Perquisites [(Section 17(2)]- Income under the head Salaries

Perquisites under Section 17(2) of the Income Tax Act, 1961, are additional benefits or amenities provided by an employer to an employee, over and above their salary or wages. These perquisites form part of “Income under the head Salaries” and are taxable unless specifically exempted. Below is a detailed breakdown of perquisites, their taxability, valuation rules, and recent updates (as of FY 2024-25/AY 2025-26):

1. Definition & Scope of Perquisites [Section 17(2)]

Perquisites are non-monetary or monetary benefits provided by an employer, including:

• Rent-free or concessional accommodation
• Company cars for personal use
• Interest-free/concessional loans
• Club memberships
• Free education facilities
• Gifts/vouchers exceeding ₹5,000

Exclusions: Reimbursements for official expenses (e.g., travel for work) do not qualify as perquisites .

2. Categories of Perquisites

(A) Fully Taxable Perquisites

These apply to all employees and include:

1. Rent-free/concessional accommodation(valued at 7.5%-15% of salary based on city population) .
2. Company car for personal use(₹1,800–₹2,400/month + ₹900 for driver) .
3. Interest-free loans(taxable on the difference between market rate and charged interest) .
4. Entertainment allowance(fully taxable for private employees; govt. employees can claim limited exemption) .
5. Cash allowances(e.g., servant allowance, warden allowance) .

(B) Partly Taxable Perquisites

1. House Rent Allowance (HRA)– Exempt up to the least of:

• • Actual HRA received
  • 50% (metro) or 40% (non-metro) of (Basic + DA)
  • Rent paid – 10% of salary .

2. Children’s Education Allowance– ₹100/month/child (max 2 children) 6.

(C) Tax-Exempt Perquisites

1. Medical reimbursement(up to ₹15,000/year) .
2. Employer’s PF/NPS contribution(up to ₹7.5 lakh/year) .
3. Leave Travel Concession (LTC)– For domestic travel (conditions apply) .
4. Office meals/snacks(during working hours) .

3. Valuation Rules for Key Perquisites

4. Special Cases & Budget 2025 Updates

• Specified Employees(Directors, employees with >20% voting power, or salary >₹50,000) face additional tax on perks like free education, club memberships .
• Budget 2025 Change:
  • Medical travel abroad(employer-paid) is no longer a perquisite (previously taxable if gross income >₹2L) .
  • Salary threshold for taxable perksmay be revised (currently ₹50,000) .

5. Compliance & Reporting

• Employers must report perquisites in Form 16and deduct TDS accordingly.
• Employees must disclose all perksin ITR under “Income from Salaries.”