Section 17

Perquisites and its valuation

Estimation of income under the head “Salaries”

Income chargeable under the head “Salaries”. - (1) The following income shall be chargeable to income-tax under the head “Salaries” :

(a) any salary due from an employer or a former employer to an assessee in the previous year, whether paid or not;

(b) any salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer though not due or before it became due to him;

(c) any arrears of salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer, if not charged to income-tax for any earlier previous year.

(2) For the removal of doubts, it is clarified that where any salary paid in advance is included in the total income of any person for any previous year it shall not be included again in the total income of the person when the salary becomes due. Any salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from the firm shall not be regarded as “Salary”.

Definition of salary :

(3) “Salary” includes wages, fees, commissions, perquisites, profits in lieu of, or, in addition to salary, advance of salary, annuity or pension, gratuity, payments in respect of encashment of leave, etc. It also includes the annual accretion to the employee’s account in a recognized provident fund to the extent it is chargeable to tax under rule 6 of Part A of the Fourth Schedule of the Income-tax Act. Contributions made by the employer to the account of the employee in a recognized provident fund in excess of 12% of the salary of the employee, along with interest applicable, shall be included in the income of the assessee for the previous year. Any contribution made by the Central Government to the account of the employee under the New Pension Scheme as notified vide Notification No. F. No. 5/ 7/2003- ECB & PR, dated 22-12-2003 (copy enclosed as Annexure-VA) and referred to in section 80CCD [para 5.4(2) of this Circular] shall also be included in the salary income. Other items included in salary, profits in lieu of salary and perquisites are described in section 17 of the Income-tax Act. The scope of the term “profits in lieu of salary” has been amended so as not to include interest on contributions or any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy. For the purposes of this sub-clause, the expression Keyman insurance policy shall have the meaning assigned to it in clause (10D) of section 10. It may be noted that, since salary includes pensions, tax at source would have to be deducted from pension also, if otherwise called for. However, no tax is required to be deducted from the commuted portion of pension as explained in clause (3) of para 5.2 of this Circular.

(4) Section 17 defines the terms “salary”, “perquisite” and “profits in lieu of salary”.

Perquisite includes :

(a) The value of rent free accommodation provided to the employee by his employer;

(b) The value of any concession in the matter of rent in respect of any accommodation provided to the employee by his employer;

(c) The value of any benefit or amenity granted or provided free of cost or at concessional rate in any of the following cases:

(i) By a company to an employee who is a director of such company;

(ii) By a company to an employee who has a substantial interest in the company;

(iii) By an employer (including a company) to an employee, who is not covered by (i) or (ii) above and whose income under the head “Salaries” (whether due from or paid or allowed by one or more employers), exclusive of the value of all benefits and amenities not provided by way of monetary payment, exceeds Rs. 50,000.

The rules relating to valuation of such benefits and amenities have been prescribed in rule 3. It is further provided that ‘profits in lieu of salary’ shall include amounts received in lump sum or otherwise, prior to employment or after cessation of employment for the purposes of taxation. The rules for valuation of perquisite are as under :—

I. Accommodation - For purpose of valuation of the perquisite of unfurnished accommodation, all employees are divided into two categories: (i) Central Govt. & State Govt. employees; and (ii) Others.

For employees of the Central and State Government the value of perquisite shall be equal to the licence fee charged for such accommodation as reduced by the rent actually paid by the employee.

For all others, i.e., those salaried taxpayers not in employment of the Central Government and the State Government, the valuation of perquisite in respect of accommodation would be at prescribed rates. The rate is 10% of ‘salary’ in cities having population exceeding four lakhs as per the 1991 census. For other places, the perquisite value would be 7.5% of salary.

The scope of the word “accommodation” has been widened by clarifying that it includes a house, flat, farm house, hotel accommodation, motel, service apartment guest house, a caravan, mobile home, ship etc. However, the value of any accommodation located in a remote area provided to an employee working at a mining site or an on-shore oil exploration site or a project execution site or an accommodation provided in an off-shore site will not be treated as a perquisite. A project site for the purposes of this sub-rule means a site of project upto the stage of its commissioning. A “remote area” means an area located at least 40 kilometers away from a town having a population not exceeding 20,000 as per the latest published all India census. Off-shore sites of similar nature do not have to meet any requirement of distance.

The definition of “salary” for calculating perquisite value is the same as per earlier Rules. The only change is that medical allowances and reimbursement for treatment of serious illness as prescribed in the proviso below section 17(2)(vi) have now been excluded from the definition of salary for this purpose. For furnished accommodation, the provision of valuation of perquisite of furnishings, fittings and furniture at 10% of original cost per annum or actual hire charges is continued.

In case of employers other than Central and State Govt., where accommodation is taken on lease or rent by employer, the actual amount of lease rental paid or payable by the employer or 10% of salary whichever is lower, as reduced by the rent, if any, actually paid by the employee, is taken as perquisite.

If an accommodation is provided by an employer in a hotel the value of the benefit in such a case shall be 24% of the annual salary or the actual charges paid or payable to such hotel, whichever is lower, for the period during which such accommodation is provided as reduced by any rent actually paid or payable by the employee. However, in cases where the employee is provided such accommodation for a period not exceeding in aggregate fifteen days on transfer from one place to another, no perquisite value for such accommodation provided in a hotel shall be charged. It may be clarified that while services provided as an integral part of the accommodation, need not be valued separately as perquisite, any other services over and above that for which the employer makes payment or reimburses the employee shall be valued as a perquisite as per the residual clause. In other words, composite tariff for accommodation will be valued as per these rules and any other charges for other facilities provided by the hotel will be separately valued under the residual clause. Also, if on account of an employee’s transfer from one place to another, the employee is provided with accommodation at the new place of posting while retaining the accommodation at the other place, the value of perquisite shall be determined with reference to only one such accommodation which has the lower value as per the table prescribed in rule 3 of the Income-tax Rules, for a period upto 90 days. However, after that the value of perquisite shall be charged for both accommodations as prescribed.

II. Motor car :

(a) Where the motor car is owned or hired by the employer and is used wholly and exclusively in the performance of his official duties, no perquisite arises in the hands of the employee, subject to maintenance of documents as prescribed in sub-para (f) below. No perquisite arises even if the motor car is owned by the employee himself but the actual running and maintenance charges (including remuneration of the chauffeur, if any) are reimbursed to him by the employer, provided that the motor car is used wholly and exclusively for official purposes and the documents as prescribed in sub-para (f) below are maintained.

(b) Where the motor car is owned or hired by the employer and is used exclusively for the private or personal purpose of the employee, the value of perquisite would be equal to the actual amount of expenditure incurred by the employer on the running and maintenance of the motor car (including remuneration of the chauffeur, if any), as increased by the amount representing 10% of the actual cost of the motor car on account of normal wear and tear and as reduced by any amount charged from the employee for such use.

(c) Where the motor car is owned by the employee but the actual running and maintenance charges (including remuneration of the chauffeur, if any) are reimbursed to him by the employer and such reimbursement is for the use of the vehicle partly for official and partly for personal or private purposes, the value of perquisite shall be the actual amount of expenditure incurred by the employer as reduced by the amounts specified in column (I) of the Table below.

(d) Where the motor car is owned or hired by the employer and is used partly in the performance of his duties and partly for personal or private purposes, the value of perquisite shall be determined as per the Table below :

	Small car (upto 1.6 ltrs. engine capacity)	Large car (above 1.6 ltrs. engine capacity)	If chauffeur provided by employer to run the motor car, an additional amount as below is also charged
(I) Car owned/hired by employer and expenses on maintenance and running are met or reimbursed by the employer	Rs. 1,200 per month	Rs. 1,600 per month	Rs. 600 per month
(II) Car owned/hired by employer but the expenses on running and maintenance for such private or personal use are fully met by the employee.	Rs. 400 per month	Rs. 600 per month	Rs. 600 per month

(e) However, where a second or additional cars are provided, such other cars shall be deemed to be for exclusively personal use and the value of perquisite shall be computed accordingly.

(f) In a situation described in para (c) above, if it is claimed that the expenses on running and maintenance of the motor car for official purposes are higher than the amount mentioned in Column I of the Table above, such higher amount can be claimed as a deduction from the actual amount of expenditure incurred by the employer, subject to the fulfilment of the following conditions:

(i) the employer has maintained complete details of journeys undertaken for official purpose which may include date of journey, destination, mileage and the amount of expenditure incurred thereon; and

(ii) the employer gives a certificate that the expenditure was incurred wholly and exclusively for the performance of his official duties.

III. Personal attendants, etc. : The old rules provided for valuation of perquisite of free services of a sweeper, a gardener and a watchman at Rs. 120 per month. Under the new rules, the value of free service of all personal attendants including a sweeper, gardener, and a watchman is to be at actual cost to the employer. Where the attendant is provided at the residence of the employee, full cost will be taxed as perquisite in the hands of the employee irrespective of the degree of personal service rendered to him. Any amount paid by the employee for such facilities or services shall be reduced from the above amount.

IV. Gas, electricity & water : For free supply of gas, electricity and water for household consumption, the rules provide that the amount paid by the employer to the agency supplying the amenity shall be the value of perquisite. However, when the supply is made from the employer’s own resources, under the old rules the value of perquisite was taken as nil. There was also a separate provision in the old rules for valuation at 6.25% of salary of the taxpayer for part official use. This has been discontinued. Under the new rules even where the supply is made from the employer’s own resources, the manufacturing cost per unit incurred by the employer would be the value of perquisite. Any amount paid by the employee for such facilities or services shall be reduced from the above amount.

V. Free or concessional education : The old rules already provide that value of free education facility would be the expenditure incurred by the employer. Under the new rules free or concessional education shall be valued in a manner assuming that such expenses are borne by the employee, and would cover cases where an employer may be running, maintaining or directly or indirectly financing the educational institution. Any amount paid by the employee for such facilities or services shall be reduced from the above amount. However, where such educational institution itself is maintained and owned by the employer or where such free educational facilities are provided in any institution by reason of his being in employment of that employer, the value of the perquisite to the employee shall be determined with reference to the cost of such education in a similar institution in or near the locality if the cost of such education or such benefit per child exceeds Rs. 1,000 p.m.

VI. Free or concessional journeys : The Perquisite value of free or concessional journeys provided by an employer engaged in carriage of passengers or goods shall be taken as the value at which such benefit or amenity is offered by such undertaking to the public, as reduced by any amount actually paid by the employee. The conveyance may be owned, leased or made available by any other arrangement by the employer. However, no perquisite on account of free or concessional journeys arises in the case of the employees of an airline or the Railways. Journey tickets for leave travel, tours and transfers which are already exempt under section 10(5) and 10(14) would continue to be exempt.

1VII. Interest free or concessional loans : It is common practice, particularly in financial institutions, to provide interest free or concessional loans to employees or any member of his household. The value of perquisite arising from such loans would be the excess of interest payable at prescribed interest rate over interest, if any, actually paid by the employee or any member of his household. The prescribed interest rate would now be the rate charged per annum by the State Bank of India as on the 1st day of the relevant financial year in respect of loans of same type and for the same purpose advanced by it to the general public. Perquisite value would be calculated on the basis of the maximum outstanding monthly balance method. For valuing perquisites under this rule, any other method of calculation and adjustment otherwise adopted by the employer shall not be relevant.

However, small loans up to Rs. 20,000 in the aggregate are exempt. Loans for medical treatment specified in rule 3A are also exempt, provided the amount of loan for medical reimbursement is not reimbursed under any medical insurance scheme. Where any medical insurance reimbursement is received, the perquisite value at the prescribed rate shall be charged from the date of reimbursement on the amount reimbursed, but not repaid against the outstanding loan taken specifically for this purpose.

VIII. Travelling, touring, accommodation and other holiday expenses : It is increasingly common for employees to be provided with vacation and holiday facilities. The value of such perquisite shall be the expenditure incurred by the employer. This would also apply to official tours extended as a vacation and family members accompanying taxpayers on official tours. However, leave travel as per section 10(5) and enjoyment of holiday home facilities available uniformly to all classes of employees would remain exempt.

IX. Free meals : The provision of free meals varies widely from uniform canteen food, coupons, etc., to lavish hotel meals. The scheme of free meals as a staff welfare measure had been recognized and was admissible upto Rs. 35 for each meal. The new rule does not treat as perquisite free food and non-alcoholic beverages to the extent the value thereof does not exceed Rs. 50. Where any amount is recovered from the employee, such amount shall be reduced from the value of perquisite. Such free or subsidized food or non-alcoholic beverages should however be provided at office premises or through non-transferable vouchers meant only for meals during working hours. These vouchers provided by employers should be usable only at an eatery, a restaurant or a cafe. Tea or similar non-alcoholic beverages and snacks - in the form of light refreshments during working hours are not charged as perquisite. Also, arrangements for meals in ‘remote areas’ as prescribed in para 5.1(I) of this Circular and similar off-shore sites as specified, shall be exempt. However, expenditure on provision of free meals by the employer in excess of Rs. 50 should be treated as perquisite, as reduced by recoveries made from the employee.

X. Gift, voucher or token in lieu of gift : The value of any gift, or voucher, or token in lieu of which such gift may be received by the employee or by member of his household on ceremonial occasions or otherwise shall be determined as the sum equal to the amount of such gift. However, where the value of such gift, voucher or token, as the case may be, is below Rs. 5,000 in the aggregate during the previous year, the value of perquisite shall be taken as nil.

XI. Credit card & club expenses : Credit card expenses of employees both business and personal, are often borne by employers. Such credit card payments would ordinarily be chargeable to tax as a perquisite. However, these expenses are often incurred to entertain customers and clients for the purposes of business. Therefore, where such expenses on entertainment including meals are for purposes of business and proper records for the same are maintained no perquisite would arise.

Club expenses of employees borne by employers are charged as perquisite in terms of section 17(2)(iv). It has been specifically provided in the rules that annual and periodical club fees paid by the employer will be chargeable as perquisite. However, to ensure that basic facilities for the health and recreation of employees are not hit, health clubs, sports facilities, etc., provided uniformly to all classes of employees by the employer at the employer’s premises are exempt. The initial one time deposit or fees for corporate or institutional membership, where the benefit does not remain with the employee after cessation of employment, are exempt. Where such expenses on entertainment including meals are for purposes of business and proper records for the same are maintained no perquisite would arise.

For credit card and club expenses to be exempt for business purposes, the following documentation needs to be maintained by the employer:

(a) complete details in respect of such expenditure including the date of expenditure and the nature of expenditure;

(b) a certificate by employer to the employee to the effect that the same was incurred wholly and exclusively for the performance of official duties.

XII. Use of assets : It is common practice for an asset owned by the employer to be used by the employee. This perquisite is to be charged at the rate of 10% of the original cost of the asset as reduced by any charges recovered from the employee for such use. However, the use of computers and laptops would not give rise to any perquisite.

XIII. Transfer of assets : Often an employee or member of his household benefits from the transfer of movable asset (not being shares or securities) at no cost or at a cost less than its market value from the employer. The difference between the original cost of the movable asset (not being shares or securities) and the sum, if any, paid by the employee, shall be taken as the value of perquisite. In case of a movable asset, which has already been put to use, the original cost shall be reduced by a sum of 10% of such original cost for every completed year of use of the asset. Owing to a higher degree of obsolescence, in case of computers and electronic gadgets, however, the value of perquisite shall be worked out by reducing 50% of the actual cost by the reducing balance method for each completed year of use. Electronic gadgets in this case means data storage and handling devices like computer, digital diaries and printers. They do not include household appliance (i.e. white goods) like washing machines, microwave ovens, mixers, hot plates, ovens, etc. Similarly, in case of cars, the value of perquisite shall be worked out by reducing 20% of its actual cost by the reducing balance method for each completed year of use.

XIV. Employee Stock Option Plan : Prior to Finance Act, 2000, stock options were taxed at two stages, i.e., as perquisite (on the amount representing the difference between the exercise price and the fair market value on the date of exercise), and as capital gains at the time of transfer of the same. With effect from 1-4-2001 (relevant to assessment year 2001-02) onward, stock options issued as per guidelines of the Central Government are to be taxed only once, at the time of sale, as capital gains. In cases, where perquisite has been assessed with reference to exercise of the option by the employee under section 17(2), the fair market value at the time of exercise of the option shall be the cost of acquisition of share for working out the capital gains. The relevant guidelines of the Central Government have been issued vide Notification No.1021(E), dated 11-10-2001. Stock options not in conformity with the above guidelines (non-qualified stock options) shall continue to be taxed at both the stages.

XV. Residual clause - A benefit or amenity not included in the rules shall be valued at the cost under an arm’s-length transaction to the employer where the employer pays for the benefit or amenity. However, the benefit of conveyance to and from residence to place of work, periodicals and journals required for discharge of work and expenses on telephones including a mobile phone shall not be included in calculating perquisite value.

It is pertinent to mention that benefits specifically exempt under sections 10(13A), 10(5), 10(14), 17 etc. would continue to be exempt. These include benefits like travel on tour and transfer, leave travel, daily allowance to meet tour expenses as prescribed, medical facilities subject to conditions. - Circular No. 6/2004, dated 6-12-2004.

List of hospitals recognised under Central Government Health Scheme

1. GOVT. HOSPITAL	PRIVATE HOSPITAL
Delhi	For maternity cases only
1. Dr. R.M.L. Hospital	1. Dr. B.L. Kapur Memorial Hospital, Pusa Road.
2. Safdarjang Hospital	2. St. Stephen’s Hospital, Tees Hazari.
3. Smt. Sucheta Kripalani Hospital (Only for maternity and for staff working in the Hospital)	3. Kasturba Hospital, Near Jama Masjid
4. CGHS Maternity and Gynae Hospital, R.K. Puram	4. Girdhari Lal Maternity Hospital, Opposite Kamla Market, Ajmeri Gate
5. CGHS Maternity Centre, Srinivaspuri	5. Delhi Neurological Research Centre (for CT Scan)
6. CGHS Maternity Centre, Kalkaji
	For TB only
7. All Centres under New Delhi Municipal Committee (Only for Maternity cases)	6. Lala Ram Swaroop TB Hospital, Mehrauli.
8. All Centres under Municipal Corporation of Delhi (Only for Maternity cases)	7. Rajan Babu TB Hospital, Kingsway Camp.
	For By-Pass Surgery
9. Badshah Khan Hospital, Faridabad	8. Escorts Heart Institute.
	9. Batra Hospital.
	10. Natural Heart Institute.
	For General Cases
	11. Narinder Mohan Hospital, Mohan Nagar, Ghaziabad.
2. Ahmedabad
1. Government Civil Hospital
2. Government Mental Hospital
3. Government TB Hospital
4. Government Dental Hospital
5. Sh. M.P. Shah Cancer Hospital (Government aided).
3. Allahabad
1. S.R.N. Hospital
2. M.L.N. Hospital
3. M.D. Eye Hospital
4. Dufferin Hospital
5. T.B. Sapru Hospital
6. Kamla Nehru Memorial Hospital
7. S.N. Children Hospital
4. Bangalore
1. Bowring & Lady Curson
2. Central Leprosarium, Magadi Road.
3. HSIS Gosha Hospital, Taskar Town.
4. Isolation Hospital, Old Madras Road
5. Lady Willingdon & TB Demonstration Training Centre, K.G. Road.
6. Minto Opthalmic Hospital, Albert Victoria Road.
7. SDS Sanatorium, Hosur Road.
8. T.B. Sanatorium, Old Madras Road
9. Vani Vilas Hospital, Krishnarajendra Road.
10. Victoria Hospital
11. Sri Jayachamarajendra Institute of Indian Medicine, Tank Bund Road.
5. Bombay
1. J.J. Hospital	1. Bombay Hospital
2. St. George Hospital	2. Nanavati Hospital
3. G.T. Hospital	3. Radhibai Vatumal Sanatorium
4. Cama Alblese Hospital	4. Sarvodaya Hospital
5. N.M. Mental Hospital	5. Tata Memorial Hospital
6. Municipal Hospitals (three)	6. Children Orthopaedic Hospital
7. Railway Hospital	7. National Hospital
8. Naval Hospital	8. Mangal Anand Hospital
6. Calcutta
1. S.S.K.M. Hospital	1. Bahela Hospital
2. Medical College & Hospital	2. Ramakrishna Mission Seva Pratishthan
3. N.R.S. Medical College & Hospital	3. Lumbini Park Mental Hospital
4. R.G. Kar Medical College & Hospital	4. Belle Vue Clinic
5. Polyclinic at Subushan Hospital	5. Heart Care Centre
6. Diagnostic and Research Centre	6. East India Clinic
7. National Medical College
8. K.S. Roy T.B. Hospital.
7. Hyderabad
1. Osmania General Hospital	1. C.C. Shroff Hospital
2. Gandhi Medical Hospital, Secundrabad	2. Sagarlal Memorial Hospital
	3. Sai Ram Hospital
3. E.N.T. Hospital	4. Sharvana Nursing Home.
4. Quarantine Fever Hospital
5. Govt. Maternity Hospital
6. Nizam Orthopaedic Hospital
7. Niloufer Hospital
8. Mental Hospital
9. Cancer Hospital
10. Osmania Dental College
11. T.B. Hospital
12. Sarojini Eye Hospital
13. Govt. Ayurvedic Hospital
14. Govt. Unani Hospital
8. Jaipur
1. Indian Red Cross Society Polyclinic (for tests only)	1. S.M.D. Hospital
2. S.M.S. Zanana T.B. and Mental Hospital.
9. Kanpur
1. L.L.R. Hospital
2. U.I.S.E. Hospital
3. U.H.M. Hospital
4. A.H.M. Hospital
5. K.P.M. Hospital
6. M.I. Chest Hospital
7. J.K. Cancer Institute
8. L.L.R. Cardiology Institute.
10. Lucknow
1. Civil Hospital	1. Ramakrishna Mission Vivekananda Polyclinic
2. Balrampur Hospital	2. U.P. Medical Centre (for CT Scan).
3. Medical College Hospital
11. Madras
1. Government Stanle, Medical College Hospital	1. Public Health Centre
	2. Andhra Mahila Sabha Nursing Home
2. Government Kilpauk Medical College Hospital	3. Cancer Institute.
3. Govt. General Hospital
4. Govt. Royapettah Hospital
5. Govt. Mental Hospital
6. Govt. Ophthalmic Hospital
7. Govt. R.S.R.M. Hospital
8. Govt. Kasturba Gandhi Hospital
9. Govt. Thuruvatteswarar T.B. Hospital
10. Govt. T.B. Sanatorium, Tambaram
11. Govt. Chest Institute’s Tuberculosis Demonstration and Training Centre, Chetput
12. Institute of Obstetrics and Gynaecology and Hospital for Women and Children
13. Institute of Child Health and Hospital for Children
14. Govt. Homoeopathic Medical College and Hospital
15. Govt. Peripheral Hospital, K.K. Nagar.
12. Meerut
1. P.L. Sharma Hospital
2. Medical College Hospital
3. Dufferin Hospital
13. Nagpur
1. Medical College Hospital	1. Mure Memorial Hospital
2. Mayo General Hospital	2. Matru Sewa Sangh Maternity Hospital
3. Dental College and Hospital	3. Gopikrishna Toori Neurological Clinic
4. Mental Hospital.	4. Rashtra Sant Tukdoji Cancer Hospital
	5. Nagpur Neurological Research Centre (for CT Scan).
14. Patna
1. Patna Medical College & Hospital	1. Kurjee Holy Family Hospital.
2. Nalanda Medical College & Hospital
3. Patna City Govt. Hospital
4. Rajendranagar Hospital.
15. Pune
1. Sasson General Hospital	1. K.E.M. Hospital
2. Anud Chest Hospital	2. Ruby Hall Clinic
3. Mental Hospital, Yerwada.	3. Hardikar Hospital
	4. N.M. Wadia Hospital
	5. Sencheti Hospital
	6. Joshi Hospital
	7. Sharda Clinic
	8. Colony Nursing Home
	9. Sanjeevan Hospital
	10. Poone Hosp. & Research Centre
	11. Nature Cure Institute, Urli, Kanchan.
16. Referral Hospitals (with the approval of Director, CGHS) :
1. All India Institute of Medical Sciences, New Delhi.
2. G.B. Pant Hospital, New Delhi.
17. Specialised Hospitals (with the approval of Director, CGHS) :
1. Tata Memorial Hospital, Bombay
2. C.M.C. Vellore (for Neurology)
3. Mental Hospital, Ranchi (Bihar)
4. Eyes Hospital, Sitapur (U.P.)
5. Railway Hospital, Perambur.

Circular : No. 603, dated 6-6-1991.

Issue of shares at below market value - Where shares are issued to the employees at less than market price by the employer-companies, the benefit does amount to a perquisite within the meaning of section 17(2)(iii) of the Act. The various situations in this regard have to be dealt with as under :

(i) Where the shares held by the Government has been transferred to the employee, there will be no perquisite because the employer-employee relationship does not exist between Government and the employee (transferor and the transferee).

(ii) Where the company offers shares to the employees at the same price as have been offered to the other shareholders or the general public, there will be no perquisite.

(iii) Where the employer has offered the shares to its employees at a price lower than the one at which the shares have been offered to the other shareholders/public, the difference between the two prices will be taxed as perquisite.

(iv) Where the shares have been offered only to the employees, the value of the perquisite will be the difference between the market price of the shares on the date of acceptance of the offer by the employee and the price at which the shares have been offered - Circular : No. 710, dated 24-7-1995. [See also section 17(2)(iii), proviso]

Reimbursement of tax - Amount reimbursed by way of tax by the employer to the employee forms part of the profits derived from the employment and is thus “salary” for the purpose of rule 3 of the Income-tax Rules - Letter : F. No. 35/50/65-IT(B), dated 27-4-1966.