Rule 3(7)( IV) of the Income-Tax rules relating to valuation of perquisites provides that:
“the value of any gift, or voucher, or token in lieu of which such gift may be received by the employee or by member of his household on ceremonial occasions or otherwise from the employer , who is not liable to pay Fringe Benefit Tax (FBT) shall be determined as the sum equal to the amount of such gift.
However, where value of such gift, voucher or token, as the case may be, is below Rs 5,000 in the aggregate during the previous year, value of perquisite shall be taken as nil.”
In the FBT regime, employer had to bear the liability of paying FBT on 50% of the value of any gifts given by him to the employee .
Thus, the effective tax burden, considering the 30% tax rate in case of the employer being a firm or company, worked out to 15%.
With abolition of FBT from April 1, 2009, tax liability on the value of such gifts as per the above rule has now shifted in case of the employee , to be borne by him at his applicable marginal rate.
However, good news is that if value of such gift, or voucher, or token in lieu of which such gift may be received by the employee or a member of his household from the employer, on any ceremonial occasion during the year, is below Rs 5,000 (in the aggregate during the relevant financial year), same would be exempt from tax.
Thus a gift of gold or silver coin or a household article, or even a gift voucher or token against which any article can be purchased, within the monetary value of Rs 5,000 can be given tax-free to your employee the coming Diwali.
Obviously, what you spend in this regard is fully tax deductible as business expenditure in your hands as an employer , fortunately not attracting even any FBT now.