Perquisites are benefits distinct from wages and salaries that one receives due to employment. Section 17 of the Income Tax Act deals with perquisites. Perquisites are divided into three groups:

Exempted or Tax-free perquisites:

• Medical Perquisites:Compensation towards medical expenses up to ₹15,000 in a hospital is tax-free for the employee or employee's family.
• Refreshment or subsidised dinner or lunch:The value of refreshments offered by the employer in offices is exempted from tax. Free meal coupons (maximum ₹50 per day) are not considered as income for the employee.
• Child Education Allowance:Upto ₹100 per child per month (max. 2 children)
• Transportation:A travel allowance of up to ₹800 per month is tax-free. The amount is ₹1,600 in the case of disabled individuals.
• Other tax-free Perquisites:Use of health club and sports facilities, computers & laptops for official use, gifts not exceeding ₹5,000 per annum, subscriptions to periodicals/journals for official use and more.

Taxable Perquisites:

• Rent-free accommodation:The tax, in this case, depends upon the population of the city and type of accommodation. If the employer owns the accommodation, then there are 3 scenarios.There is a 15% tax if the population is more than 25 lakhs.There is a 10% tax if the population is between 10- 25 lakhsThere is a 7% tax if the population is less than 10 lakhs.
• The vehicle is given by the employer:Tax, in this case, depends upon the capacity of the engine. The income tax payable on small cars with an engine of fewer than 1.6 litres is ₹1800/month. The income tax payable on big cars with an engine of more than 1.6 litres is ₹2400/month.
• Stock options:Stocks are a popular way to reward employees. When an employee exercises their option to buy the shares, the following formula applies: Market Value of the Share - Exercise Value of the Share. The difference in value is the income of the employee and is taxed according to the relevant tax bracket. When the employee sells these shares, the difference between the market value at purchase and the sale price of the share results in capital gains and is liable to either short term capital gains tax or long term capital gains tax.

Perquisites taxable in exceptional cases:Some perquisites are taxable only if the employee is the director and has a significant interest in a company or an employee whose salary income before the perquisite exceeds ₹50,000. Some of them are: 1. The no-cost boarding facility given by an employer. 2. Free transport for personal use. 3. Free of cost education for the children of an employee. 4. Free holiday tours by the employer, etc. The Finance Act 2005 mandates that perquisites be taxed at the rate of 30% of the value of benefits. This tax is adjusted by the employer who gives these benefits to employees.