Taxation of Perquisites: Company Cars, Accommodation, Meals and ESOPs

Perquisites are non-cash benefits employers give employees. They're taxable as salary at values set by the tax rules, and employers must include them in TDS calculations. This guide covers the common ones. Perquisite values are being revised under the rules made under the Income-tax Act, 2025, so check the current values for each year.

Rent-free or Concessional Accommodation

For private sector employees, the taxable value has been a percentage of salary based on the city's population — historically 10% for cities with a population above 40 lakh (which includes Hyderabad), and lower percentages for smaller cities — reduced by any rent the employee pays.

Company Cars

• Used only for work: generally not taxable, with records to show it.
• Used for both work and personal purposes: taxed at a fixed monthly amount depending on engine size, plus an amount for a driver.
• Used only personally: taxed at the actual cost to the employer, including depreciation.

Meals

Meals provided during office hours, through vouchers or at the workplace, have been exempt up to a set value per meal. Tea and snacks are generally not taxable.

Interest-free and Concessional Loans

The benefit is taxed based on the difference between a benchmark rate and the rate charged. Small loans below a threshold, and loans for specified medical treatment, have been exempt.

ESOPs

On exercise, the difference between the fair market value and the exercise price is taxed as a perquisite. Eligible startups can allow employees to defer the tax. On sale, gains above the fair market value at exercise are taxed as capital gains.

Employer Duties

• Value perquisites under the rules.
• Include them in TDS calculations.
• Report them in Form 16 and the related perquisite statement.

Getting Help

Think Filing values perquisites and advises on benefits design and TDS.