How are employee benefits taxed?

Certain benefits derived from a particular job or position are known as perquisites or benefits. These benefits are provided above and beyond the basic wage or salary provided to an employee. These benefits or perquisites are provided in the form of food coupons, travel reimbursements, allowances, medical facilities, etc. Employees should be tax forward and should take good advantage of the different perquisites provided by understanding how the different benefits are considered for taxation purposes. Let us understand a bit more about the employee benefits, types and how are the employee benefits taxed

What are some benefits provided to employees?

Any type of non-wage gain attached to an employee’s position can be termed as an employee benefit. Employee benefits can be given either on a voluntary or mandatory basis by the employer.

Companies provide several different types of benefits to employees; however, some of the popular benefits provided to the employee are as follows:-

1. Allowances and reimbursements

Other than the common wages or salaries provided to employees, an employer also provides additional allowances and reimbursements like medical allowances, travel expenditures, uniform allowances, and children's hostel expenditures. Some of these perquisites are fully taxable whereas the others are exempt up to a certain amount only.

2. Paid leave off

Employees in India are entitled to a specific type of leave known as earned leave. The minimum earned leave in a year are 15 days for the private sector but it varies from state to state. If a particular employee does not use the earned leave, they can carry it forward to another subsequent year.

There are also certain unlimited paid leave off which the employer has to provide to his employees, making sure that it complies with the governing Indian laws

3. Maternity leaves

Providing maternity leaves to all eligible employees is now mandatory. Employees become eligible for mandatory leaves after working for 80 days in the preceding 12-month period.

Although maternity leaves differ from state to state, a minimum of 26 weeks of paid leave has to be provided as per the laws set by the Indian government. In case of adoption or surrogacy, 12 weeks of paid leave is provided by the employer. They may also start their maternity leaves 8 weeks before the due date and are allowed to take 2 additional breaks in a day to nurse their newborn infants.

4. health insurance

Private health insurance is not mandatory in Indian companies; however, employees tend to flock to companies that provide private health insurance. On this pretense, more and more Indian companies are incorporating private health insurance in their overall employment plans.

5. Sick leaves and casual leaves

Although the number of sick leaves and casual leaves varies from company to company in different states, the minimum number of sick leaves set by the Indian government is 12 a year. This also includes leaves taken for taking care of a sick family member. If the number of sick leaves extends beyond 3 days in a row, it is important to produce a doctor’s note stating reasons for the same.

6. Statutory social contributions in India

Employers in India are by law required to contribute certain percentages of income to the Employee's provident fund, Employee’s pension scheme and the Employees deposit linked insurance. Eligible companies which cross certain threshold limits are required to contribute, not all companies in all circumstances are required to contribute.

How are employee benefits taxed?

Fringe benefits tax is payable at the rate of 30% of the value of fringe benefits computed in the manner provided in section 115WC.

Some important points relating to fringe benefit tax

1. The 30% rate is calculated on net expenses

2. Expenses are not to be segregated between “Paid to employees” and “Paid to outsiders”

3. Payment of tax to employees located both in and outside India

4. Medical reimbursement of up to Rs. 15,000 per employee charged to fringe benefit tax

5. Applicability of Fringe benefits tax in case of employers has one or more businesses.

6. Fringe benefits tax is not applicable on advance paid

7. Tax is 30% + Surcharge of 10% + Education cess of 2%

Filing of employee benefit returns

Any employer who has made the provision for payment of fringe benefits to employees is required to furnish a return of fringe benefits in the prescribed form and manner to the assessing officer before the due date.

For a company, the due date for filing employee benefit returns is the 31st of October of the assessment year.

For an entity that is not a company but whose accounts are required to be audited, the due date is 31st October of the assessment year.

Failure to furnish the same or delayed furnishings of return will result in the levy of interest at the rate of 1% for each month of delay or till the assessment is made on the amount of tax on the value of fringe benefits.