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- What are perquisites? Perquisites meaning, examples & tax rules
What are perquisites? Perquisites meaning, examples & tax rules
Perquisites, commonly known as "perks," are benefits provided by employers in addition to an employee’s regular salary. These perks can be either monetary or non-monetary and certain perks are taxable under Indian income tax laws.
In this guide, you'll learn what perquisites are, the different types of perquisites, the benefits they offer, their value, and taxation rules.
Perquisites meaning
Perquisites refer to the benefits employees receive from their employer, in addition to their regular monthly salary. These perks can be either taxable or non-taxable and often include perks such as fuel reimbursements, company cars, or company-provided housing. They may also include interest-free loans, medical benefits, and company credit cards.
According to Section 17(2) of the Income Tax Act, perquisites include:
- Rent-free housing provided by the employer
- Accommodation offered by the employer at a reduced or discounted rate
- Amenities, such as gym, or benefits provided to employees at no cost or at a discount
- Costs paid by the employer on behalf of the employee
- Employer contributions to Provident Fund (PF), National Pension System (NPS) or superannuation funds exceeding ₹7.5 lakhs
- Interest or dividends added to PF, NPS or superannuation accounts beyond the employer’s contribution
- Any other fringe benefits or amenities offered
Difference between allowance and perquisites
Allowances and perquisites both provide financial benefits to employees beyond the basic salary; however, they serve different purposes and have varying impacts on in-hand salary and tax liability. Let's see the key differences between these two components to help you better structure your employees' compensation.
| Parameters | Allowances | Perquisites |
| Meaning | A fixed amount given to employees in addition to salary at regular intervals | A benefit or a facility provided by an employer to employees, often at no cost to the employee |
| Purpose | Given to employees to cover specific expenses such as housing, travel, or medical costs | Provided as a privilege or benefit to enhance job satisfaction |
| Payment mode | Paid in cash by the employer | Can be provided in cash or in kind |
| Tax liability | Subject to taxation, thereby increasing the employee’s overall tax obligation | Taxability depends on the type of perquisite; some are taxable, while others may be exempt |
| Impact on in-hand salary | Increases the in-hand salary of an employee | Does not directly affect the in-hand salary of an employee |
| Example | House Rent Allowance (HRA), Dearness Allowance (DA),medical allowance, etc. | Rent-free housing from the employer, corporate vehicle, office snacks, etc. |
Examples of perquisites
Perquisites can range from company cars to medical reimbursements. Below are some of the most common perquisites provided to employees in India:
- Company car: Many companies provide their senior employees with a company car for personal or official use. This benefit allows employees to use a vehicle without bearing the full cost of ownership or maintenance.
- Rent-free accommodation: Some employers offer rent-free or subsidised housing to employees, especially for those in higher management or in roles that require relocation.
- Employee Stock Options (ESOPs): Employers, particularly in startups or large corporations, offer stock options that allow employees to buy company shares at a predetermined price, often lower than the market value. Read more about ESOP.
- Health insurance premiums: Employers often cover the cost of health insurance premiums for employees and their families. This benefit is considered a perquisite.
- Interest-free or concessional loans: Companies sometimes offer loans at zero or low interest rates for purposes such as housing, education, or personal expenses. The difference between the interest rate charged by the employer and the market interest rate is treated as a taxable perquisite.
- Meal coupons: Many employers provide meal coupons or vouchers like Sodexo, which employees can use to purchase food and beverages.
- Gift vouchers: Employers may provide gifts to employees on special occasions such as festivals or employee birthdays as a token of appreciation. These perquisites are tax-exempt up to ₹5,000 per year, with any excess amount being taxable.
Employers should ensure proper documentation and adherence to tax regulations when offering these perquisites, as failure to report them accurately could lead to tax liabilities for both the employer and the employee.
Types of perquisites based on their taxability
Perquisites, or fringe benefits are subject to varying tax rules in India. Depending on the nature of the benefit, some perquisites are fully taxable, others are tax-exempt, and certain benefits are taxable only for specified employees.
Taxable perquisites
These benefits provided by employers are considered as taxable perquisites and must be included in the employee’s taxable income. They include:
- Rent-free or concessional accommodation
- Reimbursement of medical expenses beyond the specified limit
- Gas, electricity, and water supply provided by the employer
- Payment of an employee-helper’s salary by the employer
- Free meals exceeding ₹50 per meal
- Gifts exceeding ₹5,000 in a financial year
- Club memberships and gym facilities
- Interest-free loans or loans at concessional rates
Tax-exempt perquisites
Some perquisites are exempt from tax, meaning they do not form part of the employee's taxable income. Examples include laptops, computers, and telephone bill reimbursements provided by the company for official use, as well as refreshments such as tea, coffee, or snacks, and free or subsidised health services, including annual medical checkups.
Taxable only for specified employees
Certain benefits are taxable only for specified employees, which include directors, individuals with substantial interest in the company (holding over 20% voting power), or employees with a gross salary exceeding ₹50,000. These taxable perquisites include:
- Assets provided at a concessional rate or no cost (e.g., company cars)
- Gas, electricity, and water supply provided by the employer
- Wages for domestic help paid by the employer
Value of perquisites under section 17(2) of the Income Tax Act
Section 17(2) of the Income Tax Act, along with Rule 3, explains how to calculate the taxable value of perquisites provided to your employees. As an employer, it’s your responsibility to deduct the correct tax as TDS (Tax Deducted at Source) and remit it to the government.
Here’s a quick overview of some common perquisites and how their value is determined.
Rent-free accommodation
There are two types of accommodation you can provide to your employees - Unfurnished and furnished. The taxability of these perquisites depends on factors like employees’ salaries, city of residence, and its population.
1. Unfurnished accommodation
As per the latest notification, income tax on unfurnished rent-free accommodation for private-sector employees is calculated as:
| City's population | Tax rate |
| Upto 15 lakh | 5% of the salary |
| Between 15 lakh and 40 lakh | 7.5% of the salary |
| Above 40 lakh | 10% of the salary |
For government employees, the tax amount is calculated based on the licence fee for the house, minus any rent paid by the employee.
2. Furnished accommodation
Furnished accommodation is a type of housing that includes essential furniture, such as beds, sofas, tables, and sometimes appliances like refrigerators and washing machines. If the furniture is owned by the employer, 10% of the actual price of amenities are added to employees’ income as taxable perquisite. If the furniture is rented, then the actual hire charges are added as taxable perquisite.
3. Hotel accommodation
If the employee stays in a hotel for more than 15 days, the taxable value is 24% of salary or the actual hotel charges, whichever is lower.
Company car or vehicle
When an employer provides a company car for an employee’s use, the taxable perquisite value varies depending on ownership, usage, and reimbursement of running and maintenance costs.
1. Employer-owned vehicle
If the vehicle is used for official use only, the perquisite value is zero if there is proper documentation.
For private use with employer-paid running costs:
| Engine capacity | Perquisite value |
| Up to 1.6 litres | ₹2,700 [₹1,800 + ₹900 (chauffeur) per month] |
| Over 1.6 litres | ₹3,300 [₹2,400 + ₹900 (chauffeur) per month] |
For private use with employee-paid running costs:
| Engine capacity | Perquisite value |
| Up to 1.6 litres | ₹1,500 [₹600 + ₹900 (chauffeur) per month] |
| Over 1.6 litres | ₹1,800 [₹900 + ₹900 (chauffeur) per month] |
2. Employee-owned vehicle
- For official use only: No taxable value if supported by documentation.
- For mixed use (official and personal): The taxable value is the actual employer expenditure minus the above amounts.
Health insurance or medical benefits
The taxable value is the actual cost incurred by the employer for providing health insurance or medical benefits to the employee.
Interest-free or concessional loans
The taxable value of this perquisite is the difference between the interest charged at the State Bank of India’s (SBI) prescribed rate and the rate actually charged by the employer.
Club membership
The value of a club membership provided by the employer is the actual cost incurred by the organisation.
Understanding these valuations helps you manage the tax implications effectively for both your organisation and your employees.
Benefits of perquisites
Offering perquisites, or additional perks, to employees is a smart strategy for strengthening your business’s productivity and retention rates. Here’s how perquisites benefit your company:
- Lowering turnover
High turnover can be a costly challenge. Offering attractive perks, such as professional development opportunities or wellness programs, helps retain employees by showing them they’re valued. This reduces the likelihood of them leaving for competitors who offer more comprehensive benefits.
- Attracting top talent
Perquisites are a major draw for potential hires, especially when salary and basic benefits are similar across companies. Offering unique or desirable perks—such as flexible work options, wellness benefits, or skill-building opportunities—gives your company a competitive edge in attracting the best talent.
- Boosting productivity
Perks like gym memberships or mental health resources, can reduce stress and improve overall morale. When employees feel valued and supported, they’re likely to be more motivated and productive, which directly benefits your business’s performance.
- Tax advantages
Many perquisites come with tax benefits. For example, providing transport or meal allowances can be tax-deductible for employers, and often these perks are tax-exempt for employees as well, making them even more valuable.
Tax calculation on perquisites
Under the Finance Act of 2005, perquisites (or non-cash benefits) provided to employees by employers are taxable. Employers are responsible for deducting and paying the tax on these perquisites.
The tax on perquisites is calculated based on the average income tax rate applicable to the individual employee. The factors that influence this rate include:
- The income tax slab for the fiscal year
- The employee's declared income under 'Salaries'
- The value of perquisites provided by the employer
Example of tax calculation on perquisites
Let us assume an employee earns income under 'Salaries' is ₹10,00,000, which includes ₹1,00,000 worth of non-monetary perquisites provided by his employer. Here is how the perquisite tax would be calculated:
Let's say an employee has a total income under 'Salaries' of ₹10,00,000, including ₹1,00,000 in non-monetary perquisites provided by the employer. Here’s how the tax on perquisites would be calculated:
- Total income under 'Salaries': ₹10,00,000
- Tax on salary (including education and health cess at 4%): ₹52,000 (based on the new tax regime for FY 2024-25)
- Average Tax Rate: (₹52,000 / ₹10,00,000) x 100 = 5.2%
- Tax on Perquisites (₹1,00,000): 5.2% x ₹1,00,000 = ₹5,200
- Monthly TDS Amount: ₹5,200 / 12 = ₹433
As a result, the employer would deduct ₹433 per month from the employee’s salary as TDS for the perquisite tax.
A quick summary
Perquisites are a key part of any employee benefits package, adding both financial and non-financial value that enhances job satisfaction, productivity, and employee retention. However, effective management of these perks requires a solid understanding of their tax implications and valuation under the Income Tax Act.
To make managing perquisites and payroll easier, switch to cloud-based payroll software, Zoho Payroll. The software automates salary and perquisite calculations, streamlining the entire payroll process for you. With Zoho Payroll, you can focus on scaling your business, knowing your payroll is accurate and compliant with tax regulations.
Frequently asked questions
What are non-monetary perquisites?
Non-monetary perquisites are benefits provided in kind rather than cash, such as a company car, housing, or complimentary meals. These perks must be valued, and their worth is added to the employee's taxable income. As an employer, it’s important to recognize that these non-cash benefits contribute to the employee’s total taxable income and must be reported accordingly.
What are tax-free perquisites?
Tax-free perquisites are benefits that are exempt from taxation. Common examples include travel allowances, certain medical and recreational facilities, laptops or desktops provided by the company and refreshments during work hours. Offering these perks can be an effective way to enhance employee satisfaction without adding to their taxable income.
Do prerequisites count as part of salary income?
Yes, perquisites are considered part of salary income when provided by the employer. However, if these benefits come from a source other than the employer, they are classified under ‘Income from Other Sources’ or as business or professional income.