Perquisite Valuation: Rules, Common Perks and a Worked Calculation

Perquisite valuation decides how much tax an employee pays on the benefits you give in kind. A company flat, a car with a driver, an interest-free loan or shares at a discount all carry a taxable value, and the employer has to work it out, add it to salary and deduct TDS on it.

Most errors are not about the rule. They come from a perk that started mid-year, a rent recovery nobody told payroll about, or a loan whose balance changed while the monthly value stayed frozen.

This guide explains the valuation rules in plain terms, works through an illustrative housing example, and shows how Apragya's payroll records each perquisite on the employee and carries it into TDS.

Perquisite valuation rules in brief

A perquisite is a benefit an employer gives in kind, or pays for, that the tax law treats as part of salary. The Income-tax Act, 2025 applies from 1 April 2026 and carries the same idea forward, with valuation rules in the Income-tax Rules. Section and rule numbers changed, so check the current rules for exact amounts before relying on any figure.

Housing given by a private employer is valued as a percentage of salary that depends on the city's population. Under the rules as amended in 2023 this was 10 percent for cities above 40 lakh, 7.5 percent for 15 to 40 lakh and 5 percent elsewhere. For a leased flat, the lower of that figure and the actual rent is used, and anything the employee pays is subtracted.

A company car used for both work and personal travel is valued at a fixed monthly amount by engine size, with an extra amount when a driver is provided. An interest-free or cheap loan is valued at the gap between a benchmark lending rate and the rate charged. Shares allotted under an ESOP are valued at fair market value on exercise, less the price paid.

Some perks are exempt or valued at nil within limits, such as meals during work hours and small gifts. The employer adds the taxable value to salary, deducts TDS on it and reports it in the year-end perquisite statement.

1. Identify each benefit and the employee who receives it.
2. Pick the valuation method the rules prescribe for that benefit.
3. Compute the annual value from the facts, such as city, rent or loan balance.
4. Subtract anything the employee pays for the benefit.
5. Add the result to salary for TDS and report it at year-end.

What a wrong perquisite value costs

An example: a Mumbai manager in a company flat

Take an illustrative engineering firm that houses its plant manager in a flat it leases in Mumbai. His salary for this purpose is INR 18 lakh for the year. The firm pays the landlord INR 2.4 lakh a year and recovers INR 5,000 a month from his salary.

Spread across twelve months, INR 10,000 a month was added to his taxable salary, and TDS rose by the tax on that amount at his marginal rate. When he moved to a larger flat in October, payroll changed the lease rent on the record and the monthly value was recalculated from that month.

How Apragya handles perquisite tax calculation

Valuing perquisites in payroll, not in a side sheet

A side sheet can hold this year's formula. It cannot see that a loan was part-repaid, that the flat changed in October, or that the employee moved regime. Keeping the perk on the employee record, next to salary and TDS, is what keeps the annual numbers consistent.

What sets Apragya apart for perquisites and taxable benefits

Company loans are handled in employee loans, perks that are exempt within limits sit in benefits, and the tax on it all is explained in TDS on salary.

Getting started with perquisite valuation

1. List every benefit in kind you give, by employee.
2. Match each one to its valuation method and gather the inputs.
3. Record any amount the employee pays back for the perk.
4. Assign the perks in payroll and check the first month's TDS.
5. Review the inputs whenever a lease, loan or car changes.

The first list is usually longer than expected. Club memberships and gift vouchers are the usual finds.