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| Use the company car, decline its leased flat, advise experts |
| Tinesh Bhasin / Mumbai Jan 06, 2010, 00:34 IST |
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New tax rules on perks need some smart changes in what you claim.
The new guidelines on taxation of perquisites, applicable from this year , which means that employees who have already benefited from these will have to pay tax with retrospective effect for doing so, for this entire year.
There are a few things, though, that they can do from next year to ensure their tax outgo is lower.
The guidelines include taxation of benefits like a company-provided car, chauffeur, accommodation, concessional loan and employee stock options (Esops), among others.
Among the two significant changes that one can make is shifting the onus on the employer to provide the car and, in many cases, pay house rent oneself.
Tax experts said the biggest impact will be in case a company-owned or self-owned car is being used for official as well as personal purposes. That is, a person will now pay more tax if he uses his car and the employer reimburses the expenses. “Many companies just reimburse the fuel bill. In such cases, the employee will have to bear a higher tax burden,” said Kuldip Kumar, executive director, PricewaterhouseCoopers.
The Central Board of Direct Taxes (CBDT) has divided cars into two categories, self-owned and employer-owned. Further, cars are divided into those with engine capacity below 1.6 litres and above 1.6 litres.
Accordingly, for company-owned cars used for both official and personal purposes, a monthly sum of Rs 1,800 and Rs 2,400 will be added to the taxable income of the employee for cars below and above engine capacity of 1.6 litres, respectively. And, Rs 900 will be added in both the categories if the car is chauffeur-driven.
Beside, if the employee is using his own car for both official and personal purposes, the taxation goes up significantly. In this case, the deduction allowed will be only Rs 1,800 or Rs 2,400 (depending on engine capacity).
For instance, if the monthly expense on a chauffeur-driven car is Rs 15,000, an amount of Rs 12,300 or 11,700 (depending on the engine) is added to the taxable income of the employee. Clearly, it makes more sense to use an employer’s car.
Company-sponsored accommodation is another area where some serious planning has to be done. If the basic salary of the person is high, it makes more sense to claim Housing Rent Allowance (HRA), instead of taking accommodation from the company.
For instance, assume a person has a take-home salary of Rs 1 lakh per month. His basic is Rs 50,000, HRA Rs 25,000 and other allowances Rs 25,000. If he goes for a house with a rent of Rs 30,000, there are two options – one, he can rent it out himself or ask the company to lease it for him. In the first case, he pays the rent but gets tax exemption for the entire amount. That is, the least of actual HRA, excess of rent paid over 10 per cent of salary or 50 per cent of salary is exempt. So, Rs 30,000 qualifies for zero taxation.
On the other hand, if the company were to pay the entire rent, 15 per cent of the entire salary would be added to his monthly income. That is, Rs 10,500 (as his other allowance or basic salary will be reduced by Rs 5,000 to accommodate a rental of Rs 30,000) will be added to salary and taxed, accordingly. So, it is better to opt for HRA instead of company-leased flats.
Kumar also said that during the earlier fringe benefit tax (FBT) regime, many companies used to sponsor employees’ holidays to reward their performance. “If this continues, the entire expenditure incurred on the holiday will be added to employees’ salaries,” added Kumar.
Then, there are some other perks that have been included as a part of perquisite taxation. These include concessional loans of over Rs 20,000 and free or concessional educational facilities for children. In the former case, the rate of interest charged will be based on the State Bank of India’s interest rate on April 1. In the latter case, the amount will be added to your taxable income. After that, you can get tax benefits up to Rs 1 lakh (under section 80C) on children’s fees.
A whole lot of smaller perks like free food exceeding Rs 50 per day, gifts of over Rs 5,000 and membership fees or annual fees incurred by the employee on a credit card provided by the company will attract taxation. “A surprising move in the new guidelines is restriction on the value of meals provided during the office hours,” said Sanjay Grover, tax partner, Ernst & Young.
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