Home > Topics > Income Tax > Perquisites – Meaning, Valuation & Taxability
← PreviousNext →

Perquisites – Meaning, Valuation & Taxability

Company gives you a BMW, bungalow, and ₹50 lakh interest-free loan. Sounds great? But all are taxable perquisites! Let's understand valuation.

What is a Perquisite?

Definition: Any facility, benefit, or amenity provided by employer (in addition to salary)

Section 17(2): Defines perquisites

Key: Not in cash, but in kind (facility/benefit)

Examples:

  • Company car for personal use
  • Rent-free house
  • Free electricity/water
  • Club membership
  • Interest-free loan

Perquisite vs Allowance

Loading comparison…

Classification of Perquisites

1. Taxable for ALL Employees:

  • Rent-free accommodation (unfurnished in govt/others)
  • Motor car for personal use
  • Domestic servant/sweeper/gardener/watchman
  • Gas/electricity/water for personal use
  • Interest-free/concessional loan

2. Taxable ONLY for Specified Employees (salary > ₹50,000/month):

  • Free education to children
  • Free meals (above specified limit)
  • Club membership
  • Use of movable assets
  • Holiday expenses

3. Not Taxable (Exempt):

  • Medical facilities
  • Laptop/computer for work
  • Refreshments during office hours
  • Telephone for official use

Major Perquisites & Valuation

1. Rent-Free Accommodation (RFA)

Most common perquisite!

Valuation depends on:

  • Owned by employer or leased
  • Furnished or unfurnished
  • City population
  • Employee's salary

A. Unfurnished Accommodation (Owned by Employer)

Valuation:

For Government Employees:

  • Licensed value as per govt rules

For Others:

City PopulationPerquisite Value
> 25 lakh15% of salary
10-25 lakh10% of salary
< 10 lakh7.5% of salary

Salary = Basic + DA + Bonus + Commission + all taxable allowances

Example:

Mr. Sharma (Mumbai, population >25L):

  • Salary: ₹20,00,000/year
  • Company-owned flat provided (unfurnished)

Perquisite Value: 15% of ₹20L = ₹3,00,000/year

B. Furnished Accommodation

Perquisite = Unfurnished value + 10% of original cost of furniture

Example:

Mrs. Kapoor:

  • Unfurnished value: ₹3,00,000
  • Furniture cost: ₹5,00,000

Perquisite: ₹3,00,000 + (10% × ₹5,00,000) = ₹3,50,000

C. Leased Accommodation

Perquisite = Actual rent paid by employer OR 15%/10%/7.5% of salary (whichever lower)

Example:

Rahul (Delhi):

  • Salary: ₹15,00,000
  • Employer pays rent: ₹4,00,000/year
  • Population: >25L

Perquisite: Lower of ₹4,00,000 or (15% × ₹15L = ₹2,25,000) = ₹2,25,000

Employee Contributes Rent

Perquisite = Calculated value - Amount paid by employee

Example:

  • Calculated perquisite: ₹3,00,000
  • Employee pays: ₹50,000/year
  • Net perquisite: ₹2,50,000

2. Motor Car for Personal Use

Depends on:

  • Owned by employer or hired
  • Running cost borne by whom
  • Engine capacity

A. Car Owned/Hired by Employer

Running & Maintenance by Employer:

Engine CapacityPerquisite/Month
≤ 1.6 liters₹2,700
> 1.6 liters₹3,600

Annual: ₹32,400 or ₹43,200

Running by Employee (fuel/driver):

Engine CapacityPerquisite/Month
≤ 1.6 liters₹1,800
> 1.6 liters₹2,400

Example:

Car: Honda City (1.5L, < 1.6L)

  • Owned by company
  • Petrol/driver salary by company

Perquisite: ₹2,700/month × 12 = ₹32,400/year

B. Chauffeur (Driver)

If driver provided: ₹900/month = ₹10,800/year (additional)

Total perquisite (car + driver):

  • Small car: ₹32,400 + ₹10,800 = ₹43,200

C. Car for Official + Personal

Perquisite value reduced:

  • 50% of normal value (if substantial official use)
  • Nil if exclusively official (with proof)

3. Interest-Free or Concessional Loan

Taxable if loan > ₹20,000

Perquisite = SBI rate - Rate charged by employer

SBI Rate (current): ~7-8% (varies)

Example:

Mr. Verma:

  • Housing loan from employer: ₹50,00,000
  • Interest charged: 1%
  • SBI rate: 7%

Loading calculation…

Exceptions:

  • Medical treatment loan: Exempt
  • Natural calamity loan: Exempt

4. Free Meals

Valuation:

At office/worksite (free/subsidized):

  • Value ≤ ₹50/meal: Exempt
  • Value > ₹50/meal: Fully taxable (for specified employees)

Example:

  • Lunch provided, cost ₹40/meal
  • Perquisite: NIL (below ₹50)

But if cost ₹100/meal:

  • Perquisite: Full ₹100 × working days

5. Free Education to Children

Taxable ONLY for specified employees (salary > ₹50k/month)

Valuation:

  • Cost to employer OR
  • ₹1,000/month per child (whichever lower)

Exemption: If in employer's own school and doesn't cost extra to employer → Exempt

Example:

Director's child:

  • School fees paid by company: ₹5,00,000/year
  • Perquisite: ₹5,00,000 (fully taxable for director)

Normal employee (salary ₹40k/month):

  • Perquisite: NIL (not specified employee)

6. Club Membership

Taxable for specified employees

Valuation: Actual expenses by employer

Types:

  • Initial fee: Fully taxable
  • Annual fee: Fully taxable
  • Service charges: Not taxable (if for official purposes)

Example:

  • Club initial fee: ₹5,00,000
  • Annual fee: ₹50,000
  • Perquisite: ₹ 5,50,000 (in year of payment)

7. Use of Movable Assets

Specified employees only

Valuation: 10% of original cost per year

Example:

  • Laptop given (cost ₹1,00,000)
  • Perquisite: 10% = ₹10,000/year

Exception: If for official use → Exempt

Perquisites EXEMPT (Not Taxable)

Section 17(2):

1. Medical Treatment:

  • In employer's hospital: Exempt
  • Outside (reimbursement): Exempt (earlier ₹15k, now covered under standard deduction)

2. Telephone/Internet:

  • For official use: Exempt

3. Refreshments:

  • Tea/coffee/snacks during office hours: Exempt

4. Computer/Laptop:

  • For official work: Exempt

5. Conveyance/Car:

  • Exclusively for official duty: Exempt

6. Gift up to ₹5,000:

  • Cash/voucher from employer: Taxable if > ₹5,000/year

Comprehensive Example

Mr. Khan (Director, Mumbai):

Salary: ₹25,00,000/year

Perquisites:

  • Rent-free furnished flat (furniture cost ₹10L, owned by company)
  • Car: Audi (2.0L) with driver, full maintenance by company
  • Interest-free loan: ₹1 crore
  • Club membership annual fee: ₹1,00,000
  • Free meals (₹200/meal, 250 days)

Loading calculation…

Summary

  • Perquisite: Benefit in kind (not cash) - car, house, loan, meals, club
  • RFA: 15%/10%/7.5% of salary (city-based), +10% furniture if furnished
  • Motor car: ₹2,700-3,600/month (engine-based), +₹900 for driver
  • Interest-free loan: (SBI rate - actual rate) × loan amount = perquisite
  • Free meals: >₹50/meal taxable for specified employees
  • Specified employees: Salary >₹50k/month (director, managers)
  • Exempt perquisites: Medical, laptop for work, official phone, refreshments
  • High earners: Perquisites can add 30-50% to taxable salary!

Quiz Time! 🎯

Loading quiz…

Next Chapter: Short-Term Capital Gains Computation! 📉

← PreviousNext →