Sunday, June 9, 2002		Books

Tax treatment of fringe benefits
K.B.S. Sidhu

New Law Relating to Valuation of Perquisites & Taxation of Income from House Property
Taxmann Allied Services Pvt. Ltd. Pages 332+20. Rs. 250.

THIS book endeavours to cover two distinct issues—valuation of perquisites and income from house property—within the framework of the prevailing income tax law, supplemented by the statutory rules framed there under.

In a rapidly changing economic scenario, the pay package of the salaried class has been undergoing sweeping changes. In the corporate sector especially, the employees are increasingly being compensated in shape of facilities, privileges, or fringe benefits—whether convertible into monetary terms or not—apart from the conventional salary and allowances. Innovative schemes like "stock options" have been adopted by many progressive companies, particularly in the software sector, to secure and retain highly qualified employees.

It was in this background that far-reaching amendments were proposed in the Budgets of 2001 and 2002, modifying as well as codifying the provisions relating to the valuation of such perquisites. Broadly, the value of the perquisites, benefits or amenities are now being determined on the basis of their cost to the employer, except in respect of houses and cars. Thus although the entire "cost to the employer" has not ipso facto been translated into perquisite value, yet it forms the fundamental basis of valuation.

The book highlights that the major loopholes in the previous provisions have effectively been plugged. Now, the perquisite is valued in the hands of the employee, irrespective of whether the same is received from the employer, or a sister concern. Previously, only the perquisites provided by the employer were subject to taxation. Similarly, under the new provisions, perquisites provided to the "household members" of the employee have become taxable in his hands. Interestingly, however, now the income tax, if paid by the employer on behalf of the employee, is no longer treated as a taxable perquisite, but the employer cannot claim the same as a business expense.

The book devotes separate chapters to perquisites such as residential accommodation, motor cars and other conveyances, concessional loans, medical facilities, provision of domestic servants etc. The statutory provisions are well cross-referenced and suitable elucidated. The book also throws in an occasional tax-planning advice. For instance, in the case of provision of rent-free accommodation, it is explained that the tax burden is less if the employer-company pays the rent directly to the landlord, rather than reimbursing the rent paid by the employee to the landlord. The latter becomes an allowance and attracts higher tax liability.

The second half of the book is devoted to "Income from House Property", popularly referred to as rental income. Seven chapters dilate upon concepts like "annual value", "owner" and "buildings" etc and describe, with clinical precision the method of computing tax. The various deductions available, in particular, municipal taxes paid, ad hoc standard deduction (30 per cent), interest on borrowed capital, and the benefit of repayment of the principal amount of the loan raised to construct the building, under Section 88, are fully touched. Separate chapters are devoted to income from "self-leased property" and "self-occupied property". How a person can take the benefit of negative income from house property to slash his income tax liability is also discussed in a separate chapter.

The book devotes 50-odd pages to reproducing the relevant provisions of Income Tax Act, 1961, the rules framed there under, the statutory forms and the departmental circulars. This is a useful facility since the reader is not required to wade through other reference books and manuals, when some section or rule is required to be referred to.

The book is essentially a sequential reproduction and interpretation of the statutory provisions relating to the two subjects. A significant amount of case-law is thrown in to highlight the current position of judicial adjudication on the point of law. Obviously, the book is not meant for an ordinary income tax assessee who wants to work out or review the package of his perquisites, or a common landlord, who receives some rental income.

It is more a reference manual for the income tax administrators, chartered accountants, income tax practitioners and, of course, for companies that have a significant portion of the salary of their employees as perquisites. It is a must for Drawing and Disbursing Officers (DDOs) of such companies, owing to the TDS (Tax Deduction at Source) implications. The mandatory Form 12BA, giving the particulars of all perquisites, is also now required to be handed over by them to each employee. It shall also be useful to corporates/ trusts having large rental income.

It is not a book which a lay reader, uninitiated to the Income Tax Act, 1961, can easily comprehend. But then, this is obviously not the target audience of this book.