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Income Tax Perquisites: Types and Calculation

Income Tax Perquisites: Types and Calculation

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In India, perquisites are the fringe benefits or amenities an employer provides their employees over and above their regular salary. There are several types of perquisites in the income tax catalogue, some of which can be taxable or non-taxable, depending on their nature and value. This is not the case, as both are financial entities with varying tax implications. Let us help clarify the concept and give you a better grasp of the perquisites of income tax.

What are the perquisites of income tax?

Perquisites can be in the form of cash or non-cash benefits and can include accommodation, company or self-owned vehicles, stock options, club memberships, medical reimbursements, subscriptions to periodicals, etc. The value of the perquisite is calculated based on the cost incurred by the employer and is governed by the rules stipulated in the Perquisites Section 17(2) of the Income Tax Act, 1961.

What are the types of perquisites in income tax?

Perquisites can be classified into two types: taxable and non-taxable perquisites. Non-taxable perquisites are exempted from tax, while tax is levied on taxable perquisites. 

Examples of taxable perquisites include

  • Rent-free accommodation provided by the employer
  • Use of company-owned car for personal purposes
  • Interest-free or concessional loans provided by the employer
  • Club memberships paid by the employer
  • Stock options provided by the employer

What are tax-free perquisites?

Here are some examples of perquisites that do not have any tax liability associated with them.

  • Medical reimbursement up to ₹15,000 per annum
  • Use of telephone or mobile phone for official purposes
  • Refreshments are provided during working hours
  • Gifts received on occasions like marriage or festivals, up to ₹5,000 per annum
  • Retirement benefits like gratuity, provident fund, etc.

How are perquisites in income tax calculated?

Well, calculated may not be the best term for this. ‘Valued’ might be a more appropriate term here. Typically, the value of a perquisite is calculated based on its actual cost to the employer or its deemed value for the beneficiary and under the governance of the rules provided by the Income Tax Act. After that, the value of the said perquisites is added to the employee's salary and taxed at the applicable rate.

Let’s understand this better using an example. Let us assume that your company provides you with rent-free accommodation. In such a case, the value of this perquisite is calculated as the actual rent paid by your employer or 15% of your salary, whichever is lower. This value is then added to your cost to the company (CTC) and taxed as per your income bracket and the tax regime you have opted for. 

Another example can be that your company bears the cost of your personal/domestic staff, such as a driver, sweeper, gardener, watchman, or caretaker. For these perquisites, the calculated value will be the actual costs incurred by your employer minus any sum you may have paid out of your pocket.

In Summation

Knowing the types of perquisites in income tax will help you pay taxes responsibly and manage your finances better. Furthermore, To help you instantly understand your finances, use Fi Money. You can open a zero-balance savings bank account. Next, get all your money questions answered by Ask.Fi, an intuitive personal finance assistant. Regularly use the app, as it encourages you to build better monetary habits, meet all your money goals & reward you for making significant financial choices. Fi and its licensed banking partner help categorise your daily, weekly & monthly expenses to manage your money online easily — so you spend smarter...not less.

Frequently Asked Questions

Who pays perquisite tax?

It is the employer's responsibility to calculate the value of the perquisite, deduct the perquisite tax from the employee's salary and deposit it with the government on behalf of the employee. 

Are perquisites part of the CTC?

Yes, perquisites are part of an employer's Cost to Company (CTC) package. The CTC is the total cost that an employer incurs in hiring an employee and includes not only the employee's salary but also various other costs, including perquisites. Do note, though, that while perquisites are included in the CTC, the value of these benefits may not be fully realised by you, perquisites are subject to taxation under the Income Tax Act, which reduces your actual take-home salary.

What are the five taxable perquisites?

Several perquisites are considered taxable and are required to be included in an employee's income for income tax. The five most common ones are:

  • Rent-free or subsidised accommodation provided by the employer
  • A company-owned vehicle used for personal purposes
  • Interest-free or concessional loans provided by the employer
  • Club memberships paid by the employer
  • Stock options provided by the employer

What is the difference between allowance and perquisites?

Although an employer, allowances and perquisites provide, both benefits are treated separately. An allowance is the amount the employer pays to cover specific expenses related to the employee’s work. Allowances are usually paid regularly and are included in the employee's salary. Examples of allowances include travel allowance, meal allowance, medical allowance, and house rent allowance. Perquisites are fringe, non-cash benefits an employer provides to an employee in addition to their regular salary.

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