By Shailesh Kumar
On opting for the new tax regime, certain tax deductions/ exemption such as standard deduction, house rent allowance, deduction for home loan interest, most of deductions under Chapter VI-A and also tax exemption on most of the tax-free allowances specified under Section 10 of the Income Tax Act have to be given up. However, there are still some finer aspects, especially regarding valuation of perquisites or possibility of claiming any tax-free allowances, even under the new tax scheme, which both salaried employees and employers need to know.
Certain allowances to be tax free
The CBDT issued a notification, specifying certain allowances, which would remain tax free even under the new scheme. It also provided that the value of free food/ beverages provided by employers during office hours or meal vouchers, which are considered as tax exempt under old scheme, will be considered as ‘taxable’ under new scheme.
Section 10(14) read with Rule 2BB provides that certain allowances would be ‘tax free’ under the old scheme of taxing ‘salaries’. The allowances include: official tour allowance, relocation/ transfer allowance, conveyance allowance, helper allowance, academic allowance, uniform allowance, children education allowance, hostel allowance, transport allowance for persons with disability, etc. Under the new scheme, all such allowances had to be considered as ‘taxable’, unless specifically prescribed.
By the recent CBDT notification, it is now clear that even under the new regime, allowance to employees to meet expenditure incurred for official tours/ transfers will be tax exempt. Allowance to employees with certain disabilities for commuting to/ from office will be tax exempt, while for other employees, conveyance allowance received for travelling in course of performance of duties will be treated as exempt.
All other allowances such as children education allowance, hostel allowance, helper allowance, academic allowance, uniform allowance, etc. (which are otherwise tax free under old tax scheme) would be taxable.
Section 17(2) read with Rule 3 provides for the valuation of the perquisites provided by employers to its employees for income tax purposes, such as rent free residential accommodation, free motor car for personal and official use, free education, free household necessities, free food, free telephone facility, etc. Under the old tax regime, if the employer provides food and non-alcoholic beverages or meal vouchers to its employees for using it for purchase food at food points during working hours, then that amount is exempt up to Rs 50 per meal. However, it has been clarified in the CBDT circular that such benefits shall be considered as ‘taxable’ under the new tax regime.
Valuation of other perquisites
At the same time, the notification does not specifically provide for the valuation of other perquisites, such as rent free accommodation, free motor car for personal and official use, free education, free household necessities, etc. Since the notification does not provide any new rule for valuation of such other perquisites, it appears that valuation of such perquisites would be the same even under the new scheme. Thus, free telephone facility exempt under the old scheme would continue to be exempt under new scheme. While some of the rules for taxability of allowances and perquisites remain the same under old and new tax schemes, there are other allowances/ perquisites whose taxability differ in old as well as new scheme.
The writer is partner, Nangia & Co. Inputs from Vaishali Dua, manager, Nangia & Co LLP