A perquisite is a non-cash benefit your employer gives you, and it is taxed as part of your salary under Section 17 2 of the Income-tax Act 1961. The value is fixed by Rule 3 of the Income-tax Rules 1962, then added to your taxable income and shown in Form 12BB and Form 16. The two most common perquisites are a rent-free home and a company car.
If you are short on time, jump to the two valuation tables below. They tell you the exact figure that gets added to your salary.
The taxable value of rent-free accommodation depends on who owns the home and the size of the city. CBDT Notification 65 of 2023, dated 18 August 2023 and effective from 1 September 2023, cut the rates for employer-owned homes. Use the table below to find your figure.
| Type of accommodation | How it is valued |
|---|---|
| Employer-owned, city population above 40 lakh | 10 percent of salary |
| Employer-owned, city population 15 lakh to 40 lakh | 7.5 percent of salary |
| Employer-owned, city population up to 15 lakh | 5 percent of salary |
| Taken on lease or rent by the employer | Lower of actual lease rent paid or 10 percent of salary |
| Hotel accommodation, stay beyond 15 days | Lower of 24 percent of salary or the actual charges |
City population is read from the 2011 census. Before the 2023 change, the employer-owned rates were 15, 10 and 7.5 percent, so most employees now pay tax on a smaller perquisite value.
There is also an inflation cap. Where the same home continues for the same employee across years, the later-year value cannot exceed the first-year value adjusted by the Cost Inflation Index. The first year means financial year 2023-24, or the year the home was first provided, whichever is later.
A company car is valued under Rule 3 2. The figure depends on the engine size, whether a driver is given, and whether the car is used for office work, private trips, or both. The table below covers an employer-owned car.
| Situation | Taxable perquisite value |
|---|---|
| Engine up to 1.6 litre, partly private use | Rs 1,800 a month |
| Engine above 1.6 litre, partly private use | Rs 2,400 a month |
| Driver provided, add | Rs 900 a month |
| Wholly official use, with logbook and certificate | NIL |
| Wholly private use | Actual running and maintenance cost, plus 10 percent of car cost for wear and tear, plus driver salary, less any amount you repay |
For wholly official use to be valued at NIL, your employer must keep a logbook of journeys and issue a certificate that the car was used only for office duties. Without those records, the tax office can treat the car as partly private and add the monthly figure.
The percentages for accommodation are applied to “salary”, and this word has a specific meaning here. For perquisite valuation, salary means basic pay, plus dearness allowance if it counts for retirement benefits, plus bonus, commission and all taxable allowances.
It does not include the employer provident fund contribution. It also does not include the value of the perquisites themselves. So you do not value the house on a salary figure that already has the house value baked in.
Getting this base figure right matters. A wrong “salary” inflates or deflates every perquisite that is set as a percentage of it.
Suppose Dr. Shrawan Kumar Pathak works in Mumbai, a city above 40 lakh people, and lives in a flat his employer owns. His salary for this purpose, that is basic pay plus dearness allowance plus taxable allowances, is Rs 12,00,000 a year.
His rent-free accommodation perquisite is 10 percent of Rs 12,00,000, which is Rs 1,20,000 for the year. His employer also gives him a car above 1.6 litre with a driver, used partly for private trips. That car perquisite is Rs 2,400 plus Rs 900 a month, which is Rs 3,300 a month or Rs 39,600 a year.
So Rs 1,59,600 is added to his taxable salary as perquisites. This appears in Form 16 and is taxed at his slab rate.
Read the The RTI Playbook for how to use a Right to Information request to obtain pay-fixation and perquisite records from a government employer.
Yes, if your employer provides it free or at a concession, the value under Rule 3 is added to your salary. The only exception in this rule is wholly official accommodation that meets the strict tests for places like remote project sites. For a normal city posting, the percentage of salary applies.
The amount you pay is deducted from the perquisite value. If the home is in a metro and the value is 10 percent of salary, and you pay rent to your employer, only the balance after your payment is taxed. Keep proof of every rent payment.
No. For a car used partly for private and partly for office work, the law fixes a flat monthly figure, Rs 1,800 or Rs 2,400, plus Rs 900 for a driver. Your real fuel and repair bills do not change this number. Only wholly private use is valued on actual cost.
Your employer collects the details in Form 12BB and reports the taxed value in Form 16. Match the perquisite figure in Form 16 against the Rule 3 calculation. If the figure looks wrong, ask your payroll team for the working before you file your return.
The valuation under Section 17 2 and Rule 3 applies whichever regime you choose. The perquisite value is added to salary the same way. What changes between regimes is the slab rate and the deductions you can claim, not how the house or car is valued.