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Monday, May 20, 2002

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Salaried employees can perk up: Easier norms likely for cars, cards, club expenses

Hema Ramakrishnan


THERE could be some good news in the offing for salaried employees on the taxation of perquisites. The Finance Ministry is set to propose relaxations in the documentation requirements for assessing the perquisite value of cars, club expenses and credit cards used for business purposes. Documentation requirements have been prescribed for claiming tax exemption.

According to official sources, the Central Board of Direct Taxes (CBDT) is looking at the option of scrapping the existing requirement which makes it mandatory for an employee and his supervisor (in some cases) to furnish a certificate that the expenditure on the car was incurred wholly for performing official duties. The onus would, therefore, be only on the employer to maintain details on such expenditure which would be exempt from being treated as a perquisite. So is the case for credit cards and club expenses.

"Such an option is being considered following a spate of representations to simplify documentation requirements. The second alternative is to maintain the status quo and the third is to revert to a system of having ad hoc percentages to distinguish between official and personal expenses for cars, credit cards and club expenses'', said officials. The CBDT will take a final view on the amendments to the rules based on the feedback it receives.

IT rules were rationalised, last year, for valuation of perquisites on the basis of their "cost to the employer'' except for houses and cars where a different criteria was adopted.

As per the existing rules, if a car is used solely for personal purposes by the employee, the entire expenditure incurred by the employer is taken as the perquisite value.

The perquisite value has been fixed at Rs 1,200 per month for small cars and Rs 1,600 per month for large cars owned or hired and maintained by the employer.

Where the car is owned or hired by the employer but maintained by the employee, the perquisite value is Rs 400 per month and Rs 600 per month respectively.

Where the fuel and upkeep cost of the employees car is borne or reimbursed by the employer, the amount reasonably attributed to business use is not charged as perquisite. For this, user details in the form of a log book need to be maintained.

Extensive documentation requirements - by the employer, employee and supervisor - are required for claiming a higher amount against official use.

Similarly, credit card and club expenses of employees, both personal and official, are often borne by employers. Ordinarily, such payments would be chargeable to tax as a perquisite.

However, expenses incurred for business purposes qualify for an exemption if the documentation requirement is adhered to.

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