QUESTION
Whether services of a gardener is not considered as a prerequisite when same is provided by the employer along with rent-free accommodation owned by the employee.
ANSWER
"Perquisites" is a benefit to an employee at the cost of the employer. If there is not benefit to the employee at the cost of employer, then there is no perquisite.
Perquisite may be defined as any casual emolument or benefit attached to an office or position in addition to salary or wages. It also denotes something that benefits a man by going into his own pocket. Perquisites may be provided in cash or in kind. However, perquisites are taxable under the head "Salaries" only if they are
- allowed by an employer to his employee;
- allowed during the continuance of employment;
- directly dependent upon service;
- resulting in the nature of personal advantage to the employee; and
- derived by virtue of employer’s authority.
It is not necessary that a recurring and regular receipt alone is a perquisite. Even a casual and non-recurring receipt can be perquisite if the aforesaid conditions are satisfied. The following propositions should also be kept in view:
- Perquisites are included in salary income only if they are received by an employee from his employer (maybe former, present or prospective). Perquisites, received from a person other than employer, are taxable under the head "Profits and gains of business or profession" or "Income from other sources".
- A benefit or advantage would be taxable as perquisites only if it has a legal origin. As unauthorised advantage taken by an employee without his employer’s authority would create a legal obligation to restore such advantage, it would not amount to "perquisite" taxable under the Act. On the other hand, if the benefit has been conferred unilaterally without the aid of agreement between the parties, the employee can be taxed on the perquisites. It is not necessary that the benefit should have been received under an enforceable right.
From above we can say that if there is no personal benefit to the employee at the cost of employer Rule 3 is not applicable. The Rule 3 is applicable only in case when provisions of Section 17(2) are applicable to the employee. This rule is apply only to find out the value of perquisite only after it is established that employee is in receipt of any benefit/perquisite on the cost of his employer.
RULE 3(3): DOMESTIC SERVANT i.e. SWEEPER, GARDENER, WATCHMAN etc.
|
Servant Appointed by |
Servant’s Salary paid by |
Value of Perquisite |
Taxable in the hands of |
|
Employer |
Employer |
Actual cost to the employer |
Specified Employee |
|
Employee |
Employer |
Actual cost to the employer |
All Employees |
Less: The amount recovered from the employee for such service
Note: Domestic Servant Allowance given to an employee is always chargeable to tax fully.
THE CBDT CIRCULAR NO. 122 dated 19/10/1973 states that
"The Board in consultation with Ministry of Law has re-examined the question of taxability of the salaries paid to the gardeners of the buildings belonging to the employers occupied by the employees as perquisite ----An individual might not interested I having gardener at all and he might allow the gardener to run to weed. On the other hand, he might be an enthusiastic gardener who might himself have laid out large sums to the garden and have employed more gardeners than one. A gardener is employed by the employers primarily with a view to maintain the garden and renders services whether or not the building is occupied by any employee. In view thereof, it amounts to the maintenance of house and the grounds which the employer in any case would have done irrespectively of the fact whether the building was occupied or vacant. As such the amount spent on the salary of gardener by the company does not represent a sum paid by the employer, in respect of any obligation which, but for such payment, would have been payable by the employee. The payment of salary as such cannot be regarded as perquisite so as to justify that amount being taxed in the hands of employees. However the expenses incurred by way of maintenance of a gardener may be taken into account for the purpose of estimating the value of rent-free accommodation provided by the employer under Rule 3 of the Income Tax Rules, 1962."
PLEASE NOTE THAT
On the basis of above circular it is clear that provision of gardener(when gardener is provided along with a house owned by the eomployer) cannot be taken as a perquisite, as the employer in any casde would have maintained the garden irrespective of the fact whether building was occupied by the employee or lying vacant. In this case there is no perquisite and hence provisions of Rule 3 are not applied here. For application of Rule 3, first benefits enjoyed by the employee or perquisite will be decided.
THE BOARD FURTHER CLARIFIED THAT: the expenditure on maintenance of garden will be considered while calculating Fair Market Value of the house for the purpose of estimation of the perquisite value of Rent -Free House.
RECENT DAYS CALCULATION above Circular was issued in 1973 now days 15% (7.5% or 10%) of " Salary" of an employee is taxable value of perquisite in respect of a house owned by an employer. The Fair Rental Value of those houses including cost of maintenance of garden are not taken into account now days on valuation of perquisite of Rent Free Accommodation. The cost of maintenance of garden by the employer and other expenses of general maintenance of building, do not affect taxable value of house perquisite.
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RULE 3(1) OF INCOME TAX RULES, 1962: VALUATION OF ACCOMMODATION A. UNFURNISHED ACCOMMODATION 1. Provided by the Central / State Govt – License fee determined by Govt. is the Taxable Valuable. 2. Provided by any other employer: (i) Owned Accommodation
(ii) Leased or rented accommodation – Taxable Value is lower of the following:
*Salary is to be taken for the period during which the said accommodation was occupied in the previous year. If provided at concessional rate then, Taxable Value = Value determined as above (–) Rent actually paid by the employee 3. Accommodation in a hostel (Provided by any employer) TV = Lower of:
4. Accommodation in a hotel is not a taxable perquisite if the following two conditions are satisfied:
B. FURNISHED ACCOMMODATION Value of accommodation determined as if it is an unfurnished accommodation as above: Add: 10% p.a. of the cost of furniture if owned by the employer and / or the actual hire charges paid / payable, if hired from third party Less: Any charges paid / payable for such furniture by employee during the P/Y (if any) Salary for the purpose of Valuation of Accommodation
PERQUISITIES IS NOT TAXABLE IN THE FOLLOWING CASES: 1. Accomodation provided by employer shall be a tax free perquisite if accomodation is provided to the employee in remote area. 2. Hotel accommodation for 15 days (in aggregate in a previous year) can be provided immediately after transfer at the new location as at ax free perquisite. 3. If an employee is transferred and housing facility is provided to him at the new location (he has yet to vacate a house given at the old location), for a period of 90 days immediately after transfer only one house (at the option of the employee at the old location or new location) is chargeable to tax and the other one will be tax -free. 4. Further, rent free house is not taxable if it is provided to a High Court Judge, Supreme Court Judge Union Minister, Leader of Opposition in Parliament, an official in Parliament and serving Chairman and member of UPSC. |
CONCLUSION
The salary of gardener paid by the employer is not perquisite, when gardener is provided along with rent free accommodation maintained by the employer and expenditure on maintenance of garden(including salary of gardener) cannot be considered even at the time of valuation of perquisite in respect of Rent -Free House.
DISCLAIMER: the article presented here is only for sharing information and knowledge with the readers. the views are personal. In case of necessity do consult with tax consultants.
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