Income-tax Act,1961
Act No : 43
Section :
"Salary" "perquisite" and "profits in lieu of salary" defined.
17. "Salary" "perquisite" and "profits in lieu of salary" defined 3For the purposes of sections 15 and 16 and of this section,- (1) "Salary" includes- (i)wages; (ii)any annuity or pension; (iii)any gratuity; (iv)any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages; (v) any advance of salary; 4[(va) any payment received by an employee in respect of any period of leave not availed of by him;] (vi) the annual accretion to the balance at the credit of an employee participating in a recognised provident fund, to the extent to which it is chargeable to tax under rule 6 of Part A of the Fourth Schedule; and (vii) the aggregate of all sums that are comprised in the transferred balance as referred to in sub-rule (2) of rule 11 of Part A of the Fourth Schedule of an employee participating in a recognised provident fund, to the extent to which it is chargeable to tax under sub-rule (4) thereof; 5(2) "perquisite" includes- (i) the value of rent-free accommodation provided to the assessee by his employer; (ii) the value of any concession in the matter of rent respecting any accommodation provided to the assessee by his employer; (iii) the value of any benefit or amenity granted or provided free of cost or at concessional rate in any of the following cases- (a) by a company to an employee who is a director thereof; (b) by a company to an employee being a person who has a substantial interest in the company; ----------------------------------------------------------------------- 1 Omitted by the Finance Act, 1974, w.e.f. 1-4-1975. Earlier, it was substituted by the Finance Act, 1968, w.e.f. 1-4-1968 and amended by the Finance Act, 1969, w.e.f. 1-4-1970; the Finance Act, 1970, w.e.f. 1-4-1971 and the Finance (No. 2) Act, 1971, w.e.f. 1-4-1972. 2 Omitted by the Finance Act, 1974, w.e.f. 1-4-1975. 4 Inserted by the Taxation Laws (Amendment) Act, 1984, w.r.e.f. 1-4-1978. 5 See rule 3. ----------------------------------------------------------------------- 1.143 (c) by any employer (including a company) to an employee to whom the provisions of paragraphs (a) and (b) of this subclause do not apply and whose income 1[under the head "Salaries" (whether due from, or paid or allowed by, one or more employers), exclusive of the value of all benefits or amenities not provided for by way of monetary payment, exceeds twenty-four thousand rupees;] 2[Explanation.-For the removal of doubts, it is hereby declared that the use of any vehicle provided by a company or an employer for journey by the assessee from his residence to his office or other place of work, or from such office or place to his residence, shall not be regarded as a benefit or amenity granted or provided to him free of cost or at concessional rate for the purposes of this sub-clause;] (iv) any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assessee; and (v) any sum payable by the employer, whether directly or through a fund, other than a recognised provident fund or an approved superannuation fund 3[or a Deposit-linked Insurance Fund established under section 3G of the Coal Mines Provident Fund and Miscellaneous Provisions Act, 19484 (46 of 1948), or, as the case may be, section 6C of the Employees' Provident Funds and Miscellaneous Provisions Act, 19525 (19 of 1952)], to effect an assurance on the life of the assessee or to effect a contract for an annuity: 6 [Provided that nothing in this clause shall apply to,- (i) the value of any medical treatment provided to an employee or any member of his family in any hospital maintained by the employer; 7[(ii) any sum paid by the employer in respect of any expenditure ----------------------------------------------------------------------- 1 Substituted for 'under the head 'Salaries', exclusive of the value of all benefits or amenities not provided for by way of monetary payment, exceeds eighteen thousand rupees;' by the Finance Act, 1985, w.e.f. 1-4-1986. 2 Inserted by the Finance Act, 1989, w.e.f. 1-4-1990. 3 Inserted by the Labour Provident Fund Laws (Amendment) Act, 1976, w.e.f. 1-8-1976. 5 Ibid. 6 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991. 7 Substituted by the Finance Act, 1994, w.r.e.f. 1-4-1993. Prior to the substitution clause (ii), as substituted by the Finance Act, 1992, w.e.f. 14-1993, read as under: "(ii) any sum paid by the employer- (a) in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family in any hospital maintained by the Government or any local authority or any other hospital approved by the Government for the purposes of medical treatment of its employees; (b) directly to a hospital, approved by the Chief Commissioner having regard to the prescribed guidelines for the purposes of medical treatment of the prescribed diseases or ailments, on account of such treatment of the employee or any member of his family;' Earlier, prior to the above substitution, clause (ii), as inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991, read as under: -> -> . ----------------------------------------------------------------------- 1.144 actually incurred by the employee on his medical treatment or treatment of any member of his family- (a) in any hospital maintained by the Government or any local authority or any other hospital approved by the Government for the purposes of medical treatment of its employees; (b) in respect of the prescribed diseases or ailments, in any hospital approved by the Chief Commissioner having regard to the prescribed guidelines': Provided that, in a case falling in sub-clause (b), the employee shall attach with his return of income a certificate from the hospital specifying the disease or ailment2 for which medical treatment was required and the receipt for the amount paid to the hospital;] (iii) any portion of the premium paid by an employer in relation to an employee, to effect or to keep in force an insurance on the health of such employee under any scheme approved by the Central Government for the purposes of clause (ib) of sub-section (1) of section 36; (iv) any sum paid by the employer in respect of any premium paid by the employee to effect or to keep in force an insurance on his health or the health of any member of his family under any scheme approved by the Central Government for the purposes of section 80D; (v) any sum paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family [other than the treatment referred to in clauses (i) and (ii)]; so, however, that such sum does not exceed ten thousand rupees in the previous year; (vi) any expenditure incurred by the employer on- (1)medical treatment of the employee, or any member of the family of such employee, outside India; (2)travel 3[and] stay abroad of the employee or any member of the family of such employee for medical treatment; (3)travel and stay abroad of one attendant who accompanies the patient in connection with such treatment, 4 [subject to the condition that- ---------------------------------------------------------------------- "(ii)any sum paid by the employer in respect of any expenditure actually incur-red by the employee on his medical treatment or treatment of any member of his family in any hospital maintained by Government or any local authority or any other hospital approved by the Government for the purposes of medical treatment of its employees:" 3 Substituted for "or" by the Finance Act, 1993, w.e.f. 1-4-1993. 4 Substituted for "subject to the condition that the expenditure on travel referred to in sub-clauses (2) and (3) of this clause shall be excluded from perquisite only in the case of an employee whose gross total income, as computed before including therein the said expenditure, does not exceed two lakh rupees and subject to such further ------------------------------------------------------------------------- 1.145 (A) the expenditure on medical treatment and stay abroad shall be excluded from perquisite only to the extent permitted by the Reserve Bank of India; and (B) the expenditure on travel shall be excluded from perquisite only in the case of an employee whose gross total income, as computed before including therein the said expenditure, does. not exceed two lakh rupees]; (vii) any sum paid by the employer in respect of any expenditure actually incurred by the employee for any of the purposes specified in clause (vi) subject to the conditions specified in or under that clause. Explanation.-For the purposes of clause (2),- (i) "hospital" includes a dispensary or a clinic 1[or a nursing home]; (ii) "family", in relation to an individual, shall have the same meaning as in clause (5) of section 10; and (iii) "gross total income" shall have the same meaning as in clause (5) of section 80B.] 2[* * *] (3) "profits in lieu of salary" includes- (i) the amount of any compensation due to or received by an assessee from his employer or former employer at or in connection with the termination of his employment or the modification of the terms and conditions relating thereto; (ii) any payment (other than any payment referred to in clause (10), 3 [, clause (10A) ] 4[, clause (10B)], clause (11), 5[clause (12) 6[, clause (13)] or clause (13A)] of section 10), due to or received by an assessee from an employer or a former employer or from a provident or other fund 7[(not being an approved superannuation fund)], to the extent to which it does not consist of contributions by the assessee or interest on such contributions. 1 Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. 2 Omitted by the Finance Act, 1985, w.e.f. 1-4-1985. it was inserted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-1985, thus having never come into operation. The consequential amendments in sub-clauses (iv) and (v) were also made and omitted simultaneously. 3 Inserted by the Finance (No. 2) Act, 1965, w.r.e.f. 1-4-1962. 4 Inserted by the Finance Act, 1975, w.e.f 1-4-1976. 5 Substituted for "or clause (12)" by the Direct Taxes (Amendment) Act, 1964, w.e.f. 6-10-1964. 6 Being inserted by the Finance Act, 1995, w.e.f. 1-4-1996. 7 Being omitted, ibid. ------------------------------------------------------------------------ 1.146 gardeners, night watchman and sweepers provided by the employer should be calculated on an ad hoc basis as given in Letter No. 40/25/69, dated 8-6-1971 (reproduced below) only when the services of sweeper are provided by the employer, i.e. the sweeper is recruited by the employer and remunerated by him but his services are placed at the disposal of the employee. 2. Rent-free accommodation.-While determining the fair rental value of an accommodation owned by the company, the cost of acquisition and other capital expenses on renovation, etc. incurred by the company should be taken into account. In respect of premises taken on lease or rent by the company the actual payment by the company should be taken as fair rental value of the premises. 3. Reimbursement of medical expenses.-The value of the perquisite arising by way of payment or reimbursement by an employer of expenditure on medical treatment incurred by his employee on himself or on his spouse, children or parents including the provision of free medical treatment or treatment at a concessional rate will not be included in the taxable salary of the employee in the following cases: (i) where the medical treatment is availed at hospitals, clinics, etc. maintained by the employer; (ii) where the medical treatment is availed at hospitals maintained by the Government or local authorities or hospitals approved for the purposes of CGHS or the Central Medical Scheme; (iii) where the expenditure is on medical insurance premia; (iv) where the medical treatment is availed of from any doctor outside the institutions/schemes mentioned above, an expenditure of upto Rs. 10,000 in a year in the aggregate; and (v) where the medical treatment is availed of in a hospital outside India and the expenditure is incurred for treatment including on travel and stay abroad in connection with such treatment, as also on travel and stay abroad of one attendant, to the extent permitted by RBI subject to the condition that the amount qualifying for such tax exemption would not include expenditure incurred on travel in the case of employees whose gross total income as computed without considering the amount paid or reimbursed for expenditure in connection with medical treatment exceeds Rs. 1 lakh. 4. Rent-free residential accommodation.-Keeping in view the steep escalation in rents, it has been decided that in the case of rent-free accommodation provided by an employer to an employee at Bombay, Calcutta, Delhi and Madras, the perquisite value will be calculated by adding the excess over 60 per cent of the salary of the employee. The valuation in regard to other places in India would be with reference to the excess over 50 per cent. In the case of rent- free furnished accommodation and addition in respect of the perquisite by way of furniture at 10 per cent per annum of the original cost of such furniture is to be made. Perquisite value of free furniture, including television sets, radio sets, refrigerators, other household appliances and air- conditioning plant and equipment provided to all categories of salaried taxpayers will be taken to be 15 per cent of the original cost of such furniture or where the furniture is hired, the hire charges payable by the employer. In the case of person,,, employed by the RBI, statutory corporations, government companies, bodies or undertakings financed wholly or mainly by the government and officers of government whose services have been lent to or who are employed after retirement from Government service with any company in 1.147 which not less than 40 per cent of the shares are held by the Government of RBI or a corporation owned by RBI, the perquisite value of unfurnished rent-free residential accommodation will be taken to be 10 per cent of the salary due to the person in respect of the period during which the accommodation was occupied by him. If residential accommodation is provided by the employer at a concessional rent the value of the perquisite will be determined as if the employee had been provided with rent-free residential accommodation and the amount so computed will be reduced by the rent payable by the employee. 5. Motor car/conveyance.-If a motor car is provided by the employer for the use by the employee partly for his private or personal purpose and partly for use in the performance of his duties, a proportionate part of the expenditure incurred by the employer on the running and maintenance of the motor car and of the amount representing normal wear and tear of the motor car, which is attributable to the user of the car by the employee for his private or personal purposes the duties of employment are to be performed or from back to his residence will be regarded as use motor car for private or personal purposes will be taken as the value of the perquisite in the hands of the employee. Where the employee is provided with or allowed the use of motor car for his private or personal purposes at a concessional rate, the value of the perquisite will first be computed as if the perquisite had been provided by the employer free of charge and the amount so computed will be reduced by the amount payable by the employee to the employer. 6. Payments to servants.-The amount spent on the salary of a gardener by the employer does not represent a sum paid by the employer in respect of any obligation which but for such payment would have been payable by the employee. The payment of salary to a gardener as such cannot be regarded as a perquisite so as to justify that amount being taxed in the hands of' the employees. However, the expenses incurred by way of maintenance of a gardener may be taken into account for the purposes of estimating the value of rent-free residential accommodation provided by the employer under rule 3. The taxable perquisite in the hands of the employee on account of services of servants provided by the employer will be calculated at 75 per cent of actual wages or Rs. 60 per month whichever is less in the case of sweeper and 50 per cent of actual wages or Rs. 60 per month whichever is less in the case of gardeners and watchman. 7. Sumptuary allowance.-Sumptuary allowance has to be treated as an entertainment allowance. Accordingly such allowance received by a person who is in receipt of salary from Government to the extent that such allowance is required to be deducted in computing the income chargeable under the head 'salaries' may be regarded as an allowance exempt and may not be included in the term 'salary' for the purposes of rule 3. 8. Children's education allowance.-Payments towards children's education made to the employee or on behalf of the employee will be liable to income-tax (i) where fixed allowances are given in cash by the employer to the employee to meet the cost of education of the latter's children; (ii) where the education fees are paid by the employer directly to the school; and (iii) where the employee incurs the expenses in the first instance and gets reimbursement from the employer. 9. Premium for annuity.-The premium paid by an ex-employer to purchase an annuity payable to an ex-employee is taxable only under section 17(3)(ii). The payment will not be admissible as revenue expenditure in the hands of the employer. 1.148 1[Chapter sub-heading 'B.-Interest on securities' and sections 18 to 21 omitted by the Finance Act, 1988 w.e.f. 1-4-1989.] ---------------------------------------------------------------------- 1 Prior to the omission, the chapter sub-heading, section 18, as amended by the Finance Act, 1965, w.e.f. 1-4-1965 and the Finance Act, 1988, w.e.f. 1-4-1988; section 19; section 20, as amended by the Finance Act, 1979, w.e.f. 1-4-1980; and section 21 read as under: "B.-Interest on securities
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