Income Tax 2025

Appearance

Perquisite. ​

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).

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.

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.

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.
Explanation

1. Section Summary ​

This section defines "perquisite" (perks) under the Income Tax Act, which refers to non-monetary benefits provided by an employer to an employee. These benefits are taxable unless specifically exempted. The section outlines what constitutes a perquisite, how its value is computed, and lists exemptions for certain benefits like medical treatment and health insurance.

2. Key Changes ​

  • New inclusions in perquisites:
    • Contributions by employers to recognized provident funds, approved superannuation funds, and other schemes exceeding ₹7.5 lakh in a financial year are now taxable as perquisites.
    • Annual accretion (interest, dividends, etc.) on such contributions is also taxable.
  • Clarifications on exemptions:
    • Medical treatment abroad and related travel/stay expenses are exempt only if approved by the Reserve Bank of India (RBI) and subject to income limits.
    • Health insurance premiums paid by employers under approved schemes are exempt.

3. Practical Implications ​

  • For Employees:
    • Employees receiving benefits like rent-free accommodation, concessional loans, or stock options must report these as taxable perquisites.
    • Contributions to provident funds or superannuation schemes beyond ₹7.5 lakh will increase taxable income.
  • For Employers:
    • Employers must accurately compute and report the value of perquisites in Form 16.
    • They must ensure compliance with prescribed methods for valuing benefits like accommodation, stock options, and concessional loans.
  • For High-Income Earners:
    • Directors or employees with substantial interest in a company must be cautious, as benefits provided to them are more likely to be taxable.

4. Critical Concepts ​

  • Fair Market Value (FMV): The value of specified securities or sweat equity shares is determined based on prescribed methods, typically the market price on the date the option is exercised.
  • Specified Security: Includes securities defined under the Securities Contracts (Regulation) Act, 1956, and employee stock options.
  • Sweat Equity Shares: Equity shares issued to employees/directors at a discount or for non-cash consideration (e.g., intellectual property contributions).
  • Interaction with Other Laws: This section aligns with the Securities Contracts (Regulation) Act, 1956, and Employee Provident Fund (EPF) laws.

5. Compliance Steps ​

  • For Employees:
    • Report all perquisites in your income tax return (ITR).
    • Maintain records of employer-provided benefits (e.g., accommodation, stock options).
  • For Employers:
    • Compute the value of perquisites as per prescribed methods.
    • Include perquisite details in Form 16 and ensure timely TDS deductions.
    • For stock options, calculate FMV and report the difference between FMV and exercise price as a perquisite.

6. Examples ​

  • Rent-Free Accommodation: An employee is provided a rent-free house by the employer. The taxable value is computed as a percentage of the employee’s salary (e.g., 15% of salary in metro cities).
  • Stock Options: An employee exercises stock options at ₹100 per share when the FMV is ₹150. The difference (₹50 per share) is taxable as a perquisite.
  • Provident Fund Contributions: If an employer contributes ₹10 lakh to an employee’s provident fund in a year, ₹2.5 lakh (₹10 lakh - ₹7.5 lakh) is taxable as a perquisite.

7. Effective Date/Transition Rules ​

  • The amendments related to employer contributions exceeding ₹7.5 lakh and annual accretion are effective from April 1, 2021.
  • Transitional rules may apply for contributions made before this date, but these are generally governed by the previous tax regime.

This section ensures that non-monetary benefits are taxed appropriately while providing exemptions for essential benefits like medical treatment and health insurance. Employers and employees must carefully evaluate and report these benefits to avoid compliance issues.