Higher Perquisite Limits: How They Change Taxation

The changes ease tax burden for mid-income earners, provide more clarity for employers

- NEERAJ AGARWALA

The definition of perquisite under the Income Tax Act's Section 17(2) plays a crucial role in computing an employee's taxable salary. Perquisites represent benefits or amenities provided by employers, often in non-cash form, that add value to the overall compensation package.

Examples include rent-free accommodation, concessional housing, employer-paid medical reimbursements, insurance premiums, or stock options. While such benefits may not directly increase an employee's take-home pay, they constitute real economic value and are therefore subject to tax in specified cases.

Perquisites under Section 17(2) can broadly be grouped into two categories:

(i) The first relates to perquisites provided free of cost or at concessional rates. Classic examples include rent-free accommodation, concessional housing, or the provision of a company motor car for personal use.

(ii) The second category relates to reimbursements made by the employer directly or indirectly, such as child school fees, fuel expenses, or personal travel costs.