The finance ministry proposes to notify a system to tax employee perquisites by next month. The list of taxable perks will be similar to the one specified under Rule 3 of the Income-Tax Rules. We are finalising a list of taxable perquisites, which would be formally notified by October, a finance ministry official said.

Rule 3 was largely rolled back in 2005 with the introduction of the fringe-benefit tax. However, with the abolition of FBT in Budget 2009-10, from this year itself employees will be taxed for virtually their entire range of benefitsfrom Esops and contributions to superannuation funds to company accommodation, paid-for holidays and discounted meals.

The thorny issue of valuation is, however, still being sorted out. The Central Board of Direct Taxes is currently looking at two proposals: to broadly stick to the valuation norms specified in Rule 3, or tax all perks at market rates.

The latter would punch a significantly larger hole in the take-home pay of employees, but would boost direct tax collections in a year when CBDT has an uphill task of garnering Rs 4 lakh crore.

Rule 3, on the other hand, prescribes specific values for various perks. For example, it stipulates that company accommodation for private sector employees should be taken as 15 per cent of their salary.

Accommodation taken on lease by an employee is valued as the same as rent paid. Similarly, the value of a vehicle provided exclusively for official purposes would be taken as nil.

A key concern, however, is the prospect of a sudden surge in employees tax liability this year. Keeping in mind the fact that the onus of paying tax on perks now falls on employees and that almost half the year has passed, the rules should be kept largely on the same lines as current provisions, said Ernst & Young partner Amitabh Singh.

Singh makes a significant point. Unlike the earlier FBT regime, when the effective tax rate on perks was just around 7 per cent, these will now be added to an employees pay and taxed at the same rate as salary income. Thats a tough ask at a time when most companies have frozen salaries or imposed wage cuts.

The currently salaries of employees are benchmarked on the understanding that no tax was to be paid by them on benefits under FBT. So, it is important that the new rules on the valuation of perquisites do not cast undue burden on employees, given the recessionary conditions, said PricewaterhouseCoopers executive director Rahul Garg.