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Tax Laws and Practice · Income under the Head Salary

Perquisites and Valuation under the Income-tax Act, 2025

Updated 11 October 2026 · Fact-checked

A perquisite is a benefit your employer gives you beyond salary, such as housing, a car, or shares at a discount. Section 17 of the Income-tax Act, 2025 lists what counts. To solve a question, identify the benefit, check for an exclusion, value it by the prescribed rule, subtract what you paid, then add it to salary.

Understand Perquisites and Valuation

Salary is not only money. Employers also give housing, vehicles, cheap loans, insurance and shares. The law treats many of these as extra income of the employee. These benefits are called perquisites.

Section 17(1) says "perquisite" includes a list of items. The list includes rent-free or concessional accommodation, benefits or amenities given free or at a concessional rate, shares allotted free or at a discount, and any sum the employer pays for an obligation that you would otherwise have paid. Each item is taxable only if it fits the list and no exclusion applies.

The Act does not give the numbers. For accommodation, the clause says the value is computed "in such manner as may be prescribed". The same applies to the amount above which a non-director employee's benefits are taxed, and to other benefits. So you must learn two layers: the Act decides what is a perquisite, and the Rules decide how much. Use the percentages and limits given in your ICSI study material or in the question.

Who receives the benefit matters. Under section 17(1)(c), benefits given by a company to a director, or to an employee with a substantial interest in the company, are covered. For other employees, benefits are covered only where the employee's monetary salary income exceeds the prescribed amount.

Perquisite versus allowance: an allowance is a fixed money payment for a purpose, for example house rent allowance. A perquisite is usually a benefit in kind, or a payment made for your obligation. Both are part of salary, but they are valued differently.

Key rules to remember

Value of a perquisite (general)
Taxable perquisite = Value as per prescribed rules − Amount paid by or recovered from the employee
Always deduct what the employee paid. The value itself comes from the Rules or the question.
ESOP or sweat equity (section 17(4)(h))
Perquisite = Fair market value on the date the option is exercised − Amount actually paid or recovered
The date is the exercise date, not the grant date. Multiply by the number of shares.
Employer contribution to funds (section 17(1)(h))
Taxable = Total employer contribution in the tax year to recognised PF, the section 124(1) scheme and approved superannuation fund − ₹7,50,000 (only if positive)
The ₹7,50,000 limit is aggregate across all three. Interest on the excess is also a perquisite under section 17(1)(i).
Life assurance or annuity premium (section 17(1)(g))
Sum payable by employer for life assurance or annuity of the employee = Perquisite
Not a perquisite if paid to a recognised PF, approved superannuation fund or Deposit-linked Insurance Fund.
Obligation paid by employer (section 17(1)(f))
Any sum paid by employer for an obligation of the employee = Perquisite
Examples: the employee's club bill or personal tax liability paid by the employer.
Furnished accommodation
Value = Value of unfurnished accommodation + Furniture charge (as prescribed) − Rent paid by employee
Use the furniture rate in the question or the Rules.

How to solve Perquisites and Valuation questions

Use this order for any perquisite question. It keeps you inside the Act and stops you taxing exempt items.

  1. 1List every benefit the employer gives. Ignore items that are plain money allowances unless the question asks about them.
  2. 2Match each benefit to a clause of section 17(1). Note if the employee is a director or has a substantial interest, as this decides clause (c).
  3. 3Check section 17(2) for exclusions: medical treatment in the employer's hospital, approved health insurance premium, home-to-office vehicle expense, and permitted medical treatment abroad.
  4. 4Value the benefit by the prescribed rule or by the rate given in the question. For shares, use fair market value on the exercise date.
  5. 5Subtract the amount paid or recovered from the employee.
  6. 6Add the net perquisite to the salary, and then continue to computation of taxable salary.
  7. 7Write the conclusion in one line: the taxable perquisite is ₹___ under section 17(1)(___).

Quickest way: Four-line perquisite check

When to use it: Use when a question lists many benefits and time is short.

  1. Write each benefit in a column with its clause number from section 17(1).
  2. Strike off excluded items with the section 17(2) reference.
  3. Write value minus recovery for each remaining item.
  4. Total the amounts in one line and add to salary.

Common mistakes in Perquisites and Valuation

  • Taxing the employer's payment for the employee's medical treatment in a hospital maintained by the employer.

    Students see a benefit and assume it is taxable.

    Fix: Check section 17(2) first. Treatment in the employer's hospital is outside section 17(1).

  • Taking the ESOP value on the grant date or the sale date.

    The three dates (grant, exercise, sale) are confused.

    Fix: Section 17(4)(h) fixes the date as the exercise date. Tax on later sale is capital gains, not salary.

  • Forgetting to subtract the amount paid by the employee.

    Students stop once the value is computed.

    Fix: Always end with value less recovery. Write it as the last line of every working.

  • Treating the ₹7,50,000 limit as separate for each fund.

    Students apply the limit to PF, superannuation and the section 124(1) scheme one by one.

    Fix: Section 17(1)(h) uses the aggregate contribution in a tax year. Add all three, then deduct ₹7,50,000.

  • Taxing the employer-paid home-to-office transport as a perquisite.

    Car questions are assumed to be always taxable.

    Fix: Section 17(2)(e) excludes expenditure on a vehicle for the journey between residence and office.

  • Quoting percentages from memory that differ from the question.

    The Act leaves valuation to the Rules, and students mix rates from older law.

    Fix: Use the rate stated in the question. If none is given, state the prescribed rule from your study material and name the assumption.

Worked examples

Example 1

Rajesh Kumar works for a Pune company, which provides him an employer-owned house at a concessional rent of ₹1,000 per month, with furniture that the employer bought for ₹1,50,000. Assume the prescribed value of the unfurnished house is 10% of his salary of ₹6,00,000 for the year, and the furniture charge is 10% of its cost. Rajesh pays the rent of ₹1,000 per month to the employer. Compute the taxable perquisite.

Show the solution
  1. Benefit: accommodation at a concessional rate, covered by section 17(1)(b). The value is computed as prescribed, and only the excess over the rent Rajesh pays is a perquisite.
  2. Value of unfurnished house = 10% × ₹6,00,000 = ₹60,000.
  3. Furniture charge = 10% × ₹1,50,000 = ₹15,000.
  4. Total value = ₹60,000 + ₹15,000 = ₹75,000.
  5. Rent recovered from Rajesh = ₹1,000 × 12 = ₹12,000.
  6. Taxable perquisite = ₹75,000 − ₹12,000 = ₹63,000.

Answer: The taxable perquisite is ₹63,000, to be added to Rajesh's salary. The percentages are assumed as stated in the question.

Example 2

Meera Iyer is an employee of an unlisted Indian company. On 10 July she exercises options for 500 equity shares at ₹200 per share. The fair market value on that date is ₹450 per share. Compute the perquisite under section 17.

Show the solution
  1. Benefit: specified security allotted at a concessional rate by the current employer, covered by section 17(1)(d).
  2. Under section 17(4)(h), the value is fair market value on the date the option is exercised, less the amount actually paid.
  3. Fair market value = 500 × ₹450 = ₹2,25,000.
  4. Amount paid = 500 × ₹200 = ₹1,00,000.
  5. Perquisite = ₹2,25,000 − ₹1,00,000 = ₹1,25,000.

Answer: The perquisite is ₹1,25,000, taxable as salary. Any later sale of the shares is a separate capital gains matter.

Exam tips

  • Start every answer with the clause of section 17(1) that applies, then show the value, recovery and result. This matches the provision, analysis and conclusion style.
  • Always check section 17(2) before computing. Examiners often hide one excluded item, such as a home-to-office vehicle or health insurance premium.
  • State clearly when a rate or limit comes from the question or the Rules. Do not present assumed figures as the Act's own figures.
  • Cite the Income-tax Act, 2025, not the 1961 Act. Using old section numbers for June 2027 loses marks.
  • Show the tax-deduction link in short answers: under section 392(2), an employer may pay tax on a non-monetary perquisite at its option instead of deducting it from the employee.

Practice questions from Income under the Head Salary

Perquisites and Valuation 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: frequently asked questions

What is the difference between a perquisite and an allowance?

An allowance is a fixed money payment for a stated purpose, such as house rent. A perquisite is usually a benefit in kind or a payment of your obligation, such as rent-free housing. Both form part of salary, but each has its own valuation and exemption rules.

Is an employer-provided car a taxable perquisite?

It depends on use. Section 17(2)(e) excludes expenditure on a vehicle for the journey between your residence and office. Other personal use is valued under the prescribed rules, so check the facts and the rate given in the question.

On which date are ESOP shares valued?

Section 17(4)(h) uses the fair market value on the date the option is exercised. You then subtract the amount you actually paid. The grant date and sale date do not decide the perquisite.

Who pays the tax on a perquisite?

The employee bears it as part of salary. Under section 392(2), the employer may choose to pay the tax on a non-monetary perquisite without deducting it from the employee, and this is treated as tax deducted at source.

Do directors and other employees get the same treatment?

Not exactly. Under section 17(1)(c), benefits given by a company to a director or a person with substantial interest are covered. For other employees, benefits are covered only where monetary salary income exceeds the prescribed amount.