Income Tax

Perquisites Taxation: Rent-Free Accommodation, Company Car & Other Employee Benefits

Reviewed by CA Nikhil Gupta · Last reviewed 14 June 2026

CA Nikhil Gupta·June 2026·8 min readSALARY TAXATION

If your employer provides you with a house, a car, a driver, or pays for your club membership, these 'perquisites' have a taxable value — even though you never receive cash for them. The valuation rules under Rule 3 of the Income Tax Rules can significantly affect your taxable salary, especially for senior employees with accommodation and car benefits. Here's how the most common perquisites are valued.

What Is a Perquisite?

A perquisite is any benefit or amenity provided by an employer to an employee, in addition to salary, which has a monetary value. Section 17(2) of the Income Tax Act defines perquisites broadly, and Rule 3 of the Income Tax Rules prescribes how to compute the taxable value of common perquisites.

Rent-Free Accommodation (RFA)

If your employer provides accommodation without charging rent (or at a concessional rent), the taxable perquisite value depends on whether the employer is the government or a private entity, and the population of the city:

Provider	City Population	Perquisite Value
Government employer	Any	License fee as determined by the government
Private employer (unfurnished)	Above 40 lakh	10% of salary
Private employer (unfurnished)	15-40 lakh	7.5% of salary
Private employer (unfurnished)	Below 15 lakh	5% of salary

For furnished accommodation, an additional value is added for furniture: 10% per annum of the cost of furniture (or actual hire charges, if hired by the employer).

⚠ 'Salary' for this purpose has a specific definition: It generally includes basic pay, dearness allowance (if it forms part of retirement benefits), bonus, commission, and all taxable allowances/perquisites — but excludes the value of the accommodation perquisite itself and certain other items. Getting this base figure right matters because the percentages above are applied to it.

Company-Provided Car

The valuation depends on whether the car is used only for official purposes, only for personal purposes, or both (mixed use), and who bears the running/maintenance costs:

Scenario	Monthly Perquisite Value (engine ≤1.6L)	Monthly Perquisite Value (engine >1.6L)
Car + driver, used for both official & personal, employer pays all costs	₹1,800 + ₹900 (driver) = ₹2,700	₹2,400 + ₹900 (driver) = ₹3,300
Car owned by employee, employer reimburses running costs for mixed use	Actual reimbursement minus ₹1,800 (+₹900 if driver)	Actual reimbursement minus ₹2,400 (+₹900 if driver)
Used wholly for official purposes (with proper documentation)	Nil (subject to maintaining logs/records)	Nil

Other Common Perquisites

Concessional/interest-free loans from employer: taxable to the extent the interest charged is below SBI's benchmark lending rate
Club memberships, gym memberships paid by employer: generally taxable, with some exceptions for facilities used wholly for business purposes
Free/concessional education for employee's children at employer-run institutions: valued based on cost in similar institutions, with a small exemption threshold
ESOPs (a special category, taxed at exercise as a perquisite based on fair market value minus exercise price — covered separately)
Employer's contribution to NPS/superannuation/EPF beyond specified limits

Old Regime vs New Regime

Perquisite valuations themselves (the rules for computing the taxable value of RFA, car, etc.) generally apply under both regimes — what differs between regimes is mainly the availability of exemptions and deductions elsewhere in the computation (like HRA, 80C, etc.), not the perquisite valuation rules themselves. This means perquisites can form a meaningful part of taxable salary regardless of which regime you choose.

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Why This Matters for Salary Negotiations

When comparing a 'higher CTC with more perks' offer against a 'lower CTC, mostly cash' offer, remember that taxable perquisites add to your tax liability without giving you the flexibility of cash. A ₹3,300/month car perquisite, for instance, increases your annual taxable income by ₹39,600 — at a 30% slab, that's roughly ₹12,350 of extra tax (including cess) for a benefit you may or may not fully utilize personally.

2026 Accuracy & Decision Check

Perquisites: value each benefit under its own Rule 3 method

Rent-free/concessional accommodation, employer cars, concessional loans, free meals and other benefits do not share one valuation formula. Taxable value is determined under the applicable perquisite rule and facts such as employer ownership/lease, city/population category, official/private use, reimbursement and employee contribution.

Decision / evidence controls

Create a perquisite inventory from payroll and HR benefits, not only Form 16.
Obtain car logbook/official-use certification where relied upon.
Offset employee recovery only where the rule permits.
Date-gate valuation rules under the law applicable to the salary year.

Worked example: Example: an employer-leased house and an employer-owned house can have different valuation mechanics even if market rent is identical.

Edge case: Edge case: a benefit used wholly for official duties may have a different value if documentary conditions are satisfied; labels in CTC are not decisive.

Primary-source checks

www.incometax.gov.in

Frequently Asked Questions

If my employer provides accommodation but I use it only partly (e.g., I'm away on deputation most of the year), is the perquisite value reduced? ▼

Generally no — the rent-free accommodation perquisite is valued based on the percentage-of-salary formula (or license fee for government employees) regardless of the extent of actual personal occupation, as long as the accommodation is provided and available to you. The valuation rules under Rule 3 don't typically provide for proportionate reduction based on occupancy days, though there can be adjustments if the accommodation is provided for only part of the year (e.g., you joined or left mid-year) — in which case the perquisite is computed for the period it was actually provided.

Is the company car perquisite value different if I use the car only for official purposes? ▼

Yes. If a company-provided car (with or without driver) is used wholly and exclusively for official purposes, the perquisite value can be NIL — but this requires maintaining proper documentation, such as a logbook recording official journeys, dates, destinations, and mileage, and a certificate from the employer confirming official use. Without such documentation, tax authorities may treat the car as available for personal use as well, and apply the standard flat-rate perquisite values for mixed-use cars.

Do perquisite valuation rules differ between the old and new tax regimes? ▼

The core valuation methodology for perquisites like rent-free accommodation, company cars, and other benefits under Rule 3 generally applies under both the old and new tax regimes — these are about determining the taxable VALUE of a benefit, not about deductions/exemptions that vary by regime. What changes between regimes is mainly which deductions and exemptions (like HRA, 80C, standard deduction treatment in earlier years, etc.) can be claimed against your total income, which includes the value of any taxable perquisites either way.

Source and review trail

Use the current official instrument, portal or regulator publication before acting. This panel separates the category authority from page-specific references.

Primary category: Income Tax
Official starting point: www.incometax.gov.in

Page source links

The prior page did not embed a page-specific external source. The category authority above is the minimum verification starting point; a specific instrument should be added when available.

Primary sources & related provisions

Statutory provisions referenced in this guide: