A company car, rent-free accommodation, subsidised meals, employee stock options and concessional loans can all form part of an employee's compensation even though they may not be paid as cash salary. For income-tax purposes, benefits of this kind may be treated as perquisites.
A perquisite is broadly a benefit, facility or amenity provided by an employer in addition to regular salary. Some perquisites are taxable, some can have a nil taxable value when prescribed conditions are met, and certain benefits are taxable only for specified employees.
The rules became particularly important to revisit in 2026. From 1 April 2026, the Income-tax Act, 2025 and Income-tax Rules, 2026 came into force, replacing the earlier Income-tax Act, 1961 framework. Rule 15 of the 2026 Rules now contains the main valuation provisions for perquisites.
What Are Perquisites in Salary and Income Tax?
Perquisites are benefits, facilities or amenities that an employee receives from an employer in connection with employment, over and above ordinary cash salary.
They are commonly called perks, although both are not the same always. A workplace benefit may be casually described as a perk, but only benefits covered by the applicable income-tax provisions are treated as perquisites for tax purposes.
Examples can include:
- Rent-free or concessional accommodation
- Employer-provided cars used for personal or mixed purposes
- Interest-free or concessional loans
- Gifts or vouchers from the employer
- Free or subsidised meals
- Employee Stock Option Plans (ESOPs)
- Certain employer contributions to recognised retirement funds
- Personal obligations of an employee paid by the employer
What Changed for Perquisites From 1 April 2026?
India moved to the Income-tax Act, 2025 and Income-tax Rules, 2026 from 1 April 2026. As a result, articles that still rely entirely on the Income-tax Act, 1961 and Income-tax Rules, 1962 may not reflect the framework applicable for the current tax year.
Some important current limits include:
| Perquisite | Current rule |
|---|
| Employer-provided meals | Nil value may apply where the cost does not exceed ₹200 per meal and the prescribed conditions are met |
| Gifts, vouchers or tokens | Nil value where the aggregate value during the tax year is below ₹15,000 |
| Small employer loans | No perquisite value in specified cases where aggregate loans do not exceed ₹2 lakh |
| Specified employee monetary salary test | Monetary salary exceeding ₹4 lakh |
| Employer-owned unfurnished accommodation | 10%, 7.5% or 5% of salary depending on city population |
| Employer-provided mixed-use car | Monthly values depend on engine capacity, who bears running costs and whether a chauffeur is provided |
The ₹200 meal rule, gift threshold and ₹2 lakh loan threshold are provided under Rule 15 of the Income-tax Rules, 2026. The monetary salary threshold used for one category of specified employees is ₹4 lakh.
What Are the Types of Perquisites?
Perquisites do not all receive the same tax treatment. Their taxable value depends on the nature of the benefit, the employee receiving it and whether any exemption or nil-value condition applies.
1. Perquisites That May Be Taxable
These include benefits for which a taxable value may have to be added to salary income.
Examples include rent-free accommodation, concessional accommodation, employer payments of certain personal obligations, ESOP benefits and certain employer retirement-fund contributions.
The actual taxable amount does not always equal what the employer spent. Each benefit may have its own valuation method.
2. Perquisites Relevant to Specified Employees
Some benefits or amenities are taxable based partly on whether the employee falls within the definition of a specified employee.
The law therefore looks at characteristics such as whether the employee is a director, has substantial interest in the company or crosses the prescribed monetary salary threshold.
3. Perquisites With Nil Value or Special Relief
Certain benefits can have a nil taxable value when prescribed conditions are satisfied.
For example, eligible meals within the prescribed per-meal limit, specified low-value employer loans and certain official-use benefits may receive nil-value treatment under the valuation rules.
This is why describing a benefit simply as "tax-free" can sometimes be misleading. The treatment may depend on the value, purpose, employee category and conditions attached to that benefit.
Who is a Specified Employee for Perquisite Tax?
The specified-employee test matters because certain benefits or amenities become relevant for tax based on the employee's status.
Broadly, the category includes an employee who:
- Is a director of the company;
- Has substantial interest in the company, including the prescribed level of voting power; or
- Has monetary salary above the prescribed threshold.
For the current rules, the prescribed monetary salary threshold for this test is ₹4,00,000.
Employers should therefore avoid deciding whether a perquisite is taxable only by looking at the name of the benefit. The employee's status may also matter.
How Is the Taxable Value of Common Perquisites Calculated?
There is no single percentage or formula for all perquisites. Rule 15 prescribes different valuation methods depending on the benefit involved.
Rent-Free Accommodation
When an employer owns the unfurnished accommodation provided to an employee, the taxable value is linked to salary and the population of the city.
Under the current rules:
| Population of the city based on the prescribed census | Value of unfurnished accommodation |
|---|
| More than 40 lakh | 10% of salary |
| More than 15 lakh but not more than 40 lakh | 7.5% of salary |
| Other locations | 5% of salary |
Any rent recovered from the employee is deducted when arriving at the value.
Where the employer has taken the accommodation on lease or rent, the value is generally based on the lower of the actual lease rental paid/payable by the employer and 10% of salary, after reducing the rent recovered from the employee.
If furniture is also provided, additional valuation rules apply.
Example
Suppose an employee has salary of ₹12 lakh for the relevant period and receives employer-owned unfurnished accommodation in a city falling within the 10% category.
The initial perquisite value would be:
₹12,00,000 × 10% = ₹1,20,000
If the employee pays ₹30,000 to the employer as rent during that period, the value would generally reduce to:
₹1,20,000 - ₹30,000 = ₹90,000
₹90,000 is the perquisite value in this simplified example. It is not a 10% tax charged directly on the employee. The amount forms part of salary income, after which the applicable income-tax calculation is performed.
Employees who instead receive a cash housing component should also understand how [House Rent Allowance (HRA)] differs from employer-provided accommodation.
Employer-Provided Car
The tax treatment of an employer-provided car depends on:
- Whether it is used entirely for official work, entirely for personal use or for both
- Engine capacity
- Whether the employer or employee bears running and maintenance expenses
- Whether a chauffeur is provided
For a car owned or hired by the employer and used partly for official and partly for personal purposes, where the employer bears running and maintenance costs, the current monthly values include:
| Vehicle | Monthly value |
|---|
| Engine up to 1.6 litres or an electric vehicle | ₹5,000 |
| Engine above 1.6 litres | ₹7,000 |
| Chauffeur, where provided | Additional ₹3,000 |
Where the employee bears the private running and maintenance costs, different monthly amounts apply. A vehicle used wholly for official duties can have nil value when the required conditions and records are maintained.
Interest-Free or Concessional Loans
An employer may lend money to an employee at no interest or at an interest rate below the prescribed benchmark.
The perquisite value is generally calculated using the applicable State Bank of India lending rate for a similar loan on the maximum outstanding monthly balance, reduced by any interest actually paid by the employee.
However, Rule 15 provides relief in specified cases, including where the aggregate amount of such loans does not exceed ₹2,00,000, as well as certain loans for qualifying medical treatment.
Example
Assume an employer gives an employee a ₹5 lakh interest-free loan.
If the prescribed SBI rate for a comparable loan were 9%, the employer would first calculate the benefit using the outstanding balance and applicable valuation method. Any interest paid by the employee would then reduce the perquisite value.
The exact calculation should use the prescribed SBI rate applicable to the relevant type of loan and tax year.
Free or Subsidised Meals
Meals can have a nil perquisite value where the conditions under Rule 15 are satisfied and the cost to the employer does not exceed ₹200 per meal.
The rule covers specified meals provided during working hours at office or business premises and eligible paid vouchers that can be used only at eating joints, subject to the prescribed conditions.
This is particularly relevant to employers designing [flexible employee benefit] programmes.
Gifts, Vouchers and Tokens
Employer-provided gifts and vouchers are another area where older information remains common online.
Under Rule 15 of the Income-tax Rules, 2026, the value can be nil where the aggregate value of gifts, vouchers or tokens is below ₹15,000 during the tax year.
Once the nil-value condition is not satisfied, valuation should be carried out under the applicable Rule 15 provision rather than assuming that only the amount above the threshold becomes taxable.
Employee Stock Option Plans
An ESOP can create a taxable perquisite when the employee exercises the option.
The perquisite value is generally calculated as:
Fair market value of the specified security on the exercise date - Amount paid or recovered from the employee
The exercise date therefore matters. The taxable perquisite is not calculated merely because the option has vested.
A later sale of the shares can result in a separate capital-gains calculation.
For a deeper explanation of how employee stock options work, read EnKash's [guide to Employee Stock Option Plans].
Employer Contributions to Retirement Funds
Employer contributions to specified recognised retirement funds can also result in a perquisite.
The law includes aggregate employer contributions exceeding ₹7.5 lakh to prescribed funds such as recognised provident fund, the notified pension scheme and approved superannuation fund. Annual accretion attributable to the excess can also be covered.
The ₹7.5 lakh test is an aggregate threshold across the covered employer contributions rather than a separate limit for each fund.
Perquisites vs Allowances: What Is the Difference?
Perquisites and allowances can both form part of an employee's compensation, but they are different.
| Basis | Allowance | Perquisite |
|---|
| What it is | A monetary amount paid to the employee for a particular purpose or as part of salary | A benefit, amenity, facility or other advantage connected with employment |
| Form | Usually cash | Often non-cash, although tax law can also cover employer-paid monetary obligations |
| Examples | HRA and certain travel or other allowances | Rent-free accommodation, company car, concessional loan, ESOP |
| Tax treatment | Depends on the allowance and applicable exemption/deduction rules | Depends on the type of perquisite and its prescribed valuation |
| Amount received | Employee usually receives the allowance directly | Employer may provide the benefit or pay for it directly |
A useful example is housing.
HRA is an allowance paid as part of salary. Employer-provided rent-free accommodation is a perquisite. Both relate to housing, but their tax treatment is different.
You can read more about [HRA in salary] and the [HRA definition] in the EnKash glossary.
How Do Perquisites Affect CTC, Take-Home Salary and TDS?
Perquisites may form part of an employee's overall compensation even though the employee does not receive their value as cash.
Consider an employee whose package includes:
- Basic salary
- HRA
- Performance bonus
- Employer-provided accommodation
- Company car
The employee receives some components as money and others as benefits. This is why CTC, gross salary, taxable salary and take-home salary can be different figures.
A taxable perquisite can increase the salary income on which tax is calculated. If the tax is recovered through salary withholding, that can affect the employee's eventual take-home pay.
For further context, see EnKash's guides to [CTC] and [gross salary].
Who Pays Tax on Perquisites?
The employee normally bears the tax arising from taxable salary, including the value of taxable perquisites.
Employers are required to deduct tax from salary under the applicable salary TDS provisions. The Income-tax Act, 2025 also allows an employer, at its option, to pay tax on certain non-monetary perquisites instead of deducting that amount from the employee's salary.
How Are Perquisites Reported by Employers?
Correct valuation matters because employers need the perquisite amount for salary taxation, payroll and employee reporting.
Under the 2026 framework, employers are required to furnish prescribed information about perquisites and profits in lieu of salary.
The Income-tax Rules, 2026 provide for Form No. 123, a statement containing particulars of perquisites, fringe benefits or amenities and profits in lieu of salary with their values. The rules specify Form 123 in cases where salary exceeds ₹1,50,000 for the tax year.
Employers therefore need reliable records for benefits such as accommodation, company vehicles, loans, gifts, meals and other employee benefits before payroll tax is finalised.
You can also refer to EnKash's guides on [payroll processing] and the [TDS glossary] for related salary-tax concepts.
Why Should Employers Track Perquisites Correctly?
Perquisite management affects more than payroll calculations.
Employers need to know:
- What benefit was provided
- Who received it
- What amount the employer paid
- Whether the employee contributed towards its cost
- Whether a tax exemption or nil-value condition applies
- Which valuation rule applies
- What value must be included in payroll and tax reporting
This becomes more important as employers offer a wider mix of meals, gifts, travel benefits, stock plans, vehicles and other employee benefits.
Keeping benefit records connected with payroll and policy controls also makes year-end reporting easier and reduces the risk of applying an outdated threshold.
Manage Employee Benefits With Better Spend Controls
Employee benefits such as meals and other approved expense categories can be managed through dedicated digital benefit wallets with defined spending controls and centralised tracking.
[Explore EnKash Employee Benefit Multi-wallet]
Tax treatment depends on the nature of each benefit and the conditions prescribed under the applicable tax rules. Providing a benefit through a card or wallet does not by itself make that benefit tax-exempt.
Conclusion
Perquisites are benefits connected with employment that sit alongside an employee's regular cash salary. Depending on the benefit, its value may be fully taxable, receive nil-value treatment when conditions are satisfied or depend on whether the recipient is a specified employee.
The most important point for 2026 is to use current rules.
From 1 April 2026, the Income-tax Act, 2025 and Income-tax Rules, 2026 apply. Important current provisions include the ₹200 meal limit, the below ₹15,000 aggregate gift condition, the ₹2 lakh small-loan threshold, updated company-car values and the ₹4 lakh monetary salary threshold used for the specified-employee test.
Employers should review their salary structures and employee-benefit policies against the latest rules instead of relying on older perquisite limits carried over from the previous tax framework.
Frequently Asked Questions
Are All Perquisites Taxable?
No. Tax treatment varies by the nature of the benefit. Some perquisites are taxable, some benefits matter only for specified employees, and others can have a nil taxable value when the prescribed conditions are satisfied.
What Is Perquisite Tax?
There is generally no separate flat "perquisite tax rate." The taxable value of a perquisite is determined under the applicable valuation rules and included in salary income. Income tax is then calculated according to the tax provisions applicable to the employee.
What Is the Meal Perquisite Limit in 2026?
Under Rule 15 of the Income-tax Rules, 2026, eligible employer-provided meals can have a nil value where the cost does not exceed ₹200 per meal and the specified conditions are satisfied.
What Is the Gift Perquisite Limit in 2026?
The current rule provides a nil value where the aggregate value of gifts, vouchers or tokens provided by the employer during the tax year is below ₹15,000.
What Is the Salary Limit for a Specified Employee?
For the monetary-salary test under the current rules, the prescribed threshold is ₹4,00,000. Directors and employees having the prescribed substantial interest can also fall within the specified-employee definition irrespective of this test.
Is an ESOP a Perquisite?
Yes, employee stock options can result in a taxable perquisite. The value is generally based on the fair market value of the security on the date the option is exercised, reduced by the amount paid or recovered from the employee.
Can an Employer Pay Tax on a Non-Monetary Perquisite?
Yes. The Income-tax Act, 2025 allows an employer to choose to pay tax on certain non-monetary perquisites instead of deducting the corresponding tax from the employee's salary.
Form No. 123 under the Income-tax Rules, 2026 is used for prescribed particulars of perquisites, fringe benefits or amenities and profits in lieu of salary, along with their values. The rules prescribe it where salary exceeds ₹1,50,000 for the tax year.
Disclaimer: This article is for general informational purposes. Tax treatment can depend on the employee, employer, nature of the benefit and specific facts involved. Employers and employees should refer to the latest Income-tax Act, rules and official guidance or consult a qualified tax professional before making tax decisions.
