Perquisite Tax in India: Meaning, Examples, Taxability & Rules
Salary is not always limited to the amount credited into a bank account every month. Employees in India also receive additional benefits from employers, such as company accommodation, office cars, concessional loans, stock options, meal coupons, or insurance coverage. Under Indian tax laws, many of these benefits are treated as “perquisites”. In this blog, learn everything about perquisite tax in your salary.
What Is Perquisite Tax in India?
Perquisite tax is the tax levied on benefits or facilities provided by an employer in addition to the regular salary. The term “perquisite” is defined under Section 17(2) of the Income Tax Act.
If an employee receives a non-cash benefit because of their job, its value may be added to taxable income.
What Are the Types of Perquisites in Income Tax?
The main types of perquisites in India are taxable perquisites, tax-free perquisites, and perquisites taxable only for specified employees.
1. Fully Taxable Perquisites
These perquisites are taxable for all employees, and their value is added to salary income.
Here are various types of fully taxable perquisites:
- Rent-free accommodation provided by the employer
- Company car used for personal purposes
- Interest-free or concessional loans
- Utility bills paid by the employer
- Domestic servants provided by the company
- ESOPs and stock options
- Club memberships and lifestyle benefits
- Employer-paid personal expenses
- Holiday or travel expenses for personal use
2. Tax-Free Perquisites
These perquisites are exempt from income tax under prescribed conditions.
Here are various types of tax-free perquisites:
- Laptop or computer for office work
- Mobile phone for official use
- Employer-paid health insurance
- Medical facilities in approved hospitals
- Tea, coffee, and office refreshments
- Meal coupons within exemption limits
- Employer contribution to retirement funds within limits
If you are planning retirement and want to understand pension-related financial structures better, you can also explore what is annuity in NPS.
3. Perquisites Taxable Only for Specified Employees
These benefits may not be taxable for all employees.
Here are some of the perquisite examples-
- Free domestic help
- Gas, electricity, and water facilities
- Use of employer-owned assets
- Educational facilities for family members
- Household appliances provided by the employer
Valuation of Perquisites
Under Rule 3 of the Income Tax Rules, different benefits have different valuation methods for income tax purposes.
Valuation of Rent-Free Accommodation
The taxable value of employer-provided accommodation depends on salary, city population, and whether the property is owned or leased by the employer.
For private employees:
- 15% of salary if the city population exceeds 25 lakh
- 10% of salary if the population is between 10 lakh and 25 lakh
- 7.5% of salary if the population is below 10 lakh
If the property is leased:
Actual rent paid by employer
or
15% of salary
whichever is lower
Valuation of Company Car Perquisite
Company car valuation depends on engine capacity, personal usage, and chauffeur facility.
For cars up to 1.6-litre engine capacity:
- ₹1,800 per month for mixed official and personal use
- ₹900 additional for the chauffeur
For cars above 1.6 litres:
- ₹2,400 per month
- ₹900 additional for the chauffeur
If used only for official purposes with proper records:
- Nil taxable value may apply
Valuation of ESOPs
ESOPs are valued based on:
ESOP Value = Fair Market Value (FMV) on Exercise Date − Exercise Price Paid by Employee
The difference is treated as taxable salary income.
Valuation of Utility Bills Paid by Employer
If employers pay personal expenses such as:
- Electricity bills
- Gas bills
- Water charges
- Internet expenses
The actual amount paid usually becomes taxable.
Salary accounts and employer-linked banking services may sometimes show restricted or blocked amounts. Learn the lien balance meaning and understand why certain balances in your account may become temporarily unavailable.
Valuation of Free or Concessional Education
Education facilities provided to employees’ children become taxable beyond the prescribed exemption limits.
Tax-Free Perquisites With Nil Valuation
Some perquisites remain exempt under income tax rules.
Examples include:
- Laptop provided for official use
- Mobile phone for office work
- Office refreshments within limits
- Employer-paid medical insurance
- Approved medical treatment facilities
Perquisites Benefits
Perquisites help employees save money, improve convenience, and enjoy additional benefits that may otherwise become expensive personally.
- Perquisites in income tax reduce personal financial burden in areas like travel, housing, healthcare, or meals
- They make salary packages more attractive without increasing the fixed salary heavily
- Perquisites in salary improve employee comfort and work-life balance
- Perquisites also help companies retain employees in competitive industries
- They can support long-term wealth creation through ESOPs and stock benefits
- They offer employees access to facilities and services that may otherwise be costly
- Various types of perquisites improve overall job satisfaction and employee experience
Modern salary structures increasingly combine technology, digital reimbursements, and AI-driven payroll systems. Read more about how finance and technology are evolving together in AI investment in India.
Income Tax Perquisite Rules
Income tax perquisite rules mainly fall under Section 17(2) of the Income Tax Act and Rule 3 of the Income Tax Rules.
These rules explain when employer-provided benefits become taxable and how their value is calculated.
- Different perquisites have different valuation methods under Rule 3
- Certain benefits are taxable only for specified employees
- Some official-use facilities may qualify for tax exemption
- Employers include taxable perquisites while deducting TDS from salary
- Tax-free limits and exemptions apply to selected employee benefits under prescribed conditions
Disclaimer– The rankings and figures in this article have been compiled from multiple verified reports, credible news sources, and public financial data available as of 2026.
All values are approximate and may vary with newer updates, revisions, or changes in official records.
Perquisites Meaning – FAQs
In income tax, perquisites mean benefits or facilities provided by an employer for the personal use or benefit of an employee apart from regular salary or wages.
Allowances are fixed monetary payments given as part of salary, while perquisites are additional benefits or facilities provided by the employer, either in cash or in kind.
Perquisites in salary are additional benefits provided by employers apart from regular pay. These may include rent-free accommodation, medical facilities, club memberships, company cars, or stock options.
Perquisite tax cannot be completely avoided legally, but it can be reduced through tax-efficient salary structuring and exempt benefits such as meal coupons, office-use laptops, telephone reimbursements, and approved employer contributions.
Perquisite tax on a car depends on engine capacity, usage type, and who bears fuel and maintenance costs. For example, a small company car with employer-paid expenses may attract a taxable value of ₹1,800 per month, while larger cars may attract ₹2,400 per month plus driver charges if applicable.
The employee pays perquisite tax because the value of perks is added to salary income. However, the employer calculates the taxable value and deducts TDS before salary payment.
Perquisite tax is calculated by determining the taxable value of the benefit under Income Tax Rules, adding it to the employee’s salary income, and applying the applicable income tax slab rate.
