Non-Taxable Perquisites

Non-Taxable Perquisites

Non-taxable perquisites are one of the ways to motivate employees to put in their best and retain their loyalty towards the organization, many companies engage in the act of providing numerous benefits that make life easier for them.

Benefits are usually in form of travel allowance, subsistence allowance, paid leave, paid vacations, fringe benefits, and so on.

Some of these benefits are taxable while some of them are not, depending on the tax rules related to them.

In this article, we will be discussing Perquisites, their various aspects, and taxable and non-taxable perquisites.

What are Perquisites?

Perquisites are benefits enjoyed by an employee due to their official status and are usually in addition to their salary or wages. They are sometimes referred to as fringe benefits.

Numerous benefits come in addition to an employee’s salary and are categorized under fringe benefits. 

Examples of perquisites include a company car, fuel reimbursement, interest-free loan, medical facilities, credit cards, etc.

Perquisites can be taxable or non-taxable, depending on the tax rules that apply to them.

They are usually subject to tax under the head of income known as Income from Salaries.

Types of Perquisites

Taxable Perquisites

One of the classes of perquisites is the taxable class, the perquisites that are subject to tax.

Some of them include rent-free accommodation, supply of gas, water, and electricity, reimbursement of medical expenses, free meals, gym facilities, etc.

These stated benefits are taxable and employees need to know how that works.

Non-Taxable Perquisites

These are benefits that are not subject to taxation and they include travel allowance, provision of medical aid, telephone lines, interest-free salary loans, contribution to the provident funds by employers, free medical and recreational facilities, and so on.

Perquisites taxable only by employees

This has to do with benefits such as company cars used by employees, education facilities for children, and so on.

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Differences between Allowances and Perquisites

Although they both share a lot of similarities, one being that they are both used to motivate employees to do well, certain features differentiate allowances from perquisites. Here are some of them:

1. An allowance is a fixed amount given to an employee to care for certain expenses while perquisites are benefits granted to an employee as a result of their professional service.

2. An allowance could potentially increase tax liability when it is paid together with an employee’s salary while perquisites don’t present such a problem since they are sometimes non-taxable.

3. Allowances are usually paid in cash while perquisites are granted in other ways.

Non-Taxable Perquisites

As we have established, non-taxable perquisites are one of the three types of perquisites and as the name implies, it is a benefit that is not subject to tax.

Below are some of these non-taxable perquisites:

1. Food and Beverage: One of the benefits that are not taxable is free food and non-alcoholic beverages that an employer gives to an employee during working hours at office premises.

2. Medical Facilities and Reimbursements: Another non-taxable benefit is the value of medical treatment that an employer gives an employee or any member of their family whether in a hospital, dispensary, or nursing home that is managed by the employer.

3. Recreational Facilities: Also, any recreational facility such as a health club, sports, and so on, given to all employees by the employer is a tax-exempt benefit.

4. Accommodation: The accommodation given to an employee by their employer would be a non-taxable benefit if the accommodation is for an employee working at a mining site or an onshore oil exploration site or a temporary offshore site or is situated in a remote area.

5. Insurance Premium: When an insurance premium is paid by an employer on an accident policy that was set up for an employee, it is considered non-taxable.

6. Loan to Employees: Loans that are below a particular amount are usually considered a tax-exempt benefit, and the amount is usually dependent on the company’s policy.

Others include Children’s Education Allowance, Transport Allowance, Laptops for official or personal use, gifts of certain prices, and so on.

To summarize, perquisites are nice benefits used to attract employees, motivate them, and retain their loyalty. Perquisites are also subject to tax but in some cases, they are non-taxable perquisites.

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