Perquisites—also called “perks”—are extra benefits your employer gives you, apart from your salary. They can be in cash or kind, like a company car, rent-free home, or school fees paid by your company. As per Section 17(2) of the Income Tax Act, these count as part of your salary income and may be taxable.
Classification of Perquisites
Perquisites fall into three main categories:
- Fully taxable for all employees
These include benefits like rent-free or concessional accommodation, payment of your personal obligations (e.g., interest-free loans, school fees), employer-funded club memberships, and share-based benefits. - Taxable only for specified employees
Perks such as free amenities, concessional benefits, or domestic servant services given to directors or high-income individuals are taxable only for them. - Tax-exempt perquisites
Some perks are non-taxable up to limits, such as laptops/phones for work, refreshments at office, employer’s contribution to provident fund (up to ₹7.5 lakh), medical benefits, and travel allowances.
Taxability Rules & Valuation
- Rent-free or concessional accommodation
Taxed based on your city’s population and salary:- 25 lakh: 15%
- 10–25 lakh: 10%
- <10 lakh: 7.5%
- Company vehicle
Personal use: ₹1,800/month for cars ≤1.6 L, ₹2,400/month for higher engine, plus ₹900/month if chauffeur provided. - Interest-free/concessional loans
Difference between interest at prescribed rate and actual paid is taxable. - Employer contributions to funds
Amount exceeding ₹7.5 lakh in PF, NPS, superannuation is taxable, including annual accruals. - Shares & sweat equity
Taxed on the difference between market value and the amount paid, if any.
Who Pays & How?
Your employer calculates the taxable value, includes it in Form 16, and deducts TDS. You declare it in your ITR under salary income.
Quick Reference Table
| Perquisite | Taxability | Valuation Basis |
|---|---|---|
| Rent-free home | Fully taxable | % of salary (city-wise) |
| Company car (personal use) | Fully taxable | ₹1,800/₹2,400 + ₹900 with chauffeur |
| Interest-free loan | Fully taxable | Difference from market interest |
| Employer PF/NPS > ₹7.5 L | Fully taxable | Excess amount + interest earned |
| Share benefits | Fully taxable | Diff between fair value & paid |
| Laptops/phones for work | Tax-exempt | N/A |
| Office refreshments | Tax-exempt | N/A |
| Employer medical contribution | Tax-exempt (with limits) | As per Act |
| Salaries of servants, club membership, domestic help | Fully taxable | Cost borne by employer |
Example
If your employer gives you ₹8 lakh extra into your PF and you earn ₹12 lakh/year:
- ₹8 lakh – ₹7.5 lakh = ₹50,000 becomes taxable as perquisite.
- That ₹50,000 is added to your taxable income.
In Simple Terms
Perks seem like free gifts, but many are taxed under Section 17(2). How much you’re taxed depends on the perk type, who gets it, and valuation rules. Knowing this helps you understand your total salary, manage tax, and use exemptions wisely.
