Perquisites under the Income-tax Act, 2025 are defined in section 17, with accommodation and other benefits valued in the manner prescribed by the Rules, and ESOPs valued at fair market value on the date of exercise under section 17(4)(h).
Perquisite valuation is not in Schedule II. Schedule II is read with section 11 and is a list of income not to be included in total income. Perquisites are defined and valued under section 17 and the Rules made under the Act.
Where perquisite valuation sits
The Income-tax Act, 2025 gives perquisite a section of its own for the first time. Under the 1961 Act it was section 17(2), a sub-section inside the general salary definition. Now it is section 17, with inclusions in sub-section (1), exclusions in sub-section (2), conditions in sub-section (3) and definitions in sub-section (4).
Most of the actual valuation is left to the Rules. Sub-section (1)(a) and (b) value rent-free and concessional accommodation 'in such manner as may be prescribed', and clause (e) brings in any other benefit or amenity as may be prescribed. The Income-tax Rules made under the new Act therefore matter as much as the section.
Two valuations are fixed in the section itself: ESOPs and sweat equity at fair market value on the date of exercise under sub-section (4)(h), and the excess employer contribution above ₹7,50,000 together with its annual accretion under clauses (1)(h) and (i).
The Income-tax Act, 2025 takes effect from 1 April 2026 and applies from tax year 2026-27. The Income-tax Act, 1961 continues to govern every year up to 31 March 2026 because of the repeal and savings provision in section 536. The Schedule contents described here are taken from the Act as enacted, incorporating the corrigenda notified in the Gazette on 3 September 2025.
Where each provision actually sits
| Topic | Income-tax Act, 1961 | Income-tax Act, 2025 |
|---|---|---|
| Definition of perquisite | Section 17(2) | Section 17(1) |
| Rent-free and concessional accommodation | Section 17(2)(i) and (ii) | Section 17(1)(a) and (b) |
| ESOP and sweat equity | Section 17(2)(vi) | Section 17(1)(d) with 17(4)(h) |
| Employer contribution above the ceiling | Section 17(2)(vii) | Section 17(1)(h) |
| Accretion on the excess | Section 17(2)(viia) | Section 17(1)(i) |
| Perquisite exclusions | Section 17(2) provisos | Section 17(2) and (3) |
| Exempt income list | Section 10 | Section 11 with Schedules II to VII |
How each perquisite is valued
Accommodation — clauses (1)(a) and (b)
The value of rent-free accommodation provided by the employer is a perquisite, computed in such manner as may be prescribed. Concessional accommodation is a perquisite to the extent the computed value exceeds the rent recoverable from or payable by the employee. Both leave the mechanics to the Rules.
Benefits and amenities — clause (1)(c)
A benefit or amenity granted free or at a concessional rate is a perquisite when given by a company to a director or an employee with a substantial interest, or by any employer to an employee whose income under the head Salaries by way of monetary payment from one or more employers exceeds a prescribed amount. The second limb is the threshold that keeps most employees outside this clause.
ESOPs and sweat equity — the date of exercise
Clause (1)(d) makes the value of specified security or sweat equity shares allotted free or at a concessional rate a perquisite. Sub-section (4)(h) fixes the measure: fair market value on the date the option is exercised, reduced by the amount actually paid by or recovered from the employee. For an eligible start-up under section 140, payment of the tax is deferred by section 289(3) and deduction by section 392(3).
Employer obligations and assurance — clauses (1)(f) and (g)
Any sum paid by the employer for an obligation which the employee would otherwise have borne is a perquisite. So is any sum payable by the employer to effect a life assurance or annuity contract, other than to a recognised provident fund, an approved superannuation fund, or a Deposit-linked Insurance Fund under the Coal Mines Provident Fund Act, 1948 or the Employees' Provident Funds Act, 1952.
The ₹7,50,000 aggregate — clauses (1)(h) and (i)
The aggregate employer contribution in excess of ₹7,50,000 in a tax year to a recognised provident fund, the section 124 pension scheme and an approved superannuation fund is a perquisite. The test is on the aggregate of all three, not fund by fund. Clause (i) then treats the annual accretion — interest, dividend or similar — on the balance attributable to that excess as a further perquisite, computed as prescribed.
What is not a perquisite — sub-sections (2) and (3)
Treatment in a hospital maintained by the employer; reimbursement for treatment in a Government or Government-approved hospital and, for prescribed diseases, a hospital approved by the Principal Chief Commissioner or Chief Commissioner; employer-paid health insurance under a scheme approved for section 30(c); reimbursement of the employee's own premium under a scheme approved for section 126; home-to-office transport; and overseas medical treatment, travel and stay, limited by sub-section (3) to what the Reserve Bank of India permits and, for travel, to employees whose gross total income before that expenditure is within a prescribed amount.
Worked example
An employee with monetary salary of ₹28,00,000 in tax year 2026-27.
| Item | Amount | Treatment under section 17 |
|---|---|---|
| Employer contribution to recognised provident fund | ₹3,60,000 | Aggregated for the clause (1)(h) test |
| Employer contribution to the section 124 pension scheme | ₹2,80,000 | Aggregated |
| Employer contribution to approved superannuation fund | ₹2,60,000 | Aggregated |
| Aggregate | ₹9,00,000 | Excess over ₹7,50,000 = ₹1,50,000 is a perquisite |
| Accretion on the balance attributable to the excess | ₹9,000 | Perquisite under clause (1)(i) |
| Company car used only for home-to-office travel | — | Excluded — sub-section (2)(e) |
| Treatment at a hospital maintained by the employer | ₹2,20,000 | Excluded — sub-section (2)(a) |
The perquisite added to salary is ₹1,59,000. Note that none of this analysis involves a Schedule — Schedule II is an exempt income list read with section 11 and has nothing to do with perquisite valuation.
Compliance checklist
- Read section 17 with the Income-tax Rules made under the new Act; accommodation and several other perquisites are valued 'as may be prescribed'.
- Aggregate contributions to the recognised provident fund, the section 124 scheme and the approved superannuation fund together against ₹7,50,000.
- Compute the annual accretion under clause (1)(i) separately from the excess contribution itself.
- Value ESOPs at fair market value on the date of exercise, less amounts paid by the employee.
- For an eligible start-up, apply the payment deferral in section 289(3) and the deduction timing in section 392(3).
- Check the prescribed monetary-salary threshold in clause (1)(c)(ii) before treating a benefit to a non-director employee as a perquisite.
- Employers must value perquisites when estimating salary for deduction under section 392.
Common mistakes
- Searching Schedule II for perquisite valuation rules; it is an exempt income list.
- Testing the ₹7,50,000 ceiling fund by fund rather than in aggregate.
- Valuing ESOPs at allotment or vesting instead of at exercise.
- Claiming all employer-funded medical treatment as excluded, when the exclusion depends on where treatment occurred.
- Forgetting that the accretion under clause (1)(i) recurs in later years while the excess balance earns a return.
All sixteen Schedules of the Income-tax Act, 2025
Because the numbering is widely misquoted, the full list is reproduced below from the Act as enacted. Note that Schedules II to VII are all exemption lists, split by who is claiming rather than by what the income is.
| Schedule | Read with | Subject as enacted |
|---|---|---|
| I | section 9(12) | Conditions for certain activities not to constitute business connection in India |
| II | section 11 | Income not to be included in total income |
| III | section 11 | Income not to be included in total income of eligible persons |
| IV | section 11 | Income not to be included in total income of eligible non-residents, foreign companies and other such persons |
| V | section 11 | Income not to be included in total income of certain eligible persons including investment funds, business trusts and their unit holders |
| VI | section 11 | Income not to be included in total income of certain eligible persons in an International Financial Services Centre or having income therefrom |
| VII | section 11 | Persons exempt from tax |
| VIII | section 12 | Income not to be included in the total income of political parties and electoral trusts |
| IX | section 48 | Deduction for tea, coffee and rubber development accounts |
| X | section 49 | Deduction for Site Restoration Fund |
| XI | section 2(91) | Recognised provident funds, approved superannuation funds and approved gratuity funds |
| XII | section 51 | Minerals, and groups of associated minerals |
| XIII | section 45(2) | List of articles or things |
| XIV | section 55 | Insurance business |
| XV | section 123 | Deduction for life insurance premia, contribution to provident fund, subscription to certain equity shares, etc. |
| XVI | section 350 | Permitted modes of investment or deposits by a registered non-profit organisation |
This is an explanatory guide, not tax advice, and it does not reproduce the section in full. Read the bare text of the section before you rely on it, and check for later amendments, the Income-tax Rules made under the new Act, and CBDT circulars and notifications.