Perquisites Value

On this page:

  1. Perquisites Value of Securities Option
  2. Perquisites Valuation of Other Benefit or Amenity, Service, Right or Privilege

Perquisites Value of Securities Option [Section 17(2)(vi), Rules 3(8) & 3(9)]

Perquisites Value of any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the employer, or former employer, free of cost or at concessional rate to the assessee is chargeable as "Perquisites" as per section 17(2)(vi) under the head "Salaries".

Fair Market Value of the specified security or sweat equity shares, as the case may be, on the date on which the option is exercised by the assessee : XXX
Less: - the amount actually paid by, or recovered from, the assessee in respect of such security or shares XXX
Perquisite Value arising on allotment or transfer of specified security or sweat equity shares XXX

As per Explanation (c) to Section 17(2)(vi), the Perquisites value of any specified security or sweat equity shares shall be the fair market value of the specified security or sweat equity shares, as the case may be, on the date on which the option is exercised by the assessee as reduced by the amount actually paid by, or recovered from, the assessee in respect of such security or shares.

Perquisites Value: Specified Security

As per Explanation (a) to Section 17(2)(vi), "specified security" means the securities as defined in section 2(h) of the Securities Contracts (Regulation) Act, 1956, and, where employees' stock option has been granted under any plan or scheme therefor, includes the securities offered under such plan or scheme. As per Section 2(h), the term "securities" include-

  1. shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate,
  2. derivative,
  3. units or any other instrument issued by any collective investment scheme to the investors in such schemes,
  4. Security receipts as defined in section 2(zg) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002, i.e., "security receipt" means a receipt or other security, issued by a securitisation company or reconstruction company to any qualified institutional buyer pursuant to a scheme, evidencing the purchase or acquisition by the holder thereof, of an undivided right, title or interest in the financial asset involved in securitisation,
  5. Units or any other such instrument issued to the investors under any mutual fund scheme,
  6. any certificate or instrument (by whatever name called) issued to an investor by any issuer being a special purpose distinct entity which possesses any debt or receivable, including mortgage debt, assigned to such entity, and acknowledging beneficial interest of such investor in such debt or receivable, including mortgage debt, as the case maybe,
  7. Government securities,
  8. such other instruments as may be declared by the Central Government to be securities, and
  9. rights or interests in securities.

Perquisites Value: Sweat Equity Shares

As per Explanation (b) to Section 17(2)(vi), "Sweat equity shares" means equity shares issued by a company to its employees or directors at a discount or for consideration other than cash for providing know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called.

Fair Market Value

As per Explanation (d) to Section 17(2)(vi), "Fair market value" means the value determined in accordance with the method as may be prescribed.

As per Rule 3(8)(i), read with Rule 3(8)(ii) and Rule 3(8)(iii), for the purposes of section 17(2)(vi), the fair market value of any specified security or sweat equity share, being an equity share in a company, on the date on which the option is exercised by the employee, shall be determined as under: -

Sl. No. Nature of Event Fair Market Value
1. Where, on the date of the exercising of the option, the share in the company is listed on only one recognised stock exchange Average of the opening price and closing price of the share on that date on the said stock exchange
2. Where, on the date of exercising of the option, the share is listed on more than one recognised stock exchanges Average of opening price and closing price of the share on the recognised stock exchange which records the highest volume of trading in the share
3. Where, on the date of exercising of the option, there is no trading in the share on any recognised stock exchange and the share in the company is listed on only one recognised stock exchange Closing price of the share on any recognised stock exchange on a date closest to the date of exercising of the option and immediately preceding such date.
4. Where, on the date of exercising of the option, there is no trading in the share on any recognised stock exchange and the share in the company is listed on more than one recognised stock exchanges Closing price of the share on a recognised stock exchange, which records the highest volume of trading in such share.
5. Where, on the date of exercising of the option, the share in the company is not listed on a recognised stock exchange Value of the share in the company as determined by a merchant banker on the specified date.

As per Rule 3(9), for the purposes of Perquisites Value calculation as per section 17(2)(vi), the fair market value of any specified security, not being an equity share in a company, on the date on which the option is exercised by the employee, shall be such value as determined by a merchant banker on the specified date.

As per Rule 3(8)(iv), for the purpose of Fair Market Value determination under Rule 3(8) or 3(9) -

  1. "Closing price" of a share on a recognised stock exchange on a date shall be the price of the last settlement on such date on such stock exchange. However, where the stock exchange quotes both "buy" and "sell" prices, the closing price shall be the "sell" price of the last settlement.
  2. "merchant banker" means category I merchant banker registered with Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992.
  3. "opening price" of a share on a recognised stock exchange on a date shall be the price of the first settlement on such date on such stock exchange. However, where the stock exchange quotes both "buy" and "sell" prices, the opening price shall be the "sell" price of the first settlement.
  4. "recognised stock exchange" shall have the same meaning assigned to it in section 2(f) of the Securities Contracts (Regulation) Act, 1956.
  5. "specified date" means,-
    1. the date of exercising of the option; or
    2. any date earlier than the date of the exercising of the option, not being a date which is more than 180 days earlier than the date of the exercising.
  6. As per Explanation (e) to Section 17(2)(vi), "Option" means a right but not an obligation granted to an employee to apply for the specified security or sweat equity shares at a predetermined price.

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Perquisites value of Other Benefit or Amenity, Service, Right or Privilege [Rule 3(7)(ix)]

The Perquisites value of any other benefit or amenity, service, right or privilege provided by the employer to the employee shall be determined on the basis of cost to the employer under an arms' length transaction as reduced by the employees' contribution, if any.

However, that the expenses on telephones including a mobile phone actually incurred on behalf of the employee by the employer shall not chargeable to tax as perquisite.

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Great things are not done by impulse, but by a series of small things brought together. Vincent van Gogh

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