Perquisite
[Section 17 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 17(1) of Income Tax Act 2025
17(1) For the purposes of this Part, “perquisite” includes—
- (a) the value of rent-free accommodation provided to the assessee by his employer computed in such manner, as prescribed;
- (b) the value of any accommodation provided to the assessee by his employer at a concessional rate which is in excess of rent recoverable from, or payable by, the assessee, computed in such manner, as prescribed;
- (c) the value of any benefit or amenity granted or provided free of cost or at concessional rate in the following cases:—
- (i) by a company to an employee, who is a director thereof or who has a substantial interest in the company;
- (ii) by any employer (including a company) to an employee whose income under the head “Salaries” by way of monetary payment (from one or more employers) exceeds such amount as prescribed;
- (d) the value of any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the current employer, or former employer, free of cost or at concessional rate to the assessee;
- (e) the value of any other benefit or amenity, as prescribed;
- (f) any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assessee;
- (g) any sum payable by the employer to effect an assurance on the life of the assessee or to effect a contract for an annuity, whether directly or through a fund, other than––
- (i) a recognised provident fund; or
- (ii) an approved superannuation fund; or
- (iii) a Deposit-linked Insurance Fund established under––
- (A) section 3G of the Coal Mines Provident Fund and Miscellaneous Provisions Act, 1948; or
- (B) section 6C of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952;
- (h) aggregate amount of any contribution, in excess of seven lakh and fifty thousand rupees in a tax year, made to the account of the assessee by the employer—
- (i) in a recognised provident fund;
- (ii) in the scheme referred to in section 124(1); and
- (iii) in an approved superannuation fund;
- (i) the annual accretion by way of interest, dividend or any other amount of similar nature during the tax year to the balance at the credit of the fund or scheme referred to in clause (h), computed in such manner, as prescribed (to the extent it relates to the contribution referred to in the said clause in any tax year).
Section 17(2) of Income Tax Act 2025
17(2) Nothing in sub-section (1) shall apply to––
- (a) the value of any medical treatment provided to an employee or any member of his family in any hospital maintained by the employer;
- (b) any sum paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family—
- (i) in any hospital maintained by the Government, or any local authority, or any other hospital approved by the Government for the purposes of medical treatment of its employees;
- (ii) in respect of the prescribed diseases or ailments, in any hospital approved by the Principal Chief Commissioner or Chief Commissioner having regard to such guidelines as specified;
- (c) any portion of the premium paid by an employer in relation to an employee, to effect or to keep in force an insurance on the health of such employee under any scheme approved, for the purposes of section 30(c), by the––
- (i) Central Government; or
- (ii) Insurance Regulatory and Development Authority established under section 3(1) of the Insurance Regulatory and Development Authority Act, 1999;
- (d) any sum paid by the employer in respect of any premium paid by the employee to effect or to keep in force an insurance on his health or the health of any member of his family under any scheme, approved for the purposes of section 126, by the—
- (i) Central Government; or
- (ii) Insurance Regulatory and Development Authority established under section 3(1) of the Insurance Regulatory and Development Authority Act, 1999;
- (e) any expenditure incurred by the employer for the use of any vehicle for journey by the assessee from his residence to his office or other place of work, or from such office or place to his residence;
- (f) any expenditure incurred by the employer, or any sum paid by the employer in respect of any expenditure actually incurred by the employee, on—
- (i) medical treatment of the employee or any family member of such employee outside India;
- (ii) travel and stay abroad for the employee or any member of the family of such employee for medical treatment;
- (iii) travel and stay abroad of one attendant who accompanies the patient in connection with such treatment.
Section 17(3) of Income Tax Act 2025
17(3) For the purposes of sub-section (2)(f),—
- (a) the expenditure on medical treatment and stay abroad shall be excluded from the perquisite only to the extent permitted by the Reserve Bank of India; and
- (b) the expenditure on travel shall be excluded from perquisite only in the case of an employee whose gross total income, as computed before including therein the said expenditure, does not exceed such amount as prescribed.
Section 17(4) of Income Tax Act 2025
17(4) In this section,—
- (a) “fair market value” means the value determined in accordance with the method, as prescribed;
- (b) “family”, in relation to an individual, shall have the meaning assigned to it in Schedule III (Note 2);
- (c) “gross total income” shall have the meaning assigned to it in section 122(10);
- (d) “hospital” includes a dispensary or a clinic or a nursing home;
- (e) “option” means a right but not an obligation, granted to an employee to apply for the specified security or sweat equity shares at a predetermined price;
- (f) “specified security” means the securities as defined in section 2(h) of the Securities Contracts (Regulation) Act, 1956 and, where employees’ stock option has been granted under any plan or scheme, includes the securities offered under such plan or scheme;
- (g) “sweat equity shares” means equity shares issued by a company to its employees or directors at a discount or for consideration other than cash for providing know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called;
- (h) the value of any specified security or sweat equity shares shall be the fair market value of the specified security or sweat equity shares, on the date on which the option is exercised by the assessee, as reduced by the amount actually paid by, or recovered from, the assessee in respect of such security or shares.
FAQs on Section 17 of the Income Tax Act 2025
1. What is a perquisite under the Income Tax Act, 2025?
A perquisite refers to any benefit, amenity, or additional compensation provided by an employer to an employee, either free of cost or at a concessional rate, as specified under Section 17(1) of the Act.
2. Who is liable to pay tax on perquisites?
The employee receiving the perquisite is liable to pay tax on its value, which is added to their salary income and taxed under the head “Salaries.”
3. How is the value of perquisites calculated?
The valuation of perquisites is done as per the prescribed rules, depending on the nature of the benefit provided.
4. Is rent-free accommodation provided by an employer taxable?
Yes, the value of rent-free accommodation provided by an employer is a taxable perquisite and is computed as per the rules.
5. What if an employer provides accommodation at a concessional rate?
If accommodation is provided at a concessional rate, the taxable perquisite is the difference between the fair market rent and the rent paid by the employee.
6. Are employer-provided benefits taxable for all employees?
No, only employees whose salary exceeds the prescribed limit or who hold a substantial interest in the company are taxed on such benefits.
7. What are ‘specified securities’ or ‘sweat equity shares’ and are they taxable?
Specified securities or sweat equity shares allotted or transferred at a concessional rate are taxable as perquisites, with the taxable value being the fair market value reduced by the amount paid by the employee.
8. Are employer-paid obligations considered perquisites?
Yes, if the employer pays any amount that the employee would have otherwise been liable to pay, it is treated as a taxable perquisite.
9. Is employer-paid life insurance taxable?
Yes, except for contributions to a recognized provident fund, an approved superannuation fund, or deposit-linked insurance funds.
10. Is employer’s contribution to provident funds taxable?
Any contribution by an employer exceeding ₹7,50,000 in a financial year to a recognized provident fund, superannuation fund, or specified schemes is considered a taxable perquisite.
11. Are interest and dividends on employer contributions taxable?
Yes, any annual accretion on the excess employer contributions (beyond ₹7,50,000) is taxable.
12. Is medical treatment provided by the employer taxable?
No, medical treatment expenses covered by the employer are exempt if provided in an employer-maintained hospital, a government hospital, or an approved hospital.
13. Are health insurance premiums paid by the employer taxable?
No, premiums paid by the employer under a government or IRDAI-approved health insurance scheme are exempt.
14. Is employer-provided transport taxable?
No, transport facilities for commuting between home and office are exempt from taxation.
15. Are overseas medical expenses covered by the employer taxable?
No, expenses for medical treatment, travel, and stay abroad for an employee or family member are exempt, subject to RBI’s permitted limits.
16. Is travel cost for overseas medical treatment always exempt?
Travel cost is exempt only if the employee’s gross total income (before including medical expenses) does not exceed the prescribed limit.
17. How is the fair market value (FMV) of a perquisite determined?
FMV is computed as per the prescribed method under the Act.
18. Who is considered ‘family’ for medical exemptions?
The definition of “family” is as per Schedule III of the Act.
19. What is the meaning of “gross total income” in relation to exemptions?
Gross total income is defined under Section 122(10) of the Act.
20. Does a clinic or dispensary qualify as a hospital under the exemption rules?
Yes, clinics, nursing homes, and dispensaries are included in the definition of “hospital.”
21. What is an “option” in the context of employee stock benefits?
It refers to an employee’s right (but not obligation) to acquire specified securities at a predetermined price.
22. What are “specified securities” under perquisite taxation?
These include any securities as per Section 2(h) of the Securities Contracts (Regulation) Act, 1956, including stock options.
23. How is the taxable value of sweat equity shares determined?
The taxable value is FMV on the exercise date minus the amount paid by the employee.
Perquisites, as defined under Section 17(1) of the Income Tax Act, 2025, encompass various employer-provided benefits, including rent-free accommodation, stock options, employer-paid obligations, and contributions to retirement funds. These benefits are generally taxable, with specific exemptions provided under Section 17(2) for medical expenses, health insurance, transport allowances, and overseas medical treatments, subject to conditions.
Understanding the valuation and taxation of perquisites is crucial for both employees and employers to ensure proper tax compliance. The prescribed valuation methods and exemption limits play a key role in determining the tax liability of an individual.
With effect from April 1, 2026, these provisions will shape how employee benefits are taxed, making it essential for taxpayers to stay updated and plan accordingly.
