Perk tax may not dig a hole in your pocket

Company employees, fearing a heavy tax on their perks, can afford a small smile. The government, on Tuesday, announced guidelines for taxation on perquisites which are somewhat less stringent than the provisions in the draft guidelines.

Marginal concessions have been made on the valuation of cars, conveyance allowance, housing loans, residential accommodation and children's education. The immediate relief is that the new norms come into force from September 30, and not April 1 as was assumed by most companies. This means there could be gains for employees whose employers were taxing all perquisites at a maximum rate from April 1, 2001.

Revenue officials said the new norms will be notified, with all the gory details, within the next few days and clarifications will be issued thereafter on doubts raised on the new guidelines.

The value of free or concessional residential accommodation provided by the employer has been limited to 10 per cent of salary for duties having a population of over four lakh while it will be 7.5 per cent 1 for other duties. At the same time, concessional loans for housing will now attract an interest rate of 10 per cent, while all other loans, 13 per cent.

The tax on conveyance allowance has been modified.  Now, in the case of employee-owned cars, a deduction of Rs 1,200 (for small cars) and Rs 1,600 for large cars will be permitted for official use.

Small cars have been defined as those with an engine capacity of 1.6 litre, while big cars will be those with a higher engine capacity. The draft guidelines had proposed a deduction of Rs 400 for small cars and Rs 600 for large cars.

Where the employer or employee claims that a higher amount has been spent for official use of the vehicle, the perquisite value could be adjusted, provided necessary documents are maintained.

As for entertainment expenses, as well as credit card bills picked up by the company, the final rules provide that wherever the prescribed documents are maintained, no tax will be levied. The documentation will have to be maintained by the employer.

In addition, the employer will also have to furnish information regarding employees drawing salaries exceeding Rs 1.5 lakh in an amended Form 16. This means additional paperwork for companies.

An exemption limit for educational facilities per child per month has been raised from Rs 500 stipulated in the draft guidelines to Rs 1,000.

Under taxation of tools of trade, laptops and computers have been taken out of the tax net. The explanation given is that these are tools for increasing the efficiency of an employee.

The final guidelines have also relaxed the rate at which employers can provide for the wear and tear of the computers and electronic items.