Understanding Section 17(2) of the Income Tax Act
The Income Tax Act is an important piece of legislation that governs the taxation of income in India. One of the key provisions of the Act is Section 17(2), which deals with the various types of perquisites that are taxable as part of an employee’s income. In this blog, we will take a closer look at Section 17(2) and understand its implications for taxpayers.
What is Section 17(2) of the Income Tax Act?
Contents
- 1 What is Section 17(2) of the Income Tax Act?
- 1.1 What are the types of perquisites covered under Section 17(2)?
- 1.2 How are perquisites taxed under Section 17(2)?
- 1.3 Common misconceptions about Section 17(2) of the Income Tax Act
- 1.3.1 Perquisites are only taxable for senior-level employees
- 1.3.2 Perquisites are not taxable if they are part of the employment contract
- 1.3.3 Perquisites are only taxable if they exceed a certain value
- 1.3.4 Employers are not responsible for deducting tax on perquisites
- 1.3.5 Frequently Asked Questions- FAQs about Section 17(2) of the Income Tax Act
- 1.4 Related
Section 17(2) of the Income Tax Act defines “perquisites” as any casual emolument or benefit that an employee receives in addition to their salary or wages. This can include things like rent-free accommodation, company cars, interest-free loans, and other forms of non-cash compensation.
What are the types of perquisites covered under Section 17(2)?
Section 17(2) covers a wide range of perquisites, including the following:
- Rent-free accommodation provided by the employer.
- The value of any rent paid by the employer for accommodation provided to the employee.
- The value of any concessional rent paid by the employee for accommodation provided by the employer.
- Any amount paid by the employer for the purchase or maintenance of a car that is used for personal purposes.
- The value of any interest-free loan provided by the employer.
- The value of any free or concessional education provided to the employee’s children.
- The value of any club membership fees paid by the employer.
- The value of any free or concessional travel provided to the employee.
- The value of any free or concessional meals provided to the employee.
- The value of any free or concessional gifts provided to the employee.
How are perquisites taxed under Section 17(2)?
Perquisites covered under Section 17(2) are taxed as part of the employee’s income. The value of the perquisite is calculated based on certain prescribed rules, which may vary depending on the type of perquisite.
For example, in the case of rent-free accommodation provided by the employer, the value of the perquisite is calculated as a percentage of the employee’s salary. Similarly, in the case of interest-free loans, the value of the perquisite is calculated based on the prevailing interest rate charged by banks.
Once the value of the perquisite is determined, it is added to the employee’s salary or wages and taxed accordingly. The tax on perquisites is typically deducted at source by the employer and paid to the government.
Common misconceptions about Section 17(2) of the Income Tax Act
While Section 17(2) of the Income Tax Act is an important provision that governs the taxation of perquisites, there are several misconceptions surrounding its interpretation and implementation. In this section, we will debunk some of the common misconceptions about Section 17(2) of the Income Tax Act.
Perquisites are only taxable for senior-level employees
One of the common misconceptions about Section 17(2) is that it applies only to senior-level employees who receive high-value perquisites. However, this is not true. Section 17(2) applies to all employees, regardless of their position or salary level, as long as they receive any type of perquisite from their employer.
Perquisites are not taxable if they are part of the employment contract
Another misconception is that perquisites are not taxable if they are part of the employment contract. However, this is not true. Even if perquisites are specified in the employment contract, they are still taxable as part of the employee’s income under Section 17(2).
Perquisites are only taxable if they exceed a certain value
Some taxpayers believe that perquisites are taxable only if they exceed a certain value. However, this is not true. Section 17(2) does not specify any minimum threshold for perquisites to be taxable. All perquisites, regardless of their value, are taxable as part of the employee’s income.
Employers are not responsible for deducting tax on perquisites
Some employers believe that they are not responsible for deducting tax on perquisites provided to their employees. However, this is not true. Employers are legally obligated to deduct tax on perquisites at the time of payment and remit the tax to the government.
Other Related Blogs: Section 194R of Income Tax Act
Conclusion
In conclusion, Section 17(2) of the Income Tax Act is an important provision that covers a wide range of perquisites that are taxable as part of an employee’s income. Taxpayers should be aware of the various types of perquisites covered under the section and ensure that they comply with the relevant tax laws. Failure to do so can result in penalties and other legal consequences.
Frequently Asked Questions- FAQs about Section 17(2) of the Income Tax Act
Q.1) What are the perquisites under Section 17(2) of the Income Tax Act?
Perquisites are any casual emolument or benefit provided to an employee by an employer in addition to their salary or wages. This can include things like rent-free accommodation, company cars, interest-free loans, and other forms of non-cash compensation.
Q.2) Are all perquisites taxable under Section 17(2)?
Yes, all perquisites covered under Section 17(2) are taxable as part of the employee’s income, regardless of their value.
Q.3) How is the value of perquisites calculated under Section 17(2)?
The value of perquisites is calculated based on prescribed rules, which may vary depending on the type of perquisite. For example, in the case of rent-free accommodation provided by the employer, the value of the perquisite is calculated as a percentage of the employee’s salary. Similarly, in the case of interest-free loans, the value of the perquisite is calculated based on the prevailing interest rate charged by banks.
Q.4) Who is responsible for deducting tax on perquisites?
Employers are responsible for deducting tax on perquisites at the time of payment and remitting the tax to the government.
Q.5) Is there any minimum threshold for perquisites to be taxable under Section 17(2)?
No, there is no minimum threshold for perquisites to be taxable under Section 17(2). All perquisites, regardless of their value, are taxable as part of the employee’s income.
Q.6) Are perquisites taxable for all employees?
Yes, perquisites covered under Section 17(2) are taxable for all employees, regardless of their position or salary level, as long as they receive any type of perquisite from their employer.
