What is Perquisites Perks?

Perks are non-monetary benefits given to the employees in addition to wages, salaries, and health / retirement benefits. Different from wages, salaries, and benefits, it is often considered extras that are nice to have. That said, it can reduce employee turnover and attract top talent to your organization.

Types of perks companies give to their employees

Taxable perks: Some benefits provided by employers are taxable. These include rent-free accommodation, utilities (gas, electricity, and water), income tax withholding from employees’ salaries, reimbursement of medical expenses, and wages paid to household help.

Tax-exempted perks: Employers may offer various non-taxable fringe benefits to employees, including travel allowances and contributions to PF. Other common examples include medical aid, sports clubs, health clubs, and refreshments during office hours.

Miscellaneous perks for certain employees: Some of the employers may benefit perquisites on a concessional rate, education funded by the company, or a car owned by the company but used by the employee. This may apply only to higher authority or top-ranked executives of the company.

What differentiates perquisites from allowances?

Perquisites and allowances are two kinds of additional compensation given to the employees by the company. Though employees benefit from them, they differ in their nature and purpose.

Perquisites are perks that an employee benefits or enjoys free of cost beyond their fixed salary or wages. It is non-taxable, non-monetary, and does not impact the take-home salary. As a part of the total remuneration package, it helps to attract and retain top talent.

On the contrary, allowances are usually monetary and taxable given to the employee apart from their salary. They are generally paid in cash to cover the employees’ expenses. It increases their take-home salary and is given at regular intervals whenever needed.

Benefits of Perquisites Perks:

Offering perquisites to employees can be a great way to motivate them, which will help your business to stay productive. Furthermore, it can attract top talent in the form of recruits.

• Turnover reduction: If you have high turnover rates, reducing them will be beneficial. Offering such professional development opportunities helps retain employees and makes your company more competitive. Without these, you may find that your employees are drawn to companies that do offer them.
• Hire the best talents: It can be a significant factor in attracting new employees. If the salaries and benefits are comparable across multiple companies in the industry, it is often the factor that will make a prospective employee decide where to work. If your company offers more perquisites that applicants want, then your company will be able to attract more of the top talent available.
• Increasing productivity: By offering the right perks, a company can increase productivity. It can positively affect employees’ health and reduce stress. Many perquisites are designed to increase productivity. It also increases employee morale, and the effect is even greater because the employees feel valued.

How to Calculate Tax on Perquisites Perks?

Let’s assume an employee’s income under “salaries” is INR 10,00,000 and inclusive of non-monetary perquisites is INR 1,00,000.

According to the new tax regime of FY 23-24, Tax on salary inclusive of education and health cess @ 4%: INR 78,000

So, the average tax rate can be calculated as: (78,000 / 10,00,000) x 100% = 7.8%

Tax paid on non-monetary perquisites = 7.8% x 1,00,000

= INR 7,800

The amount of tax deposited every month by the employer = 7,800 / 12 = INR 650

Therefore, the employer will have to pay INR 650 as TDS (Tax Deducted at Source) on the employee’s salary.

Perquisites Perks – FAQs

What is the meaning of salary perks?

Salary perks, also known as perquisites, are the fringe benefits an employee receives apart from the regular salary or wages. These non-monetary which include medical aid, rent-free accommodation, and providing office utilities to promote a positive work culture in the organization.

What is the meaning of perquisites in income tax?

According to the Income Tax Act, some perquisites are taxable in certain cases. These include medical insurance, stock options, travel allowances and much more. The calculation of taxes on perquisites may vary depending on the type of benefits, the employee’s salary level, and specific tax laws.

How are perquisites taxed?

Employers are responsible for calculating taxes by applying relevant income tax rates to the employee’s income. These taxes are carried out for withholding purposes and reported on the employee’s Form W-2 document to keep track of their tax returns.