Perquisites: Meaning, Types, Taxability, Calculation & Examples

Perquisite is defined as a privileged gain or profit incidental to regular salary. Perquisites are both taxable and exempt. Perquisites can be simple as company car, fuel reimbursement etc. or may also include interest-free loan, medical facilities, credit cards, accommodation sponsored by the company, etc. 

“Perquisite” is defined in the section 17(2) of the Income-tax Act as including:

1. Value of rent-free/concessional rent accommodation provided by the employer.
2. Any sum paid by the employer in respect of an obligation which was actually payable by the assessee.
3. Value of any benefit/amenity granted free or at concessional rate to specified employees etc.
4. The value of any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the employer, or former employer, free of cost or at concessional rate to the assessee.
5. The amount of any contribution to an approved superannuation fund by the employer in respect of the assessee, to the extent it exceeds one lakh rupees; and
6. The value of any other fringe benefit or amenity as may be prescribed.

Following are some of the major differences between the two:

ALLOWANCES	PERQUISITES
A fixed amount of money given periodically in addition to the salary is called allowance	Small benefits or perks offered by the employers in addition to the normal salary at free of cost
It is taxable on due/accrued basis whether it is paid in addition to the salary or in lieu thereon	It is taxable in the hand of employees
Examples: transportation allowance, phone allowance etc.	Examples: Rent-free accommodation, free electricity etc.

Depending upon the tax that is levied on perquisites these can be classified into the following three heads.

1. Taxable Perquisites

Some of the perquisites that are taxable in nature include rent-free accommodation, supply of gas, water and electricity, professional tax of employee, reimbursement of medical expense, and salary of servant employed by employee. Taxable perquisites also include any other fringe benefit provided by the employer to employees like free meals, gifts exceeding Rs.5,000, club and gym facilities etc.

2. Exempted Perquisites

Non-taxable fringe benefits include travel allowance, computer or laptop provided by the company for official use, refreshment provided by employer during office hours, provision of medical aid, use of health club, sports club, telephone lines, interest free salary loan provided by employer to employees, contribution to provident fund by employers, free medical and recreational facilities and so on.

3. Perquisites taxable only by employees

This type includes cars owned by companies but used by employees, education facilities for children, service of domestic servants etc.

According to the Finance Act, 2005, perquisites are taxed by the government in case these perks are provided or are deemed to be provided to employees by employers. The rate at which perquisites are taxed is 30% of the value of fringe benefits.

The perquisite tax is paid by the employer who furnishes these fringe benefits to employees. It can be a company, a firm, an association of persons or body of individuals.

However, the employer may choose to pay tax on behalf of employees. Since it is in the nature of an obligation, it is non-monetary. It is to be noted that such tax paid is considered as a non-monetary perquisite which is exempt on the hands of employee u/s 10(10CC).

Perquisites are additional benefits which are derived from a job profile at work. For example – if an employee has a sales profile, then he/she will be required to do a lot of field work. This means the employee will need to travel a lot on a regular basis for work purposes. The expense of travel on a daily basis will cost the employee a lot of money on fuel expense, maintenance of the car, food expense, accommodation, etc. To ensure that the employee does not feel the burden of such expenses, the company or the employer normally offers perquisites in addition to the salary to compensate for such expenses. 

Generally, taxability of perquisite is determined as an average of income tax that is calculated based on these following –

• Rate of tax for the given fiscal year
• Income charged under ‘salaries’
• Value of perquisites for the amount of tax paid by the employer

Let’s understand this with the help of an example:

Suppose the income charged under ‘Salaries’ of a regular employee is Rs. 8 lakh inclusive of Rs. 90,000 that is paid by the employer as non-monetary perquisites. As per the ITA, the perquisite tax will be – Income that is charged under ‘Salaries’ – Rs. 8 lakh Tax on salary inclusive of education and health cess @4% – Rs. 75,400 Average tax rate – 75400/8,00,000 x 100 = 9.4% Tax paid on Rs. 90000 = 9.24% x 90,000 i.e. Rs. 8,316 The amount to be deposited every month – Rs. 8,316/12, i.e. Rs. 693 Hence, Rs. 693 will be paid by the employers as TDS on employee’s salary.

Some of the most popular perquisites provided by a major percentage of companies to their employees are accommodation, cars and stock options. Let us see how these perks are taxed and how is this tax calculated?

Company provided Accommodation:

Many employees are provided leased accommodation options by their employers. This cost of accommodation is taxable and is a perk offered by the company. The tax will however depend upon whether the place is rented, owned or leased by the employer.

The tax levied in the above listed cases is as depicted in the table below.

Type of Accomodation	Population of the city	Percentage of Tax
Owned by the employer	Greater than Rs. 25 lakh	15%
	Between Rs. 10 lakh & Rs. 25 lakh	10%
	Below Rs. 10 lakh	7%
Leased by the employer	Actual rental paid or 15% whichever is lower	NA
	Accommodation provided in a hotel or guest house for more than 15 days	24%

Cards provided by the employer:

The tax on this type of perquisite depends upon two factors. First is whether the car is owned or leased by the employer and second whether the car is being used only for official purposes or partly for personal purposes and partly for official use. In both the cases, the tax calculated will be different. The below given table shows the corresponding rate of taxation in the various cases that may arise.

Type of Car	Rate of Tax
Small cars below 1.6 litres	Rs. 1800 / month
Big cars above 1.6 litres	Rs. 2,400 / month

Are perquisites taxable?

Perquisites are additional benefits that an individual receives over and above their salary. You can think of them as additional perks. Again, depending on the type of perquisites, they can be both taxable as well as non-taxable.

What are tax-free perquisites?

Tax-free perquisites include:

• Leave travel concessions subject to conditions and the only actual amount spent
• Medical Facilities & Reimbursements
• Computer / Laptop for official / personal use
• Initial fees paid for corporate membership
• Refreshment provided during working hours in office premises
• Payment of annual premium on personal accident policy
• Subscription to periodicals and journals required for the discharge of work
• Provision of Medical Facilities
• Gifts not exceeding Rs. 5000 per annum etc.

How are Perquisites classified?

Based on the taxability of perquisites, they are classified into these following –

1. Taxable perquisites
2. Tax-free perquisites
3. Perquisites taxed by employees

How are perquisites treated for income tax purposes?

According to the Finance Act, 2005, perquisites are taxed by the government in case these perks are provided or are deemed to be provided to employees by employers. The rate at which perquisites are taxed is 30% of the value of fringe benefits.

Is perquisites part of salary?

Perquisites are included in salary income only if they are received by an employee from his employer (maybe former, present or prospective). Perquisites, received from a person other than employer, are taxable under the heading “Profits and gains of business or profession” or “Income from other sources”.

Is HRA a perquisite?

HRA is an allowance that is added to your salary and is tax-exempt to a certain extent (as per IT rules) whereas CLA is treated as a benefit that is given by the company to an employee and is taxable in the hands of the employee. i.e. you as an employee are liable to pay income tax on the perquisite value of the house.

Are car perquisites taxable?

A car provided by an employer to an employee is a taxable perk if the latter’s salary is more than Rs 50,000 a month. The value of the perquisite depends on the cubic capacity of the engine and whether the employer or employee pays for the car’s maintenance and running cost.

Which are not to be treated as perquisites?

Any expenditure incurred by the employer, for providing training to the employees or by way of payment of fees of refresher courses attended by the employees. The premium paid by the employer on an accident policy taken out by it in respect of the employee would not be a perquisite.