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Direct and Indirect Taxation · Salaries

Perquisites and Valuation Rules for Salary Income

Updated 10 October 2026 · Fact-checked

A perquisite is a benefit or amenity your employer gives you beyond salary, such as a house, car, cheap loan or gift. Section 17 of the Income-tax Act, 2025 makes it taxable as salary. To solve a question, identify the benefit, check the employee type, apply the prescribed valuation, then deduct what the employee paid.

Understand Perquisites and Valuation Rules

Salary is not only cash. An employer can give you a house, a car, a loan at low interest or a free service. Each of these has a money value to you. The law treats that value as part of your income under the head Salaries. This is a perquisite.

Section 17(1) of the Income-tax Act, 2025 lists what a perquisite includes. It covers rent-free accommodation, accommodation at a concession, and benefits or amenities given free or at a concession. It also covers shares or sweat equity allotted by the employer, and sums the employer pays for an obligation that was yours. It covers life insurance or annuity premiums the employer pays (other than to a recognised provident fund, approved superannuation fund or the specified Deposit-linked Insurance Fund), and employer contributions above ₹7,50,000 in a tax year to a recognised provident fund, the scheme in section 124(1) and an approved superannuation fund taken together, along with the annual accretion on that excess.

Who is taxed on a benefit or amenity matters. Under section 17(1)(c), the value of a benefit or amenity is taxable for (i) a director of the company or an employee with a substantial interest in it, and (ii) any other employee whose monetary salary income exceeds the amount prescribed. Students call these specified employees and non-specified employees. A non-specified employee below the prescribed limit is not taxed on such benefits under clause (c). Accommodation (clauses (a) and (b)) is taxed for all employees.

The Act says the value of accommodation and most benefits is computed "in such manner as may be prescribed". The percentages, per-month figures and thresholds therefore come from the Income-tax Rules, not from the Act. In the exam, use the rates given in the question or in the rules for your term. Never use a rate from memory without checking it.

Some benefits are not perquisites at all. Section 17(2) excludes treatment in an employer-maintained hospital, specified medical reimbursements, approved health insurance premiums paid by the employer, employer-provided transport between home and office, and specified medical and travel costs abroad (subject to RBI limits and, for travel, a prescribed income limit under section 17(3)). The golden rule for every valuation is: taxable value = value of the benefit minus amount paid or recovered from the employee.

Key rules to remember

General rule
Taxable perquisite = Value of benefit − Amount recovered from or paid by employee
Applies to every perquisite. Valuation basis is prescribed in the rules.
Rent-free accommodation (employer-owned)
Value = prescribed % of salary for the period of occupation (rate depends on city population)
Use the % given in the question. Add furniture value if furnished. Salary means the salary as defined for perquisite valuation, not gross receipts.
Rent-free accommodation (employer-leased)
Value = Lease rent actually paid by employer OR prescribed % of salary, whichever is lower
Check the rule for your term. Furniture is added in addition.
Concessional accommodation
Taxable value = Value of rent-free accommodation − Rent paid by employee
Section 17(1)(b): taxed only to the extent it exceeds rent recoverable or payable by the employee.
Concessional loan
Perquisite = (Prescribed lending rate − Rate charged) × Outstanding balance × Period
Use the prescribed rate (the SBI rate given in the question) and, normally, the monthly outstanding balance. Small loans and loans for specified diseases are generally exempt under the rules.
Motor car
Value depends on the use (private, official, or mixed), who bears the running costs, and engine capacity; amounts are fixed by the rules
Fully private use: actual cost to employer (plus wear and tear and driver, if any) less recovery. Fully official use: nil, if records are kept.
Specified securities and sweat equity
Value = Fair market value on the date the option is exercised − Amount paid by or recovered from the employee
Section 17(4)(h).
Employer contributions above the limit
Taxable = Aggregate contribution to recognised PF, section 124(1) scheme and approved superannuation fund − ₹7,50,000 (in a tax year)
Section 17(1)(h). Annual accretion on the excess is also a perquisite under clause (i).

How to solve Perquisites and Valuation Rules questions

Use this order for any perquisite question. It stops you from missing the exemptions and the recoveries, which is where marks are lost.

  1. 1List every benefit in the question one by one. Write the name of each against its own line in your answer.
  2. 2Check whether the benefit is excluded under section 17(2), such as employer-hospital treatment or home-to-office transport.
  3. 3Decide the employee type. Accommodation is taxed for everyone. Other benefits under section 17(1)(c) are taxed for directors, substantial-interest holders, and employees above the prescribed salary limit.
  4. 4Find the valuation rule for that benefit (house, car, loan, gift, and so on). Use the rates stated in the question.
  5. 5Compute the value for the exact period of use. Time-apportion if the benefit was available for only some months.
  6. 6Deduct the amount the employee paid or the employer recovered.
  7. 7Add the net perquisite values and carry the total to the Salaries computation. Show a one-line working for each item.

Quickest way: Line-by-line perquisite table

When to use it: Use when the question lists four or more benefits and you have limited time.

  1. Draw three columns in your answer: Benefit, Working, Taxable value.
  2. Fill exempt items first with nil and the reason, such as 'official use only' or 'section 17(2)'.
  3. For each taxable item, write value less recovery in one line.
  4. For loans, convert the rate gap to a number first, then multiply by the balance and months.
  5. Total the last column and double-check the months and the salary base.

Common mistakes in Perquisites and Valuation Rules

  • Forgetting to deduct the rent or amount the employee paid

    Students stop after computing the gross value of the benefit.

    Fix: Make 'less: recovered from employee' a fixed last line in every working.

  • Using total gross salary as the base for accommodation value

    The word salary is read loosely.

    Fix: Use the salary the question or rules treat as the valuation base. Include only items that count, and exclude perquisites themselves.

  • Taxing benefits for an employee who is not a specified employee

    Students apply the car or gift rule without checking section 17(1)(c).

    Fix: Check whether the person is a director, a substantial-interest holder or above the prescribed salary limit before valuing non-accommodation benefits.

  • Applying the interest gap on the original loan for the whole year

    Repayments during the year are ignored.

    Fix: Use the outstanding balance as the question directs, usually month by month, and count only the months the loan was outstanding.

  • Treating home-to-office car travel as taxable

    Students confuse it with private use.

    Fix: Section 17(2)(e) excludes employer expenditure on a vehicle for journeys between residence and office. Private use elsewhere is separate.

  • Quoting rates from memory that differ from the rules for the term

    Old notes give percentages that may have changed.

    Fix: The Act leaves the manner of valuation to be prescribed. Use the figures given in the question, and state the assumption in your answer.

Worked examples

Example 1

Mr Arun Nair works for a private company and is a director. He is given an unfurnished-plus-furniture house owned by the company, free of rent, for the whole tax year. His salary for valuation is ₹60,000 per month. The prescribed rate for the city is 10% of salary. The company's furniture cost is ₹1,00,000, and the question states furniture is valued at 10% of cost per year. Arun pays nothing. Compute the taxable perquisite.

Show the solution
  1. Accommodation is a perquisite under section 17(1)(a). It is taxable for him as a director, and also for any employee.
  2. Annual salary = ₹60,000 × 12 = ₹7,20,000.
  3. Value of house = 10% × ₹7,20,000 = ₹72,000.
  4. Value of furniture = 10% × ₹1,00,000 = ₹10,000.
  5. Total value = ₹72,000 + ₹10,000 = ₹82,000.
  6. Less: recovered from Arun = nil.

Answer: Taxable perquisite = ₹82,000.

Example 2

Ms Meera Iyer, a director of a company, is given a loan of ₹6,00,000 on 1 April by the company at 4% per annum. The prescribed lending rate is 10% per annum. Assume the loan is outstanding at ₹6,00,000 for the full year and is not for a specified disease. Compute the perquisite value.

Show the solution
  1. A concessional loan is a benefit given at a concession by a company to a director, so it falls under section 17(1)(c)(i).
  2. Rate gap = 10% − 4% = 6%.
  3. Perquisite = 6% × ₹6,00,000 × 12/12 = ₹36,000.
  4. The interest Meera actually pays is already reflected in the lower rate, so nothing more is deducted.

Answer: Taxable perquisite = ₹36,000.

Exam tips

  • Write the section: 'Section 17(1)(a)' for rent-free accommodation and 'Section 17(1)(c)' for other benefits. Do not guess any rule number; the valuation rules are prescribed, so say 'as per prescribed rules'.
  • Always state your assumption about the employee type, such as director or specified employee.
  • In MCQs, look for the trap: an official-use-only car, employer-hospital treatment or a ₹7,50,000 contribution limit.
  • Show month-wise working for loans and part-year accommodation. Step marks are given even if one figure is off.
  • Write 'Net taxable perquisite' and the total clearly at the end so the examiner can see it moving to the Salaries computation.

Practice questions from Salaries

Perquisites and Valuation Rules in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Perquisites and Valuation Rules: frequently asked questions

What is a perquisite under the Income-tax Act, 2025?

It is a benefit or amenity from your employer in addition to salary, as listed in section 17(1). Examples are rent-free accommodation, concessional loans, shares at a concession and employer-paid obligations. Its value is taxed under the head Salaries.

What is the difference between specified and non-specified employees for perquisites?

Under section 17(1)(c), benefits and amenities are taxable for directors, employees with a substantial interest in the company, and employees whose monetary salary income exceeds the prescribed amount. Other employees are not taxed on those benefits under that clause. Accommodation is covered separately for all employees.

How is rent-free accommodation valued?

The Act says it is valued in the prescribed manner. For employer-owned houses the value is a prescribed percentage of salary, depending on the city. For leased houses it is generally linked to the lease rent paid. Use the rates given in the question.

How do I find the taxable value of a concessional loan?

Multiply the difference between the prescribed lending rate and the rate charged by the outstanding balance and the months outstanding. Small loans and loans for specified diseases are exempt under the rules, so check for these first.