Tax on monetary obligations of employee discharged by employer

Monetary obligations of the employee discharged by the employer is always considered as taxable perquisite in the hands of the employee. Monetary obligations are considered as perquisite for the assessee because it would have been payable by him if the employer would not have discharged his liabilities.

Therefore, the value of perquisite as determined is taxable under the head income from salaries in the hands of the employee on whose behalf payments are made by the employer. In this case, the value of perquisite is the amount incurred by the employer on behalf of the assessee.

For instance, if the employer has incurred Rs 12,000 towards payment of Watchmen for the assessee, then Rs 12,000 should be included to his salary as taxable value of perquisite.

Here are certain examples which are generally paid by the employer on behalf of employee:

  • Watchman salary
  • Gas, electricity bill paid or reimbursement
  • Children’s education expenses paid or reimbursed
  • Medical expenses reimbursed
  • Income tax
  • Professional tax

Above list is not exhaustive. Any monetary obligations of the employee paid or payable by the employer will be considered as perquisite in the hands of employees irrespective of their official position. For instance club membership fees for personal benefit of the assessee reimbursed by the employer will be considered as perquisite in the hands of assessee.

In case of professional tax, you need to include it in your gross salary as perquisite if its paid by employer and then deduction for the same amount can be claimed under section 16 before calculating net salary or income under the head salaries.

Please note, if income tax liability of employee is discharged by the company in which the assessee is working, then it will be considered as perquisite in the hands of the employee for whom payments are made. However, we do not have any tax deduction for it as in the case of professional tax.

is a fellow member of the Institute of Chartered Accountants of India. He lives in Bhubaneswar, India. He writes about personal finance, income tax, goods and services tax (GST), company law and other topics on finance. Follow him on facebook or instagram or twitter.