TDS On Salary, Perquisites 2020: Benefits & How To Calculate

Perquisites are benefits received by a person as a result of his/her official position and are over and above the salary or wages. These fringe benefits or perquisites can be taxable or non-taxable depending upon their nature.

A lot of benefits and perks which come in addition to an individual’s salary are grouped under fringe benefits or perks. These components are taxed separately from the employer’s account so as to maintain transparency and accountability.

How are Perquisites taxed and who pays that Tax?

According to the Finance Act, 2005, perquisites are taxed by the government in case these perks are provided or are deemed to be provided to employees by employers. The rate at which perquisites are taxed is 30% of the value of fringe benefits.

The perquisite tax is paid by the employer who furnishes these fringe benefits to employees. It can be a company, a firm, an association of persons or body of individuals.

TDS (Tax Deducted at Source) on Perquisites paid by the employer for AY 2020-21:

Employers responsible for paying any income chargeable under the head ‘Salaries’ are required to deduct income tax on the estimated income of the assessee under the head ‘Salaries’ for the financial year 2019-20, or Assessment Year 2020-21, according to the Income Tax department. A circular dated 16 January 2020 of the Central Board of Direct Taxes (CBDT) said the income tax is required to be calculated on the basis of the applicable rates for the financial year. The assessees are required to furnish PAN or Aadhaar, as the case may be, as per section 206AA of the Income Tax Act.

As per the circular, no tax will be deducted at source for those assessees whose estimated salary income, including the prerequisites, for the financial year do not exceed Rs 2.5 lakh. This limit for those above 60 years and those above 80 years is Rs 3 lakh and Rs 5 lakh respectively.

Tax on perquisites paid by the employer:

Perquisites are the benefits an employee enjoys or is entitled to enjoy, on account of his job or position. According to the income tax department, employers have been provided with an option to pay tax on non-monetary perquisites given to an employee. The employer can pay tax on such perquisites himself without making any TDS from the employee’s salary. “However, the employer will have to pay the tax at the time when such tax was otherwise deductible i.e. at the time of payment of income chargeable under the head ― salaries to the employee.

Calculation of TDS/tax on perquisites:

For example: Suppose income chargeable under the head “salaries” of an employee below 60 years is Rs 8,00,000, which includes Rs 90,000 paid on account of non-monetary perquisites and the employer opts to pay tax on such perquisites. Here’s what the employer will have to deposit at tax on perquisites, according to the circular: