Income tax Planning in respect of Salary Perquisites

For employees of large Indian and multinational companies, benefits go beyond salaries to include lifestyle perks such as company accommodation or club membership. Growth in business operations and competition for talent are now prompting even mid-sized companies to adopt the HR practices of such large companies. However, with tax regulations constantly evolving, it is not clear whether these perks are tax efficient or not. Certain perks such as company mediclaim, which doesn’t qualify as a lifestyle perk, is a useful benefit offered to employees.Here is a look at some company perks and how they benefit you:
Company lease vs self rent
One has to choose the best option by calculating the net tax benefit.
In case of a company lease, the amount of rent paid by your employer is deducted from your salary and hence your taxable income reduces to that extent.
However, perquisite value of such accommodation is added to your taxable income. Perquisite value is the lower of 1) 15% of taxable salary excluding the value of perquisites; or 2) Actual rent paid by the company.
For a self lease, on the other hand, you can claim HRA exemption. The tax exemption on HRA is computed as the minimum of following three conditions: i) Actual HRA on your pay slip; ii) 40-50% of your basic salary; iii) The rent amount minus 10% of the salary. If you stay in any of the metros (Mumbai, Kolkata, New Delhi or Chennai), HRA is calculated at 50% of your salary. In other cities/towns, HRA is calculated at 40% of the salary.
You have to calculate the net tax benefit under both the options to find which gives you a higher tax saving. “If you are saving more through your HRA claim, then it’s better to opt for a personal accommodation.
On the other hand, despite the addition of perquisite, if the overall taxable income is lowered because of company accommodation, opt for that,” says Vaibhav Sankla, executive director, Adroit. (Refer table).
Driving a company car
If your employer provides you with a car lease option, you should consider availing of the same as it would be a tax efficient option.
In such case, the EMI paid by your employer to the leasing company is deducted from your monthly salary resulting in reduction in your taxable income.
Further, reimbursement of expenses associated with the car (such as driver’s salary, fuel, repairs and maintenance) are also considered as non-taxable.
However, perquisite value of such facility is added to your taxable income. (Refer table). Perquisite value is equal to Rs 1,800 per month if the cubic capacity of car is up to 1,600. For cars with higher cubit capacity, the perquisite value is Rs 2,400 per month. Further, Rs 900 per month is added if a chauffeur facility is also provided.
Lifestyle benefits
Corporate club membership fee paid by your employer to help you join a club is considered a tax exempt perquisite. This facility can be used by the employee or any of his family members.
If the club membership has been taken only for business purposes, you should maintain the details of expenditures such as the date of expenditure, the nature of expenditure and the amount of expenditure. Consequently, the company would provide a certificate stating the same to the employee.
The value of food coupons issued by the employer, redeemable only at eating joints, are exempt from tax as long as the value of the food coupons does not exceed Rs 50 per meal.
Group mediclaim
This is a common benefit offered to employees irrespective of their grade and the premium is less than half of an individual mediclaim.
Most group health insurance products offer wider coverage and they are more lenient than individual policies. There are several advantages in opting for such group policies.
“A corporate cover waives off the 30-day waiting period unlike a standalone health cover, which means that you are not covered for any disease/health ailment that you get within first 30 days from the effective date of the policy,” says Radhakrishna Chamarty, director of India Insure Risk Management & Insurance Broking Services.
Secondly, a group cover offers maternity cover, which is rare in standalone policy.
“In a group cover, the number of claims can be offset by a set people who wouldn’t make any claim related to maternity. Hence the risk of covering maternity expenses in a group gets diluted because of the dispersion effect from an insurer’s perspective,” says Sanjay Datta, head of health insurance, ICICI Lombard General Insurance.
However, in maternity insurance there is a waiting period of nine months. Ideally, the employee should have completed nine months in the organisation before the conception stage.
You don’t have to pay for the premium; the company mostly bears the cost. Some companies, however, deduct the premium charges from the employee’s salary.