This is the concluding part of our series on the recently amended rules on perquisites and payments

Finance Minister Yashwant Sinha has changed many of the ground rules relating to perquisites. In the fourth and last part of our series, we take a detailed look at the implications of the latest changes.

Credit cards

Any expenditure, including membership and annual fees, charged to a credit card and reimbursed by the employer will be the value of the perquisite chargeable to tax.

Comments: The draft had similar provisions. However, it had a provision that 30 per cent of the amount would be allowed as official entertainment even if records were not kept. Now, as in the case of motor vehicles, a detailed log of the official use has to be maintained, endorsed by the employee and his supervising authority. The old rule did not even mention credit cards possibly because it was a new phenomenon.

However, it was definitely covered by the general rule — that any other allowance to the extent to which expenditure is not actually incurred to meet expenses wholly, is necessarily and exclusively for the performance of office duties.

There’s more ambiguity to come. The new rule does not mention payments made through a debit card or cash payments. Legislation has to cover all aspects to eliminate litigation.

Club fees

Any payment or reimbursement (including the annual or periodical fee) in a club will be a taxable perk. However, where the employer has a corporate membership in a club, the value of the perk will not include the initial fee. The perquisite value is nil for use of a health club or sports and similar facilities provided uniformly to all employees.

Here also, it is required to maintain and endorse records where the expenses are incurred wholly and exclusively for official purposes. Comments: The old provision depended upon two parameters resulting in the same spirit. The first one was Section 17(2iv) which stated (and still states) that the amount spent by the employer to pay club bills and subscriptions on behalf of the employee are taxable in all cases.

The second one arose out of a case law, Elwood v Utitz 42TC482 (CA, 1966) according to which “If the chief object of extending club facilities is arranging business meetings with the employer’s customers, the perquisite is not taxable.”

Here also the issue of payment through cash or debit card is unanswered.

Use of movable assets

The value of any movable asset provided by the employer shall be 10 per cent per annum of the actual cost of the asset or the rental cost. This does not include assets already specified in the rule and laptops and computers.

Comments: The use of laptops and computers is not considered as a perk.

Transfer of movable assets

The perquisite value of an item transferred by an employer to his employee is the actual cost of such asset to the employer as reduced by the cost of normal wear and tear at 10 per cent of such cost for each completed year during which such asset was used by the employer. In the case of computers and electronic items, the wear and tear would be calculated at 50 per cent and in the case of motor cars at 20 per cent by the reducing balance method.

Comments: The old rule was silent on this subject though in practice, the employer used to sell furniture after some years of usage, at book value to the employee without treating it as perk.

Miscellaneous

Any other benefit or amenity, service, right, or privilege provided by the employer shall be determined on the basis of cost to the employer under arms’ length transaction. This rule shall not apply to expenses on telephones including mobile phones actually incurred on behalf of the employee by the employer.

Option to continue using old rules

Now comes the best part. Though these changes come into force with effect from April 1, 2001, the employee is given an option to compute the value of all perks from April 1 to September 9, 2001 in accordance with the old rules.

Old perks untouched

It is only Rule-3 that is replaced. All the other privileges enjoyed by the salaried class are thankfully untouched. A few which are closely related to the above mentioned amendments, such as children’s education, scholarship, loans, meals and leave travel allowance (LTA) are already covered.

The rule 7(ii) mentioned in the third part is related with travel and tour and co-exists with the LTA.

Fully exempt notified perks

The following perks are exempt:

* Any allowance of perquisite allowed outside India by the government to a citizen of India for rendering services outside India.

* Uniforms.

* Allowance for encouraging academic, research and training pursuits in educational and research institutions is exempt. However, the actual amount spent on training of employees or fees paid for refresher management courses, including boarding and lodging charges by any employer is not considered as a perk.

(The author may be contacted at anshanbhag@yahoo.com)