Question 2 (a) part ii

Taxable value when the employer sells a movable asset to the employee (as set, 1961 Act, AY 2018-19)

2 marks

Time to write: About 4 minutes

From an older CBCS paper

Question

Question 2 (a) part ii · 2 marks

In what way would you determine the taxable value of each of the following perquisites: 2×3=6

Sale by the employer of a movable asset

Paper note: The as-set version: set and answered under the Income-tax Act, 1961 for assessment year 2018-19 (previous year 2017-18), with the dates as printed. Q2 (a) is one stem with three perquisites at 2 marks each (2x3=6 printed after the stem); this slot is the second perquisite.

Reworded from the university paper; the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.

Before you write

Read off the question and its marks

4 minfor 2 marks

Write it in this order

1 Basis and steps of the valuation 1 mark 2 min
2 Rates of wear and tear, example 1 mark 2 min

Try it first. About 4 minutes for 2 marks. Write it out, then open the solution.

Solution

Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.

Where the charge comes from

When an employer sells one of its own movable assets to an employee (or a member of his household) for less than the asset's value, the shortfall is a perquisite: it is a fringe benefit prescribed under section 17(2)(viii), valued by the Income-tax Rules, 1962, rule 3(7)(viii) (as substituted by the Income-tax (13th Amendment) Rules, 2009, in force from assessment year 2010-11). It is taxable for every employee.

Steps in the valuation

Start with the actual cost of the asset to the employer.
Reduce it by the normal wear and tear for each completed year during which the employer used the asset; a part of a year is ignored.
Deduct the price the employee pays. The balance, if any, is the taxable perquisite; if the employee pays as much as the reduced cost, nothing is taxed.

Rates of wear and tear

Asset	Rate for each completed year
Computers and electronic items	50%, on the reducing balance
Motor cars	20%, on the reducing balance
Any other movable asset (for example, furniture)	10% of the actual cost

Example

A company bought a sofa set for ₹50,000 on 10 May 2014 and sold it to an employee for ₹15,000 on 1 October 2017. The company used it for three completed years (a part year is left out), so wear and tear is 3 × 10% × ₹50,000 = ₹15,000. The reduced cost is ₹35,000, and the taxable perquisite is ₹35,000 − ₹15,000 = ₹20,000.

Where the 2 marks sit

#	Component	Marks
1	Basis and steps of the valuation	1
2	Rates of wear and tear, example	1
	Total	2

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