Legal Reference
Section 17(2) (perquisites), IT Rule 3 (valuation), ITA 2025 | Taxable and exempt perquisites | RFA valuation 7.5%-15% of salary | Car: Rs 1,800/2,400 per month | ESOP: FMV minus exercise price
1. What Are Perquisites?
Perquisites are benefits provided by employers to employees — beyond the regular cash salary. Under Section 17(2) of ITA 2025, taxable perquisites are included in gross salary and taxed at the employee slab rate. The value of most perquisites is determined by IT Rule 3. Correct perquisite valuation ensures the employer deducts the right TDS and the Form 16 is accurate.
2. Rent-Free Accommodation (RFA)
When employer provides accommodation free of cost:
- Cities with population above 25 lakh: 15% of salary
- Cities 10-25 lakh: 10% of salary
- Other cities: 7.5% of salary
- "Salary" here = basic + DA + commission + fees + bonus (excludes allowances)
- If employer leases accommodation: lower of actual lease rent or the percentage of salary
- Concessional accommodation (employee pays some rent): perquisite = Rule 3 value minus rent paid by employee
3. Company Car Perquisite
| Car Ownership & Use | Monthly Perquisite Value |
|---|
| Employer car, up to 1,600 cc | Rs 1,800 + Rs 900 (driver) |
| Employer car, above 1,600 cc | Rs 2,400 + Rs 900 (driver) |
| Employer car for official use only | Nil (with employer certificate) |
| Employee car, employer pays maintenance | Rs 1,800/2,400 per month minus employee payment |
4. ESOP Perquisite
Employee Stock Option Plans: when options are exercised and shares allotted, the perquisite value = FMV on allotment date minus exercise price. The employer deducts TDS on this perquisite. For DPIIT-recognised startup employees, this perquisite tax is deferred 5 years or until sale/separation — whichever is earlier.
5. Exempt Perquisites (No Tax)
- Medical treatment in employer hospital or government hospital
- Laptop and computer provided for work (business use)
- Accident and health insurance premium
- School seat for children (up to Rs 1,000/month/child)
- Business use telephone/mobile (no personal benefit perquisite)
- Meals during working hours on premises (up to Rs 50 per meal)
6. Taxable Perquisites: Common Items
- Club membership (employer paid): full cost is perquisite
- Servant salary paid by employer: full amount is perquisite
- Credit card expenses paid by employer for personal use
- Movable assets given to employee below market value
- Interest-free or concessional loan (above Rs 20,000): SBI rate of interest minus actual rate charged
7. Why TaxClue
Incorrect perquisite valuation in Form 16 leads to wrong TDS deduction and ITR errors. TaxClue audits employer perquisite computation and ensures Form 16 accuracy. Contact us under ITA 2025.
Disclaimer
This article is for general informational and educational purposes only. It does not constitute legal, financial, or professional tax advice. Readers are advised to consult a qualified Chartered Accountant or tax professional before making any decisions. TaxClue Consultech Pvt Ltd accepts no liability. All case studies and examples in this article are illustrative only and do not represent actual persons or transactions.
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❓ Frequently Asked Questions
How is rent-free accommodation valued as a perquisite?
Under IT Rule 3, rent-free accommodation provided by an employer is valued as a percentage of employee salary: 15% for cities with population above 25 lakh, 10% for 10-25 lakh cities, and 7.5% for other cities. If the employer leases accommodation, the perquisite value is the lower of actual lease rent or the percentage. 'Salary' for this purpose includes basic, DA, commission, bonus, and fees but excludes allowances.
What is the car perquisite value?
Under IT Rule 3, an employer-owned car provided to the employee has a monthly perquisite value of Rs 1,800 (up to 1,600 cc) or Rs 2,400 (above 1,600 cc), plus Rs 900 if a driver is also provided. These notional values are much lower than actual car running costs, making company cars highly tax-efficient. If the car is used exclusively for official duties with employer certification, the perquisite value is nil.
What perquisites are exempt from tax?
Fully exempt perquisites under ITA 2025 include: medical treatment in the employer hospital or government hospital; laptop/computer provided for work use; accident and health insurance premium paid by employer; a seat in the employer school for employee children up to Rs 1,000/month per child; business telephone/mobile (for official use); and tea/snacks provided during working hours on employer premises.
How is the ESOP perquisite computed?
When ESOPs are exercised and shares allotted to the employee, the perquisite value = FMV (Fair Market Value) of shares on allotment date minus the exercise price paid by the employee. This amount is added to salary and taxed at slab rate. The employer deducts TDS on this perquisite value. For DPIIT-recognised startup employees, this perquisite tax is deferred by up to 5 years from allotment, until sale of shares, or until leaving the startup — whichever comes first.
Is interest-free loan from employer a taxable perquisite?
Yes. If an employer provides an interest-free or concessional loan above Rs 20,000, the difference between SBI prime lending rate and the actual interest charged is taxable as a perquisite. For example, if SBI rate is 9% and the employer charges 3% on a Rs 5 lakh loan, the difference 6% on Rs 5L = Rs 30,000 is the annual perquisite value. Loans for medical treatment of specified diseases and loans under Rs 20,000 are exempt.
