If you want to understand how perquisites work in salary, just scroll through this story. It was a late afternoon at the old city coffee house with its familiar aroma of freshly brewed filter coffee. I had settled in my usual corner with my finance book, trying to revise the chapter on sources of finance for my upcoming session.
Just then, from the table beside me, I heard a group of three–four students discussing something excitedly.
You know, perquisites are so confusing, one of them said, tapping his cell phone.
Another responded, not really… think of it like the extra benefits your employer gives you apart from salary.
A third student laughed, like free lunch in office? Or staff quarters?
Exactly! And some are taxable, some are not, the fourth added dramatically, as if teaching a class.
Their lively discussion pulled me away from my book. I smiled silently—perquisites in a coffee house discussion! The coincidence was too perfect. I leaned back, listening to their discussion.
What are Perquisites?
Under Section 17(2) of the Income Tax Act, Perquisites mean any benefit or amenity provided by an employer to an employee in addition to salary or wages.
Example:
If your employer gives you a rent-free house, covers your child’s education, or sponsors your foreign tour — these are perquisites.
Why Do Perquisites Matter?
- They form an important part of your Salary package.
- They affect take-home pay and tax liability.
- They show how companies reward and retain employees.
- For finance and HR students, understanding them is vital for payroll and tax planning.
The discussion at the next table was getting more intense and it was relating to taxability of perquisites. What started as casual talk had turned into a mini–tax workshop right there in the coffee house.
I tried to return to my book, but honestly, their points were so relevant and practical that I couldn’t help listening.
Example of taxable perquisites (for all employees)
Always taxable, irrespective of position or salary.
| Example | Description |
| Rent-free Accommodation | Taxable at % of salary or actual lease rent. |
| Motor Car Facility | Valued monthly based on usage (personal/official). |
| Club Membership | Personal use taxable; official meetings exempt. |
| Interest-Free Loan | Difference between SBI lending rate and charged rate. |
| Foreign Tour (Personal) | Entire cost taxable if not official. |
| Payment of Personal Bills | Company-paid electricity, phone, or internet bills. |
Taxable for specified employees only
(Directors, those with substantial interest, or employees with income exceeds Rs.50,000 excluding perquisites)
| Example | Description |
| Domestic Servants | Valued at actual salary paid by employer |
| Educational Facility | Cost at a similar nearby school is taxable |
| Personal Use of Office Car | Fixed value added monthly. |
Tax-Free Perquisites (exempt under the Income Tax Rules)
| Example | Description |
| Medical treatment in approved hospital | Exempt. |
| Employer’s PF/NPS/Superannuation (If contribution is restricted to Rs.7.5 lakh/year combined | Exempt limit. |
| Office refreshments | Exempt. |
| Transport for office to residence | Not taxable |
| Laptop or Computer | Provided for official use |
Nowadays, a wide range of perquisites can be seen in corporate workplaces:
Foreign Tour or Holiday
- Official purpose (conference, training) – Exempt.
- Personal vacation or family trip – Taxable perquisite.
Club Facility
- For personal recreation – Taxable.
- For official client meetings – Exempt.
Employee Stock Option Plan (ESOP)
At exercise — FMV – exercise price = Perquisite taxable as salary.
At sale — Sale price – FMV = Capital Gain.
| Type | Basis of Valuation | Example (for understanding) |
| Car Facility | Rs.2,700– Rs.3,300/month | Partial personal use |
| Rent-Free House | 15% of salary (metro) / 10% (non-metro) | Rs.1,50,000 for Rs. 10L salary (metro) |
| Club Membership | Actual cost if personal | Rs.30,000 taxable |
| Foreign Tour | Full cost if personal | Rs.3,00,000 taxable |
| Interest-Free Loan | SBI rate difference | If company loan 0%, SBI 10% |
Example: Arka’s Salary and Perquisites
Arka’s package:
- Basic Salary: Rs.10,00,000
- Rent-free house (metro): Rs.8,000/month
- Car used partly for personal purpose: Rs.3,000/month
- Club membership (personal): Rs.20,000
- Company-paid mobile bill (official): Rs.2,000/month
Taxable Perquisites:
- Rent-free house – Rs. 1,50,000
- Car facility — Rs.36,000
- Club membership – Rs.20,000
- Mobile bill — (exempted for official use)
Total Taxable Perquisites = Rs. 2,06,000
Perquisites and Tax Compliance
- Reflected in Form 16 under “Salary.”
- Detailed separately in Form 12BA (Perquisite Statement).
- Employer responsible for valuation and TDS deduction.
Pay attention: For Students and Job Seekers
- During placement, ask: are these perquisites taxable?
- Understand how Form 16 and Form 12BA show perquisites.
- Plan salary structure to include tax-free perquisites.
- Learning perquisite valuation is essential for finance, HR, and tax careers
The discussion was so lively and enjoyable that I smiled, closed my book for a moment, and ordered one more coffee. Sometimes, real learning happens outside the classroom—and today, it was happening right beside me.