Perquisites in Income Tax: Types, Valuation and Taxability for Tax Year 2026-27
CA Meet Dhrangadhariya 
May 8, 2025
CA Meet Dhrangadhariya May 8, 2025
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Last updated: 12 September 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP
Quick summary
Salary is more than the money in your bank account. A house, a car, a cheap loan, free meals or shares given by your employer because of your job are perquisites, and they are taxed as part of salary. From Tax Year 2026-27 the definition is in section 17 of the Income-tax Act, 2025 and the valuation is in Rule 15 of the Income-tax Rules, 2026. For FY 2025-26 the 1961 Act and Rule 3 apply, with lower limits.
| Case | Value |
|---|---|
| Government employee in Government accommodation | Licence fee set by the Government, less rent paid |
| Employer owns it: city with population above 40 lakh (2011 census) | 10% of salary for the period occupied, less rent paid |
| Employer owns it: city between 15 and 40 lakh | 7.5% of salary, less rent paid |
| Employer owns it: other areas | 5% of salary, less rent paid |
| Employer rents or leases it | Lower of the rent paid by the employer and 10% of salary, less rent paid by the employee |
| Hotel accommodation | Lower of the hotel charges and 24% of salary, less rent paid. Nil for up to 15 days in all on a transfer |
Further points: if the accommodation is furnished, add 10% a year of the cost of the furniture and appliances (or the actual hire charges). If the same accommodation continues for more than one tax year, the value cannot rise above the first year’s value adjusted by the Cost Inflation Index. On a transfer, if you keep the old accommodation, only the lower-valued one counts for up to 90 days. Temporary accommodation at a mining, oil, project, dam or power site (up to 1,000 sq ft, at least eight kilometres from municipal limits, or in a remote area) is excluded.
A car provided for personal use has a value for each month in Table II of Rule 15(3): ₹5,000 (plus ₹3,000 for a chauffeur) for a car up to 1.6 litres or an electric vehicle, and ₹7,000 (plus ₹3,000) above 1.6 litres, where the employer meets the running costs; ₹2,000 and ₹3,000 (each plus ₹3,000 for a chauffeur) where you meet the running costs. A car used wholly for official duties has no value if journey records and the employer’s certificate are kept. The full table is in our separate post on cars provided by employers.
| Benefit | Value |
|---|---|
| Sweeper, gardener, watchman or personal attendant | Salary paid for those services, less what you pay |
| Gas, electricity or water bought from an outside agency | The amount the employer pays, less what you pay |
| Gas, electricity or water from the employer’s own resources | Manufacturing cost per unit, less what you pay |
| Free or concessional education, in general | Employer’s expenditure, less what you pay |
| Education in the employer’s own school, or free education in another institution | Cost of similar education nearby, less what you pay, only where the value is more than ₹3,000 per child per month (it was ₹1,000) |
| Free travel by a transport employer (not an airline or the railways) | The value offered to the public, less what you pay |
| Benefit | Value and exemption |
|---|---|
| Interest-free or concessional loan | Interest at the State Bank of India rate on the first day of the year for the same type of loan, on the maximum monthly balance, less interest you pay. No value if the loans total ₹2,00,000 or less (it was ₹20,000), or if they are for medical treatment of the diseases in Rule 18 (to the extent not reimbursed by insurance) |
| Holiday travel, stay and other expenses paid by the employer | The employer’s expense. For an official tour extended into a vacation, only the vacation part. LTA under Rule 277 is outside this |
| Free food and non-alcoholic drinks | The employer’s expense, less what you pay. No value for up to ₹200 per meal (it was ₹50) at the office or through vouchers usable only at eating places, for tea or snacks in working hours, or for free food in a remote area or offshore installation |
| Gift, voucher or token | The amount of the gift. Nil if the total in the tax year is below ₹15,000 (it was ₹5,000) |
| Credit card expenses, including fees, paid or reimbursed by the employer | The amount, less what you pay. No value for expenses wholly for official purposes with records and the employer’s certificate |
| Club expenses and fees | The employer’s expense, less what you pay. Initial fee for corporate membership is excluded. No value if wholly for business and facilities are open to all employees |
| Use of a movable asset (not a laptop, computer, tablet or mobile phone) | 10% a year of its cost, or the rent paid by the employer, less what you pay |
| Transfer of a movable asset to the employee | Cost less wear and tear (50% a year for computers and electronics, 20% for motor cars, 10% for other assets, each on the reducing balance method), less what you pay |
| Any other benefit | Cost to the employer at arm’s length, less what you pay. Telephone and mobile phone expenses are excluded |
The value of specified securities or sweat equity shares allotted free or at a concession is taxed as a perquisite on the date the option is exercised. For a listed share, the fair market value is the average of the opening and closing price on the exchange with the highest volume on that date, and where there was no trading, the closing price on the nearest earlier date. Unlisted shares are valued under the method in the rule. See our posts on ESOP taxation.
Where the employer pays the tax on a non-monetary perquisite at its option, that tax is itself not added to your income (Schedule III, Sl. No. 10).
Priya’s salary for the rule is ₹10,00,000. Her employer, in a city with 20 lakh population (2011 census), provides unfurnished accommodation it owns, and she pays no rent. She also gets a ₹4,00,000 interest-free loan that is outstanding for the year and a ₹12,000 gift voucher at Diwali.
| Item | Taxable value |
|---|---|
| Accommodation: 7.5% of ₹10,00,000 | ₹75,000 |
| Loan: interest at the SBI rate on ₹4,00,000 (the loan is above ₹2,00,000), less nil interest paid | Interest at the SBI rate for that type of loan |
| Gift voucher: ₹12,000 is below ₹15,000 | Nil |
The employer shows perquisites in the salary statement and in the Form 16 of the employee. Employees should check each figure against the valuation rule, because wrong valuation, such as using the old ₹50 per meal limit, over-states income.
A benefit or amenity given by the employer because of the employment, for example rent-free housing, a car for personal use, a loan at a low rate, or shares. It is taxed as part of salary.
If the employer owns it: 10% of salary in cities with population above 40 lakh (2011 census), 7.5% in cities between 15 and 40 lakh, and 5% elsewhere, less rent paid. If the employer rents it: the lower of the rent paid and 10% of salary, less rent paid by you.
When the interest-free or low-interest loans total more than ₹2,00,000. The value is interest at the State Bank of India rate on the maximum monthly balance, less interest you pay. Loans for specified diseases are not taxed.
Not if the value is within ₹200 per meal at the office or through vouchers usable only at eating places, or if it is tea or snacks in working hours.
Gifts, vouchers or tokens are taxable only if their total in the tax year is ₹15,000 or more. Cash gifts are always salary.
This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.
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