Section 17 of the Income-tax Act, 2025 defines perquisite. It covers rent-free and concessional accommodation, benefits to directors and higher-paid employees, ESOPs and sweat equity, employer contributions above ₹7,50,000 a year, and the accretion on that excess.
What section 17 does
Perquisite is where salary taxation gets contentious, and the Income-tax Act, 2025 gives it a section of its own. Under the 1961 Act it was section 17(2), a sub-section inside the general salary definition. Now it is section 17, with its inclusions in sub-section (1), its exclusions in sub-section (2), a condition set in sub-section (3), and its definitions in sub-section (4).
The structural gain is real. A perquisite dispute now cites a section rather than a sub-section of a definition, and the exclusions sit in the same section as the inclusions instead of being scattered through provisos.
Two money figures matter. The aggregate employer contribution ceiling is ₹7,50,000 in a tax year across a recognised provident fund, the section 124 pension scheme and an approved superannuation fund — anything above that is a perquisite. And the annual accretion on that excess is itself a perquisite under clause (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, including assessments, appeals and penalties for those years, because of the repeal and savings provision in section 536. Figures quoted here are the amounts written into the Act as enacted (with the Gazette corrigenda of 3 September 2025); the annual Finance Act can change rates and thresholds.
Old Act and new Act, side by side
The table below shows what the Income-tax Act, 1961 did and where the same ground is covered in the Income-tax Act, 2025.
| Income-tax Act, 1961 | What it did | Income-tax Act, 2025 |
|---|---|---|
| 17(2) | Definition of perquisite, inclusions | 17(1) |
| 17(2), provisos | Exclusions — employer hospital, approved hospitals, overseas treatment | 17(2) and (3) |
| 17(2)(vi) | ESOP and sweat equity taxation on exercise | 17(1)(d) with 17(4)(h) |
| 17(2)(vii), (viia) | Employer contribution above the ceiling and accretion on it | 17(1)(h) and (i) |
| 17(1) | General definition of salary | 16 |
Section 17 sub-section by sub-section
Read this alongside the bare text — each heading below is a sub-section of the section as enacted.
Sub-section (1), clauses (a) and (b) — accommodation
The value of rent-free accommodation provided by the employer is a perquisite, computed in the manner prescribed by rules. So is concessional accommodation, to the extent the computed value exceeds the rent recoverable from or payable by the employee. Both leave the valuation mechanics to the rules, which is why the Income-tax Rules made under the new Act matter as much as the section.
Sub-section (1), clause (c) — benefits and amenities, and who they catch
A benefit or amenity granted free or at a concessional rate is a perquisite in two situations: when given by a company to an employee who is a director or has a substantial interest in it; and when given 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 test that keeps most ordinary employees outside this clause.
Sub-section (1), clause (d) — ESOPs and sweat equity
The value of any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the current or former employer, free of cost or at a concessional rate, is a perquisite. Sub-section (4)(h) fixes the measure: the fair market value on the date the option is exercised, less whatever the employee actually paid or had recovered from them.
Sub-section (1), clauses (e) to (g) — other benefits and employer-funded assurance
Clause (e) sweeps in any other benefit or amenity as may be prescribed. Clause (f) covers any sum paid by the employer in respect of an obligation which the employee would otherwise have had to pay — the classic example being the employee's own tax or club bill picked up by the employer. Clause (g) covers sums payable by the employer to effect a life assurance or annuity contract, but expressly excludes a recognised provident fund, an approved superannuation fund, and Deposit-linked Insurance Funds under the Coal Mines Provident Fund Act, 1948 and the Employees' Provident Funds Act, 1952.
Sub-section (1), clauses (h) and (i) — the ₹7,50,000 ceiling
The aggregate employer contribution in excess of ₹7,50,000 in a tax year to (i) a recognised provident fund, (ii) the scheme referred to in section 124(1), and (iii) an approved superannuation fund, is a perquisite. Clause (i) then adds the annual accretion — interest, dividend or similar amounts — on the balance attributable to that excess, computed as prescribed. High earners with generous retirals are the population this pair of clauses is aimed at.
Sub-section (2) — what is not a perquisite
The exclusions cover: medical treatment in a hospital maintained by the employer; employer reimbursement of treatment in a Government, local authority or Government-approved hospital, and for prescribed diseases in a hospital approved by the Principal Chief Commissioner or Chief Commissioner; employer-paid health insurance premium under a scheme approved for section 30(c); employer reimbursement of the employee's own health insurance premium under a scheme approved for section 126; employer-provided transport between residence and workplace; and overseas medical treatment, travel and stay, including for one attendant.
Sub-section (3) — the limits on the overseas medical exclusion
Medical treatment and stay abroad are excluded only to the extent permitted by the Reserve Bank of India. The travel component is excluded only where the employee's gross total income, computed before including that expenditure, does not exceed a prescribed amount. So the overseas exclusion is neither automatic nor unlimited.
Sub-section (4) — the definitions that decide the numbers
This sub-section defines fair market value (as prescribed), family (Schedule III, Note 2), gross total income (section 122(10)), hospital (includes a dispensary, clinic or nursing home), option, specified security (by reference to the Securities Contracts (Regulation) Act, 1956) and sweat equity shares. Clause (h) carries the ESOP valuation rule.
Worked example
An employee earns a monetary salary of ₹28,00,000 in tax year 2026-27 and receives the following.
| Item | Amount | Treatment under section 17 |
|---|---|---|
| Employer contribution to recognised provident fund | ₹3,60,000 | Aggregated for the clause (h) test |
| Employer contribution to the section 124 pension scheme | ₹2,80,000 | Aggregated for the clause (h) test |
| Employer contribution to approved superannuation fund | ₹2,60,000 | Aggregated for the clause (h) test |
| Aggregate of the three | ₹9,00,000 | Excess over ₹7,50,000 = ₹1,50,000 is a perquisite under clause (h) |
| Interest accrued on the balance attributable to that excess | ₹9,000 | Perquisite under clause (i), computed as prescribed |
| Company car used only for home-to-office travel | — | Excluded by sub-section (2)(e) |
| Treatment at a hospital maintained by the employer | ₹2,20,000 | Excluded by sub-section (2)(a) |
The perquisite added to salary is ₹1,59,000 — the ₹1,50,000 excess contribution plus the ₹9,000 accretion. The car and the hospital treatment add nothing. Had the same treatment been taken at an unapproved private hospital and reimbursed, it would not have fallen within any exclusion in sub-section (2).
Compliance checklist and due dates
- Aggregate employer contributions to the recognised provident fund, the section 124 scheme and the approved superannuation fund together and test them against ₹7,50,000, not separately.
- Compute the accretion on the excess under clause (i) as prescribed — it is a separate perquisite from the excess contribution itself.
- For ESOPs, fix the perquisite at fair market value on the date of exercise less the amount actually paid, under section 17(4)(h).
- Check the prescribed monetary-salary threshold in clause (1)(c)(ii) before treating a benefit given to a non-director employee as a perquisite.
- For overseas medical treatment, keep the RBI permission on record and test the employee's gross total income against the prescribed limit before excluding the travel cost.
- Employers must value perquisites when estimating salary for tax deduction under section 392.
Common mistakes
- Testing the ₹7,50,000 ceiling fund by fund. The clause aggregates all three funds.
- Forgetting clause (i). The accretion on the excess is a perquisite in every later year the excess balance earns a return, not only in the year of the excess contribution.
- Valuing ESOPs on the date of allotment or vesting. Section 17(4)(h) fixes the date of exercise.
- Treating all employer-funded medical treatment as exempt. The exclusion depends on where the treatment happened and under which approval.
- Assuming home-to-office transport is a perquisite. Sub-section (2)(e) expressly excludes it.
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.