In the Indian tax system, Tax on Perquisites refers to the income tax levied on non-cash benefits or advantages provided by an employer to an employee in addition to regular salary or wages. These benefits, commonly known as "perks," may include rent-free accommodation, company cars, club memberships, interest-free loans, or reimbursement of personal expenses.
Under the Income Tax Act, perquisites are considered a part of an employee’s total income and are taxable under the head "Salaries." The employer is responsible for valuing these perquisites as per the rules prescribed by the Central Board of Direct Taxes (CBDT) and deducting the appropriate tax at source (TDS) while disbursing the salary.
From a compliance point of view, understanding and accounting for perquisite taxation is important for businesses to avoid penalties or scrutiny during audits. Employers must disclose these benefits correctly in Form 16 and the employee’s annual tax statement. For employees, accurate reporting of such benefits ensures smooth filing of Income Tax Returns (ITR) and prevents underreporting of income.
Small business owners, especially those offering value-added compensation packages to key staff, should ensure proper documentation and tax treatment of perquisites. This helps in maintaining transparency and fulfilling regulatory obligations under Indian tax law.
For a complete guide on income tax compliance, including perquisite taxation and related services, visit FinTax24’s Income Tax Solutions.
Proper management of perquisites not only keeps your business compliant but also enhances trust and satisfaction among employees.