirement for Tax Deducted at Source (TDS) arises. When the income crosses the basic exemption limit and TDS withholding is made, it becomes mandatory for the taxpayer to file an income tax return. Thus, while perquisites offer benefits to the taxpayer, they also come with tax-implications. Hence, it is up to the taxpayer to choose between various perquisites, keeping in mind the tax implications of each.Source: Income Tax Department