Jigar M. Patel
International Tax Attorney
The New Tax Regime under Section 115BAC has significantly curtailed the scope of enjoying tax-free allowances, as compared to the old tax regime. However, there are still a bunch of tax-free perquisites which merit careful attention. If such perks can be meaningfully structured by an employer in the Cost to the Company (CTC) proposal offered to the employee, the overall remuneration package can be made more tax friendly. Today’s write-up addresses some reader queries from salaried employees.
Telephone & Laptops – Whether free from Tax Trap?
Query: My employer is providing me reimbursement for telephone expenses and has given me a free laptop for being able to attend to work from home. Whether there would be any tax liability on these perks provided by employer.
Reply: Under Rule 3 of the Income-tax Rules, any reimbursement (without any restriction of a monetary ceiling) granted by an employer to his employee for telephone expenses (including a mobile phone), actually incurred by an employee is treated as an exempt perk. In this context, the inclusion of expenses on a mobile phone should logically cover data plans as well.
Moreover, while the use by an employee of any movable asset belonging to the employer is treated as a taxable perk valued on the basis of 10% of its cost, free laptop or computer facility, so provided, enjoys complete tax exemption in the hands of the employee.
Interest-free Loans – when outside the Taxable Perk Net?
Query: My employer is willing to grant me an interest-free loan of Rs. 10 lakhs for the medical treatment of my father. Whether this would impact my tax liability under the provisions of the Income-tax Act?
Reply: Under Rule 3 of the Income-tax Rules, any benefit resulting from the provision of interest-free or concessional loan for any purpose made available by the employer or any person on his behalf to the employee or any member of his household during the relevant previous year is required to be treated as a taxable perquisite.
The value of such perquisite is determined on the basis of equivalent interest computed at the rate charged per annum by the State Bank of India, as on the 1st day of the relevant financial year in respect of loans for the same purpose advanced by it, as reduced by any interest, if actually paid by or recovered from the employee.
Rule 3 provides for the following two important exceptions, where the amount of interest-free or concessional interest loan is not treated as a taxable perquisite:
- Interest-free loans of petty amounts not exceeding Rs. 20,000.
- Interest-free or concessional interest loan for the purpose of medical treatment of either the employee or any member of his family, in respect of any diseases and ailments prescribed under Rule 3A of the Income-tax Rules. It is pertinent to note that no monetary ceiling has been prescribed in this regard.
Reimbursement of Hospitalization Expenses – when Exempt?
Query: While the earlier exemption of upto Rs. 15,000 in respect of reimbursement of medical expenses granted by an employer to his employee was done away with when Standard Deduction came to be revived, what is the current tax status in case such reimbursement is for hospitalization expenses?
Response: Both under the old as well as the new tax regimes, any sum paid by the employer in respect of any expenditure actually incurred by an employee on medical treatment of himself or any member of his family, in respect of prescribed diseases or ailments, in any hospital maintained by the Government or any local authority or any other hospital duly approved by the Income-tax Department in accordance with prescribed guidelines, is treated as an exempt perquisite.
