Perquisites Tax
Perquisites are non-cash benefits provided by an employer to an employee in addition to salary; they are taxable under Section 17(2) of the Income Tax Act, with their value determined according to prescribed valuation rules under Rule 3.
The word 'perquisite' broadly means any casual emolument, fee, or profit attached to an office or position. In income tax, perquisites under Section 17(2) form part of salary and are taxable in the year they are received or enjoyed, even though they may not involve a direct cash transfer.
Rent-free accommodation is one of the most significant perquisites. For government employees, the value is determined by licence fee rates. For non-government employees in cities with population above 25 lakh, the taxable value is 15% of salary; for cities with 10-25 lakh population, it is 10%; and for smaller towns, it is 7.5%. If the accommodation is leased by the employer, the perquisite value is the lower of actual lease rent or the percentage formula, whichever is lower.
Company car usage is valued under Rule 3 based on engine capacity. For cars up to 1,600 cc, ₹1,800 per month is the perquisite value (plus ₹900 per month for a driver). For cars above 1,600 cc, it is ₹2,400 per month (plus ₹900 for driver). If the car is used partly for personal and partly for official purposes, a log-book methodology applies.
Interest-free or concessional loans above ₹20,000 are perquisites, valued as the difference between the SBI lending rate and the rate charged to the employee. Stock options (ESOPs) are perquisites under Section 17(2)(vi), taxed at exercise — the difference between the fair market value on the date of exercise and the exercise price is the perquisite value. Eligible startups get a deferral until the earlier of sale, five years, or cessation of employment.
Medical facilities, gift vouchers exceeding ₹5,000 in value, club memberships (annual fees), credit card usage, and educational facility for children (above a monetary threshold) are all perquisites that must be valued correctly by employers in Form 16.
From the employee's perspective, the taxability of perquisites should be factored into cost-to-company (CTC) negotiations. A higher CTC that is perquisite-heavy may net a lower take-home after tax compared to a CTC structured with tax-exempt components.