What are perquisites and how are they taxed in India? Perquisites, or “perks,” are benefits provided by employers to employees beyond salary, such as housing or car facilities. With India’s workforce growing—formal employment up 6% in 202, understanding perquisite taxation is key for salaried individuals. Let’s break it down.
Defining Perquisites:
In India, perquisites (often referred to as perks) are non-monetary benefits provided by an employer to an employee in addition to their regular salary. These can include items like company cars, housing, medical reimbursements, and more. While these perks enhance an employee’s compensation package, they are subject to taxation under the Income Tax Act, 1961.
Types of Perquisites and Their Taxability:
Taxable Perquisites: These are benefits that are fully taxable in the hands of the employee. Examples include:
- Rent-Free Accommodation: If an employer provides housing, the taxability depends on factors like the property’s value and the city of residence. For instance, in cities with populations exceeding 40 lakh, you consider 10% of the salary taxable perquisite for unfurnished accommodation.
- Company-Owned Car: If used for personal purposes, the taxable value also depends on the engine capacity and whether the employer bears the running costs. For a small car with petrol consumption below 1.6 liters, you consider ₹1,800 per month as a taxable perquisite.
- Interest-Free Loans: The difference between the interest charged by the employer and the interest charged by the SBI is taxable.
Tax-Exempt Perquisites:
- Medical Reimbursements: Up to ₹15,000 per annum for medical expenses incurred by the employee or their family members.
- Employer Contributions: To Provident Fund, NPS, or Superannuation Fund, up to specified limits.
- Leave Travel Allowance (LTA): Subject to certain conditions, such as travel within India and within a specified period.
- Computer/ Laptop for Official Use: You use the equipment exclusively for work purposes.
Perquisites Taxable Only for Specified Employees:
Certain perquisites are taxable only for specified employees, which include directors, employees with a salary exceeding ₹50,000, or those holding 20% or more equity in the company. These perquisites include:
- Free Domestic Help: Provided at the employee’s residence. scripbox.com+1incometaxindia.gov.in+1
- Free Utilities: Such as electricity, gas, and water at the employee’s residence. scripbox.com
- Motor Car Facility: Provided for personal use
- Free or Concessional Education: For children of the employee.
Valuation and Tax Calculation:
The taxable value of perquisites is added to the employee’s salary and taxed accordingly. For example, if an employee’s salary is ₹9,00,000 and they receive ₹1,00,000 in perquisites, the total taxable income becomes ₹10,00,000. The tax is also calculated based on the applicable income tax slabs, and the perquisite value is taxed at the same rate as the salary.
Recent Amendments and Their Impact:
In the Union Budget 2025, the Finance Minister proposed amendments to Section 17 of the Income Tax Act to increase the limit on the gross total income of employees, thus allowing more employees to receive tax-free perquisites. These changes are expected to take effect from April 1, 2026, for the assessment year 2026-27 and subsequent years.
Compliance and Key Rules:
Employers must report perquisites in Form 16 and calculate taxable value per Income Tax Rules, 1962. Employees must declare perks in ITR filings, especially ESOPs or foreign benefits, per Section 139. Non-disclosure attracts penalties up to ₹1 lakh under Section 271. In 2024, ₹2,500 crore in tax notices were issued for unreported perquisites. Exemptions like LTA (subject to conditions) also reduce liability.
Conclusion:
Perquisites are an integral part of the compensation package in India, thus offering employees additional benefits beyond their regular salary. Understanding perquisites and their taxation also ensures compliance and optimizes tax planning. Employers should accurately assess the value of perquisites and ensure correct TDS deductions, while employees should be aware of the tax implications to manage their finances efficiently. Ready to manage your taxes? Explore more financial insights now!
– Ketaki Dandekar (Team Arthology)
Read more about Perquisites and Their Taxation here – https://cleartax.in/perquisites