Blog > Valuation of perquisite in respect of club expenditure

Valuation of perquisite in respect of club expenditure

by Varun Advani | 20 October 2012

The perquisite in respect of club facility is taxable as follows under the Income Tax Act –

Step 1

Find out the expenditure incurred by the employer in respect of club facility used by the employee or any member of his household

Step 2

Less : Expenditure on use for official purposes

Step 3

Less : Amount, if any, recovered from the employee

Note – The balancing amount (if it is positive) is taxable value of the perquisite.

44.20-1 CLUB EXPENDITURE INCURRED BY EMPLOYER - The following points should be noted –

1. It includes any expenditure on club facility used by the employee or any member of his household which is paid or reimbursed by the employer.

2. It includes amount of annual or periodical fees paid or payable to a club.

3. Health club, sports facilities, etc., provided uniformly to all classes of employees by the employer at employer’s premises are exempt. Consequently, initial fees/deposits, in such case, are not included.

44.20-2 CLUB EXPENDITURE FOR OFFICIAL USE – Expenditure on use of club facility for official purposes is deductible. To claim deduction, the following conditions should be satisfied –

Condition 1

Complete details in respect of such expenditure is maintained by the employer which may, inter alia, include the date of expenditure, the nature of expenditure and its business expediency

Condition 2

The employer gives a certificate for such expenditure to the effect that the same was incurred wholly and exclusively for the performances of official duties.

Please refer to the following example for valuation of perquisite in respect of club expenditure.

Provisions Illustrated – The employer provides a club facility to X and his family members. This facility is available to X for his personal use and also for entertaining official guests. The total expenditure incurred by the employer during the previous year is Rs. 28,000 out of which Rs. 4,000 as certified by the employer is for official dinner to a foreign delegation. Rs. 7,000 out of Rs. 28000 is for providing health/sports club facility to X. The employer provides all employees similar health/sports club facility. A sum of Rs. 1,200 (Rs. 700 for health/sports club facility and Rs. 500 for other club facility) is recovered from X by the employer.

Amount taxable in the hands of X is given below –

 

Health club/sports club facility
Rs.

Any other club facility
Rs.

Expenditure incurred by employer

Less:Expenditure incurred for official purposes as certified by employer

Less : Amount recovered from X

7,000

-

700

21,000

4,000

500

Balance

6,300

16,500

Amount taxable in the hands of X

Nil

16,500

 



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