Salary is more than just basic pay. In today’s organizations, employees receive many additional benefits along with their monthly salary. These benefits improve comfort. They also increase motivation. In income tax terms, these benefits are known as perquisites.
Understanding perquisites is important. It helps employees know their real earnings. It also helps employers structure salaries better. Most importantly, it helps in correct tax calculation.
Let us now understand perquisites in detail.
What are Perquisites?
Perquisites meaning refers to benefits or facilities provided by an employer to an employee in addition to salary or wages.
In very simple words, it’s the extra advantages that an employee gets because of employment. It is any benefit that has a money value. It may not be paid in cash. However, it still adds value to the employee.
These benefits are included in perquisites in salary because they arise from the employer–employee relationship.
Common examples include:
- Rent-free house
- Company car
- Free meals
- Medical facilities
- Interest-free loans
So, even if the employee does not receive cash, tax may still apply.
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What are the Different Types of Perquisites?
It is divided into different categories under income tax law. This classification is mainly based on tax treatment. Therefore, understanding the types is essential.
Taxable Perquisites
Taxable perquisites are benefits that are fully taxable in the hands of the employee.
These perks are added to salary income. Then tax is calculated as per slab rates.
Examples include:
- Rent-free or concessional accommodation
- Employer-provided car used for personal purposes
- Interest-free or concessional loans
- Club membership fees paid by the employer
- Free domestic help such as watchman or gardener
Since these benefits provide direct personal gain, they are taxed fully.
Tax-Exempted Perquisites
Some perks are fully exempt from tax. These benefits are not added to salary income.
Examples include:
- Medical treatment in employer-owned hospitals
- Refreshments provided during office hours
- Use of laptops or computers for official work
- Telephone or mobile phone expenses paid for official use
These tax-exempted perquisites reduce the tax burden on employees.
Perquisites Taxable Only by Employee
Certain perquisites are taxable only when they are provided to employees. If they are given to non-employees, they are not taxed under this category.
Examples include:
- Rent-free accommodation
- Employer-provided vehicles
- Free or concessional education to employee’s children
These benefits arise only due to employment. Therefore, tax applies only in the case of employees.
Differences Between Allowances and Perquisites
Although allowances and perquisites are part of compensation, they are different in nature.
Basis | Allowances | Perquisites |
Mode | Mostly paid in cash | Mostly non-cash benefits |
Purpose | To meet specific expenses | To provide additional comfort |
Taxability | May be fully or partly taxable | Mostly taxable |
Example | HRA, Conveyance Allowance | Company car, accommodation |
What are The Benefits?
Perquisites offer many benefits to employees.
First, they improve quality of life.
Second, they increase job satisfaction.
Third, they help employees save money.
For employers, it help attract skilled professionals. They also help in retaining talent. Moreover, perks allow smart salary planning. When structured properly, they reduce overall tax outflow. Therefore, perquisites create a win-win situation for everyone.
Perquisites Example
Let us understand this with a simple perquisites example.
An employee receives:
- Basic salary: ₹40,000 per month
- Employer-provided rent-free accommodation
Even though the employee does not pay rent, the house has a value. This value is treated as a perquisite. So, the value is added to salary income. Then tax is calculated.
This shows how non-cash benefits still become taxable.
Taxation on Perquisites Under Income Tax Act
Perquisites in income tax are defined under Section 17 of the Income Tax Act.
As per value of prerequisites as per section 17 2, perquisites include:
- Value of rent-free accommodation
- Value of any benefit or amenity
- Employer contribution to funds beyond prescribed limits
Each perquisite has a specific valuation rule. The employer must calculate this value accurately. Then it is shown in Form 16.
This ensures transparency and correct taxation.
Tax Calculation on Perquisites with Example
Let us understand perquisite tax with a detailed example.
Assume:
- Basic salary: ₹6,00,000 per year
- Rent-free accommodation value: ₹1,50,000 per year
- Total perquisites: ₹1,50,000
Total taxable salary becomes:
₹6,00,000 + ₹1,50,000 = ₹7,50,000
Now tax is calculated on ₹7,50,000 as per the applicable slab.
Even though the employee did not receive cash, tax is still payable.
Tax-Exempt Perquisites
Some are completely exempt from tax under the Income Tax Act.
Examples include:
- Employer-paid medical insurance
- Medical treatment for serious illnesses
- Leave travel concession within limits
- Free meals up to prescribed value
These tax-exempt perquisites help reduce taxable income legally.
Conclusion
Perquisites are an important part of salary structure. They go beyond basic pay. They add comfort and convenience. However, not all perquisites are tax-free. Some are fully taxable. Others are partially exempt.
Therefore, understanding it’s meaning, taxable perquisites, and perquisites in salary is essential.
With proper planning and awareness, employees can enjoy benefits while staying tax compliant. Employers, on the other hand, can design smarter compensation structures.
In the modern workplace, perquisites are not optional. They are a necessity.
Frequently Asked Questions (FAQs)
What do you mean by perquisites?
Perquisites are additional benefits or facilities given by an employer to an employee along with salary. These benefits have a monetary value and are provided because of employment.
Is perk short for perquisite?
Yes, perk is an informal short form of the word perquisite and is commonly used to refer to employee benefits.
Are perquisites taxable income?
Yes, perquisites are generally treated as taxable income and are added to the employee’s salary unless they are specifically exempt under income tax rules.
Which perquisites are exempt?
Perquisites such as employer paid medical insurance, medical treatment in employer hospitals, use of laptops for official work, and refreshments during office hours are exempt from tax.