Tax burden on salaried employees to rise

The New Year doesn't seem to be bringing good tidings for salaried employees. The tax burden of certain benefits that was being borne by the employer so far has been shifted to the employees now.

Under the new rules, all perquisites (additional benefits other than salary) are being added back to the income of the employee.

A notification from Central Board of Direct Tax on December 18, 2009 puts in force the new perquisite rules.

In what has come as a double blow, the new guidelines will be implemented with effect from 1 April 2009, thus making the employees pay for the previous nine months too, over the next three months of this financial year.

The body blows

Mayank Goel, partner, Narendra Singhania & Company, a Delhi-based tax consultancy firm, said: "The new perquisite rules will increase the tax burden on salaried employees as they have been notified at the end of the third quarter of the financial year 2009-10. So, tax planning for salaried employees through investment in eligible instruments, or by taking housing loans will be hazier, since only one quarter is left for such arrangements. However, there is no change in the taxation of some perquisites with regard to the earlier perquisite rules, such as expenditure on supply of gas, electric energy, water, free/concessional educational facilities, interest-free loans, transfer of movable assets, etc."

The rules are not much different from those that were in place since the introduction of the fringe benefit tax (FBT) in 2005, (see table) except some changes related to valuation of cars and employee stock options (ESOPs) to employees.

However, clarification on taxation of different aspects of ESOPs is still awaited.