Perquisites in Income Tax: How Your Employee Benefits and Company Perks Are Taxed in India (AY 2026-27)

Your CTC says ₹18 lakh but your in-hand salary feels closer to ₹12 lakh. Part of the gap is tax — but a significant chunk is perquisites: non-cash benefits your employer provides that have real monetary value. Rent-free housing, a company car, subsidised meals, interest-free loans — these perks reduce your out-of-pocket expenses, but the Income Tax Department treats many of them as part of your taxable salary.

Understanding how perquisites are valued and taxed can help you plan better, avoid surprises when filing your ITR, and sometimes even negotiate your compensation more tax-efficiently.

What Are Perquisites Under the Income Tax Act?

Section 17(2) of the Income Tax Act defines perquisites as any benefit or amenity granted by an employer to an employee, over and above salary or wages. The key idea: if your employer gives you something of value — whether it's a flat to live in, a car to drive, or a club membership — the monetary value of that benefit gets added to your gross salary for tax purposes.

Perquisites are broadly classified into three categories:

1. Taxable for all employees — regardless of designation or salary level
2. Taxable only for specified employees — those with director roles or salary above ₹50,000 per month (excluding perquisites)
3. Tax-exempt perquisites — not added to taxable income at all

Taxable Perquisites: What Gets Added to Your Salary

Rent-Free Accommodation (RFA)

This is the single largest perquisite for most employees. If your employer provides you a house or flat without charging rent (or at a concessional rent), the perquisite value is added to your salary.

How the value is calculated:

Here, "salary" for RFA calculation means basic pay plus DA (if part of retirement benefits) plus bonus/commission on a fixed percentage basis.

Example: Rahul works for a Mumbai-based IT company. His basic salary is ₹8,00,000 per year. His employer provides him a rent-free flat.

• Perquisite value = 10% of ₹8,00,000 = ₹80,000
• This ₹80,000 is added to his gross salary and taxed at his slab rate

If Rahul pays concessional rent of ₹3,000/month (₹36,000/year), the perquisite value becomes ₹80,000 − ₹36,000 = ₹44,000.

Company Car

The perquisite value of a car depends on who owns the car and who bears the running costs:

Example: Priya's employer provides her a 1.4L petrol car and bears all expenses including a driver. Her monthly perquisite = ₹1,800 + ₹900 = ₹2,700, or ₹32,400 per year added to her taxable salary.

If the car is used exclusively for official purposes and the employer maintains proper documentation, no perquisite arises.

Interest-Free or Concessional Loans

If your employer gives you a loan at zero interest or below the SBI lending rate, the difference is a taxable perquisite.

Perquisite value = Interest at SBI lending rate − Interest actually charged

Example: Your employer grants you a ₹10,00,000 housing loan at 4% interest. The SBI lending rate for housing loans is 8.5%.

• Interest at SBI rate: ₹10,00,000 × 8.5% = ₹85,000
• Interest you pay: ₹10,00,000 × 4% = ₹40,000
• Taxable perquisite: ₹45,000

Loans up to ₹20,000 are exempt from this calculation.

Other Commonly Taxable Perquisites

• Club membership fees paid by employer (for non-business purposes)
• Free or concessional education for employee's family members (value exceeding ₹1,000/month per child is taxable)
• Gifts from employer exceeding ₹5,000 in aggregate during the year
• Credit card expenses borne by employer for personal use
• Domestic servants, gardener, or watchman provided by employer
• Gas, electricity, water supplied free by employer (taxable at cost to employer or manufacturing cost)
• Stock options (ESOPs) — the perquisite arises at exercise, calculated as fair market value on exercise date minus exercise price paid. Read our detailed guide on ESOP and RSU taxation for the complete picture.

Tax-Exempt Perquisites: What Doesn't Get Taxed

Not all employer benefits increase your tax burden. These perquisites are fully exempt:

Meal Vouchers and Food Coupons

Meals provided in office during working hours are exempt without any limit. Meal vouchers (like Sodexo) are exempt up to ₹50 per meal. For a typical 22 working days/month, that's up to ₹13,200 per year tax-free.

Medical Facilities

• Treatment in employer-maintained hospital: fully exempt
• Medical insurance premium paid by employer under a group policy: fully exempt
• Medical reimbursement for treatment in government or approved hospital: exempt without limit for specified diseases

Telephone and Internet

Mobile phone, landline, and internet bills paid by employer are fully exempt — even if used partly for personal purposes. This is one of the most valuable tax-free perks since most employees spend ₹6,000–₹15,000 annually on these.

Leave Travel Concession (LTC)

Travel expenses for you and your family within India, subject to certain limits, are exempt. We cover this in detail in our guide on LTA/LTC tax exemption.

Other Exempt Benefits

• Employer's contribution to PF, NPS, and superannuation fund (within limits)
• Recreational facilities available to all employees generally
• Training and refresher courses
• Relocation expenses (for transfers)
• Laptop or computer provided for official use

Perquisites Taxable Only for "Specified Employees"

Certain perquisites are taxable only if you fall into the category of specified employees:

• A director of the company (regardless of salary), or
• An employee with salary exceeding ₹50,000 per month (excluding perquisites)

For specified employees, these additional items become taxable:

• Free supply of gas, electricity, or water for household use
• Sweeper, gardener, watchman, or personal attendant
• Interest-free or concessional loans (for amounts above ₹20,000)
• Use of moveable assets (furniture, appliances) belonging to the employer

If you earn less than ₹50,000/month and aren't a director, these perks are tax-free for you.

How to Find Perquisite Values in Your Form 16

Your employer reports all taxable perquisites in Form 16, Part B under the head "Value of perquisites under Section 17(2)." This is a single aggregated figure. However, a detailed breakup is available in Annexure — Perquisite Valuation, where each perquisite is listed separately with its computed value.

When you check your Form 26AS or Annual Information Statement (AIS), the perquisite amount is included in the total salary reported by your employer via TDS returns.

If you notice discrepancies — say your employer valued your rent-free accommodation higher than the prescribed percentage — raise it with your HR/payroll team before filing your return. These values are determined by your employer, but the tax liability is ultimately yours.

49Tax's AI automatically extracts perquisite values from your Form 16 and places them correctly in your ITR, so you don't have to worry about manual calculation or placement errors.

How Perquisites Are Reported in Your ITR

In ITR-1 and ITR-2, perquisites are reported as part of your Salary income:

1. Salary as per Section 17(1) — basic salary, DA, bonus, commission
2. Value of perquisites under Section 17(2) — all taxable perquisites go here
3. Profits in lieu of salary under Section 17(3) — compensation, retrenchment, etc.

The total of these three components forms your gross salary, from which you deduct standard deduction (₹75,000 for AY 2026-27) and professional tax to arrive at your net taxable salary.

Tax Planning Around Perquisites

Negotiate Tax-Efficient Components

When negotiating your CTC, understand which benefits are fully exempt (meals, phone bills, NPS employer contribution) versus fully taxable (club memberships, personal credit card expenses). Asking your employer to restructure towards exempt perquisites can reduce your tax burden without any change in total CTC.

Use Concessional Rent Strategically

If your employer offers rent-free accommodation, paying even a nominal rent reduces the perquisite value. In many cases, paying ₹3,000–₹5,000/month in rent can reduce the taxable perquisite by that same amount — effectively making the rent payment tax-deductible at your marginal rate.

Keep Documentation for Official Use

For the company car, ensure that your employer maintains a log book if you use the car for both official and personal purposes. A car used exclusively for official duties has zero perquisite value — but this must be backed by proper records.

Opt for Exempt Benefits Over Cash

If your employer offers a choice between a higher cash salary or benefits like NPS contribution, meal vouchers, or phone bill reimbursement — the benefits route often saves more in tax, especially if you're in the 20% or 30% slab.

Key Takeaway

Perquisites can add ₹50,000 to ₹2,00,000+ to your taxable salary depending on your compensation structure. The good news: many common employer benefits (meals, phone bills, medical insurance) are fully exempt, and others can be optimised through smart CTC structuring. Review the perquisite section in your Form 16 Part B each year — if the numbers look off, question them before filing. Understanding what's taxable versus exempt puts you in a stronger position both at tax-filing time and during salary negotiations.