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In October 2019 we were allotted shares of Bank of Baroda as part of its ESPS scheme, wherein it was clearly stated that the tax on perquisites will be borne by the bank. Now, we have been told that the tax paid by the bank will be considered as income of the employee and the employee has to pay further pay tax on it as per his/her income tax bracket. Is this correct? If so, please clarify the said rule in layman terms
Avni Malhotra
Section 17(2) of the Income Tax Act, read with Rule 3 of Income Tax Rules, provides for taxation of perquisite and valuation.
As per Section 17(2)(iv), any sum paid by the employer in respect of any obligation which otherwise would have been payable by the taxpayer, should be considered as a perquisite in the hands of the taxpayer.
Thus, as per the aforesaid provision, any payment made by an employer on behalf of his/her employee, is considered as a taxable perquisite in the hands of the employee.
As per Section 17(2)(vi) of the Income Tax Act, perquisite taxation arises upon allotment of securities by an employer to employees free of cost or at a concessional rate.
In your case, since your employer has agreed to bear the tax liability on your behalf (ie, your obligation being met your employer), such tax borne by the employer on your behalf shall be taxable income in your hand as per Section 17(2)(iv) above.
Accordingly, your employer is correct in considering such tax paid as part of your taxable income.
The tax liability will depend on your total income and the relevant tax bracket.
The writer is a practising chartered accountant. Send your queries to taxtalk@thehindu.co.in
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