If tax is paid by an employer on behalf of an employee, the same (being in nature of an obligation which, but for such payment, would have been payable by the employee) is considered a perquisite, and is chargeable to tax.

Further, an employer has been given an option to pay tax on the whole or part value of perquisite (not provided or by way of monetary payments), on behalf of an employee. Clause (10CC) was inserted in section 10 with effect from assessment year 2003-04 to exempt the amount of tax actually paid by an employer, at his option, on the income in the nature of a perquisite (not provided for by way of monetary payment) on behalf of an employee, from being included in perquisites. Such tax paid by the employer shall not be treated as an allowable expenditure in the hands of the employer under section 40.

The aforesaid exemption is available only in respect of tax on non-monetary perquisites paid by employer. If tax on salary is paid by the employer on behalf of the assessee, it is a perquisite provided for by way of non-monetary payment and, therefore, the provisions of section 10 (10CC) would be applicable.