Perquisites Under Income Tax: What's Taxable, What's Exempt

A company car, a rent-free flat, an interest-free loan from your employer: none of it looks like salary, but the Income Tax Act treats most of it exactly like salary anyway. These non-cash benefits are called perquisites, and getting their valuation wrong, in either direction, is a common source of understated salary income and payroll mismatches alike. Here's how the major categories are actually valued for FY 2026-27.

What Counts as a Perquisite

A perquisite is any benefit or facility your employer provides because of your employment, beyond your cash salary. Rent-free or subsidised housing, a car for personal use, interest-free loans, employer-paid club memberships, and stock options all fall under this umbrella. Most are taxable, valued using specific formulas prescribed under the Income Tax Rules for each category rather than simply what the employer actually spent, and a few are wholly or partly exempt within prescribed limits. Perquisite valuation feeds directly into your gross salary, so getting a category wrong doesn't just misstate one line item, it misstates your total taxable salary.

Rent-Free or Concessional Accommodation

If your employer provides housing rather than paying you a housing allowance, the taxable value depends on the population of the city and whether the employer owns the property or leases it on your behalf. For employer-owned accommodation, the perquisite is valued at 10% of salary in cities with a population above 40 lakh (per the 2011 census), 7.5% of salary in cities between 15 and 40 lakh, and 5% of salary everywhere else. For employer-leased accommodation, the taxable value is the lower of the actual rent the employer pays or 10% of salary, reduced by any rent you pay toward it yourself. Stay in the same accommodation beyond a year, and a cost-inflation-linked cap limits how much the taxable value can rise year on year.

The Company Car

Where a car is owned and maintained by the employer and used for a mix of official and personal purposes, the perquisite is valued as a flat monthly amount rather than the car's actual cost: ₹5,000 a month for cars with an engine capacity up to 1.6 litres, or for electric vehicles, and ₹7,000 a month for anything above that, with a further ₹3,000 a month added if the employer also provides a chauffeur. These figures apply regardless of the car's actual price, running cost, or depreciation, which is why the perquisite value on an expensive car is often a fraction of what owning it privately would cost in comparable terms. Cars used purely for official duty, with proper documentation, aren't taxed as a perquisite at all; the flat-rate valuation exists specifically for the common case of mixed personal and official use.

Interest-Free or Concessional Loans

An interest-free or low-interest loan from your employer is valued using the State Bank of India's lending rate as the benchmark, applied to the maximum outstanding monthly balance, with any interest you actually pay reduced from that figure. A small-loan exemption keeps this from becoming a compliance burden over trivial amounts: loans where the aggregate outstanding amount doesn't exceed ₹2,00,000 are exempt from this perquisite valuation altogether. Loans specifically for medical treatment of specified diseases are also excluded from the calculation, except to the extent the treatment cost is reimbursed under a medical insurance policy.

ESOPs: Taxed Twice, at Two Different Moments

Employee stock options are taxed in two separate steps that catch people off guard if they're expecting only one. When you exercise your options, the difference between the fair market value of the shares on that date and what you actually paid to exercise them is taxed as a perquisite, as part of your salary, in that year. Later, when you sell the shares, any further gain between the fair market value at exercise and your actual sale price is taxed separately as a capital gain. Eligible employees of DPIIT-recognised, Section 80-IAC-certified startups get a genuine concession here, not an exemption but a deferral: the TDS on the exercise-date perquisite can be deferred to the earliest of 48 months from the end of the relevant assessment year, the sale of the shares, or the employee leaving the company, which meaningfully eases the cash-flow problem of owing tax on shares you haven't actually sold yet.

Gifts and the Smaller Exemptions

Non-cash gifts and vouchers from your employer are exempt up to ₹15,000 in aggregate value for the year; cross that limit and the entire value, not just the excess, becomes taxable. Cash gifts and gift cheques don't qualify for this exemption at all and are taxable from the first rupee, regardless of the amount. Separately, if your employer's combined contribution to your recognised provident fund, NPS account, and superannuation fund exceeds ₹7,50,000 in a year, the excess, along with the annual interest or return attributable to it, is taxed as a perquisite in your hands rather than simply accumulating tax-deferred.

Perquisites and Your Tax Regime Choice

Perquisite valuation itself doesn't change based on whether you're on the old or new tax regime; a car perquisite or a rent-free accommodation benefit is computed the same way either way, because it's part of arriving at your gross salary in the first place, before any regime-specific deductions or exemptions come into play. What changes by regime is what you can do with certain related allowances and exemptions elsewhere in your salary structure, like HRA, not how the perquisite itself gets valued. Don't assume moving to the new regime makes a company car or an employer loan tax-free; it doesn't. It just removes your ability to claim separate exemptions and deductions on other components of your salary.

Perquisite valuation rules changed materially for FY 2026-27, so if you're relying on figures you learned even a couple of years ago, particularly around the company car and loan exemption thresholds, it's worth double-checking against your current Form 12BA rather than assuming. Employers structuring a salary package with a meaningful perquisite component should read this alongside how CTC actually breaks down and, for startups specifically, how ESOPs are taxed for employers, since perquisite valuation is exactly what payroll needs to get right before deducting TDS on salary each month.