What Are Perquisites?

Perquisites are benefits received by the employee from the employer or third parties in respect of having or exercising an employment. They can include benefits in cash or in kind which are convertible into money. In other words, they can be sold, assigned, transferred, or converted into cash. Perquisites can be received regularly or casually.

Under section 4(b) of the Income Tax Act 1967 (ITA), the income upon which tax is chargeable includes gains or profits from an employment. Section 13 (1)(a) of the same act defines perquisite as a type of gain or profit from an employment (any wages, salary, remuneration, leave pay, fee, commission, bonus, gratuity, perquisite or allowance in respect of having or exercising the employment). 

Examples of Perquisites 

Perquisites can include:  

• Pecuniary liability of employees paid by the employer
• Credit card facilities  
• Loan interest  
• Recreational club membership  
• Tuition or school fees of child  
• Life insurance  
• Gardener, driver, domestic help or guard
• Waiver of loan or advance  
• Assets given free of charge or sold at a discount
• Gift vouchers  
• Gift of personal computer to the employee by the employer
• Excellent public service award  
• Professional subscriptions  
• Payment in lieu of notice or buy-out payment
• Scholarship 

Pure Gifts or Testimonials

Consider the following and contemplate whether they are tax-deductible:

1. Wedding gifts (cash, jewellery, or other items) given by an employer.
2. Cash awarded to an employee for passing a professional examination with excellent results.
3. Cash, other items, or certificate of appreciation given for an employee's outstanding performance or extraordinary achievements out of work.

The above are considered pure gifts and testimonials not related to employment. They are given for special or specific reasons. As a result, they are not taxable, as they have nothing to do with having or exercising an employment. 

Exemption of Perquisites 

Some perquisites are exempted from tax. However, these exemptions are not applicable to certain people. Exemptions on perquisites are applicable to all individual employees, except:

• A sole proprietor because the employer and employee is the same person;
• The partner of a partnership; or
• An employee who has control over his employer by way of holding shares, possessing voting power, or possessing powers conferred by the articles of association or other documents regulating the company (likelihood of employee abusing his powers to make the company confer the perquisite on him).