Section 17, Income-tax Act 2025: Perquisite

What changed when Section 17(2) became Section 17?

The address changed, not the tax. The 1961 Act packed three definitions into one Section 17: sub-section 17(1) said what counts as salary, 17(2) listed perquisites, and 17(3) covered profits in lieu of salary. The 2025 Act gives each its own section. Salary becomes Section 16, perquisites become Section 17, and profits in lieu of salary become Section 18. So the provision people cite as "17(2)" is now simply Section 17, headed "Perquisite".

Two things sit next door and are easy to confuse with it. The deductions from salary that used to live in Section 16 of the old Act (the standard deduction and professional tax) are now Section 19. And the arithmetic that actually values each benefit, the percentages and per-month figures, was never in Section 17 at all: it lives in Rule 3 of the Income-tax Rules and is carried into the new Rules unchanged. Section 17 tells you what is taxable; the Rules tell you how much.

Section number and title cross-checked against multiple published copies of the enacted Act.†

Which benefits count as perquisites?

A perquisite is any benefit or amenity you get by virtue of employment that is not straightforward cash salary. Section 17 lists them, and the list is deliberately wide so that pay dressed up as a "benefit" is still taxed:

• Rent-free or concessional accommodation provided by the employer, including a hotel room beyond a short relocation stay.
• Any benefit or amenity granted free or cheap, such as a company car, a driver, gas, electricity and water, free or subsidised education for your children, or the services of a domestic helper.
• Specified securities or sweat equity shares, the formal name for ESOPs and RSUs, allotted free or at a concessional rate by a current or former employer.
• Any sum the employer pays to meet an obligation that was yours to pay: your income tax, your club bill, your credit-card dues, a professional membership.
• Employer premiums on a life-insurance policy or annuity taken for you outside a recognised fund.
• The employer's contribution to your recognised provident fund, NPS and approved superannuation fund, to the extent the three together cross ₹7,50,000 in a tax year, plus the interest and dividends that build up on that taxable excess.
• An interest-free or cheap loan, valued at the shortfall against a benchmark bank rate, once the loans total more than ₹20,000.
• Gifts, vouchers, free meals and other small benefits above their exempt limits.

A few of these (the car, a helper, subsidised utilities and education) are taxable only for a "specified employee": a director, anyone holding 20% or more of the company's voting power, or an employee whose monetary salary tops ₹50,000 a year. That last figure is so low that almost every full-time employee is a specified employee, so in practice the label rarely saves anyone tax.†

How is rent-free or concessional housing valued?

By a percentage of your salary that steps down with city size, not by the flat's market rent. For accommodation the employer owns and lets you use rent-free, the taxable value for a non-government employee is set by the table below.

Two adjustments sit around it. If the employer leases the flat rather than owning it, the value is the lower of the actual rent it pays or 10% of your salary. If you pay some rent yourself, making it concessional rather than rent-free housing, that rent comes off and only the excess is taxed. "Salary" for this purpose means basic pay, dearness allowance that counts for retirement benefits, bonus, commission and taxable allowances, but not other perquisites or the employer's own fund contributions.

These percentages were cut from the older 15%, 10% and 7.5%, and the population bands widened, by a CBDT amendment to Rule 3 effective 1 September 2023, so an out-of-date guide will overstate the perquisite.†

How are company cars valued?

By engine size and who pays the running costs, on a fixed monthly scale, not by the car's price or your actual mileage. The scale assumes some private use is baked in:

Two ends of the scale sit outside the table. A car used purely for office work, with a logbook to prove it, is valued at nil. A car used purely for private travel is valued at the employer's full running cost plus the driver's wages plus 10% a year of the car's cost, so a wholly personal company car is the most expensive perquisite of the lot. An electric car with no engine capacity is generally read into the up-to-1.6-litre row.†

How are interest-free loans, gifts and meals valued?

Each has its own small rule and its own exempt slice, so most everyday perks fall out of tax entirely:

The loan benchmark is the State Bank of India rate for the relevant loan type as on the first day of the tax year, applied to the maximum outstanding on the last day of each month.

How are ESOPs and RSUs taxed?

In two stages, at two different points, under two different heads. Employee stock options are taxed once as a salary perquisite when you exercise them, and again as a capital gain when you sell the shares. Getting the two apart is what stops the same profit being taxed twice.

Stage one is exercise, the day you pay the option price and the shares become yours. The perquisite is the fair market value of the shares on that day minus what you paid, times the number of shares. It is added to your salary for the year and taxed at your slab rate, and your employer deducts TDS on it under Section 392 (the old Section 192). Note the trap: the tax falls at exercise even if you cannot sell yet and have taken no cash out, so a paper gain can create a real bill.

Stage two is sale. Your cost is now the fair market value that was already taxed at exercise, not the low price you originally paid, so only the appreciation after exercise is a capital gain. Listed shares held more than 12 months are long-term, taxed at 12.5% above the ₹1.25 lakh yearly equity exemption under Section 198; unlisted shares need more than 24 months to go long-term.

Employees of a DPIIT-recognised eligible start-up (one holding a Section 80-IAC certificate) can defer the perquisite tax and TDS at exercise to the earliest of the sale of the shares, leaving the company, or 48 months from the end of the relevant assessment year (extended to 60 months from 1 April 2026). The deferral moves the timing, not the amount.†

The ₹7.5 lakh cap on employer retirement contributions

Employer money going into your retirement funds used to be tax-free without limit. Since FY 2020-21 there is a ceiling, and Section 17 keeps it: if the employer's contributions to your recognised provident fund, your NPS account and an approved superannuation fund add up to more than ₹7,50,000 in a tax year, the excess is a taxable perquisite in that year.

There is a second layer that people miss. The interest, dividends and other returns that build up on the taxable excess inside the funds are themselves taxed as a perquisite every year, by a prescribed formula, until the money is withdrawn. So crossing the line once keeps generating a small taxable amount year after year. Only the employer's contribution counts towards the ₹7,50,000; your own contribution does not, and the employer NPS limb is often the one that tips high earners over the edge.

This applies in both regimes. The employer's NPS contribution is separately deductible from income under Section 124 (old 80CCD(2)) up to 14% of salary for a new-regime employee, so the same contribution can be both deductible and, above ₹7.5 lakh combined, a perquisite.†

Which perquisites are tax-free?

A specific set of benefits is either exempt or valued at nil, and knowing them is how a salary package is made tax-efficient. The main ones:

• Telephone and mobile bills paid or reimbursed by the employer, with no monetary ceiling.
• The use of a laptop, computer or other equipment owned by the employer and provided for your use.
• Medical treatment in the employer's own hospital, or a government or approved hospital, and premiums the employer pays on your health insurance under an approved scheme.
• Employer contributions to your recognised provident fund, NPS and superannuation, up to the ₹7,50,000 combined line covered above.
• Free meals during working hours up to ₹50 a meal, and tea or snacks with no limit.
• A car used wholly for official duties, and travel and per-diem paid for official tours.
• Interest-free loans that stay within ₹20,000 in total, and loans for treating specified illnesses.
• Gifts in kind up to ₹5,000 in the year.

The exemptions for treating a specified illness abroad and for overseas travel tied to it were re-cast by the Finance Act 2025, which moved their monetary ceilings into the Rules rather than fixing them in the Act; the detail is expected to settle when the new Rules are notified.†

Do perquisites change under the new tax regime?

Barely, and this is the point most people get wrong. Perquisites are part of salary, so they are taxed under both the old and the new regime at the slab rates that apply to you; there is no separate perquisite tax and no special rate. The valuation rules (rent-free housing at 5% to 10%, the car scale, the ESOP formula, the ₹7.5 lakh cap) apply identically whichever regime you are on.

What the new regime changes is the other side of the salary sheet: it removes most exemptions and deductions, so allowances such as HRA and leave travel that could shelter part of your pay on the old regime give nothing on the new one. But those are allowances, not perquisites. The nil valuations and exempt slices inside Section 17 itself (a purely official car, telephone reimbursement, the ₹50 meal, the ₹5,000 gift, employer contributions under ₹7.5 lakh) survive in both regimes because they are valuation rules, not the kind of deduction the new regime withdraws.

How to calculate the tax on your perquisites

The perquisite figure is not a separate tax; it feeds into your normal salary computation. Five steps:

• Value each perquisite by its own rule: housing at 5% to 10% of salary, the car by engine size, ESOPs at fair market value minus price paid, the loan at the benchmark-rate shortfall, and so on.
• Subtract anything you paid the employer for the benefit (rent you contributed, the option price on ESOPs, interest you actually paid on the loan).
• Drop out the exempt and nil-valued items entirely, so they never enter the total.
• Add the net perquisite value to your basic pay, allowances and any pension to get income under the head Salaries, then subtract the ₹75,000 (new regime) or ₹50,000 (old regime) standard deduction under Section 19.
• Add your other income, apply your regime's slab rates and the Section 156 rebate; the tax on the perquisite is simply the slab tax on that slice of salary.

Your employer already does this and shows the breakdown in Form 12BA (the perquisite statement) attached to Form 16, so check that ESOP and housing values there match your own before you file.

How should you plan around perquisites?

Run the salary-in-hand and income-tax calculators linked below with and without each benefit before you agree a package; the right structure can move take-home by more than a headline raise.

Perquisites are one of the few parts of a pay packet you can shape. Where the levers are:

• Time an ESOP exercise to the tax you can fund. The perquisite lands at exercise whether or not you can sell, so at a 30% slab a ₹15,00,000 exercise gain is a ₹4.68 lakh bill with cess in that year; if your employer is an eligible start-up, use the deferral rather than borrowing to pay it.
• Watch the ₹7.5 lakh line. A high earner whose employer already puts 12% of a large basic into EPF can tip over the cap the moment employer NPS is added, so model the total before opting into a higher NPS contribution; the excess is taxed now and its future growth is taxed yearly.
• Compare a company flat against HRA. Rent-free housing at 10% of a ₹20,00,000 salary is a ₹2,00,000 perquisite (₹62,400 of tax at 30% with cess), whereas taking the cash and claiming HRA on the old regime can exempt a large slice of rent; on the new regime HRA is worthless, which tilts the choice back towards the valued flat.
• Keep the small perks small and clean. A gift kept to ₹5,000, a loan kept under ₹20,000, meals within ₹50, and phone bills reimbursed rather than paid as an allowance all stay out of tax, so structure them that way rather than as taxable cash.

Worked examples

Section 17 FAQs