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Valuation of Perquisites on Rent Free Accommodation or Accommodation provided at Concessional Rate under Income Tax Act - for computing Salary Income

Accommodation provided to the employee may be— 

 

(i) unfurnished 

(ii) furnished 

 

Further, such accommodation may be provided: 

 

(a) rent free; or 

(b) at concessional rate. 

 

As per amended rule 3(1), the valuation of accommodation should be done as under: 

 

1.   Accommodation provided by the Government to its employees 

 

Where the accommodation is provided by Central or State Government to their employees either  holding office or post in connection with the affairs of Union or such State, the value shall be  determined as under: 

 

(i)    Where the Accommodation is Unfurnished: 

 

(a)    If the Accommodation is provided Rent Free:

 

The value shall be the license fee determined  by Union or State Government in respect of accommodation in accordance with the rules  framed by that government for allotment of houses to its officers.

 

(b)    Where the Accommodation is provided at Concessional Rate:

 

We shall first assume as if it  is provided rent free and the valuation shall be the license fee. For valuation of  concession, such license fee shall be reduced by the rent actually paid by the employee. 

 

(ii) Where the Accommodation is Furnished:

 

The value of perquisite shall be determined as if it  is an unfurnished accommodation which may be provided rent free or at concessional rate  (i.e. value determined as per clause (i) above). Such value shall be increased by 10% p.a. of  the cost of furniture (including television sets, radio sets, refrigerators, other household  appliances, air conditioning plant or equipment) or if such furniture is hired from a third  party, the actual hire charges paid or payable for the same.

 

The valuation of furniture shall be  reduced by any charges paid or payable for such furniture by the employee during the  previous year. 

 

Note :

 

1.            Rent free official residence provided to a judge of a High Court or to a judge of the Supreme Court is  exempt from tax. 

 

2.            Similarly rent free accommodation given to an official of Parliament, a Union Minister and a Leader of  Opposition in Parliament is exempt from tax. 

 

 

 

2.   Where the Accommodation is provided by any other employer.

 

Accommodation provided as rent free or at concessional rate may be owned by the employer or  taken on lease or rent by the employer. 

 

(i)    Where the Accommodation is Unfurnished: 

 

Nature of  Accommodation 

Accommodation  provided in a city having  population exceeding 25  lakhs as per 2001 census

Accommodation  provided in a city  having population  exceeding 10 lakhs  but not exceeding 25  lakhs as per 2001  census

Accommodation  provided in any other  city having  population not  exceeding  10 lakhs

(a) Where the  accommodation is  owned by the employer

15% of salary in respect of  the period during which  the said accommodation  was occupied by the  employee during the  previous year

10% of salary in  respect of the period  during which the said  accommodation was  occupied by the  employee during the  previous year

7.5% of salary in  respect of the period  during which the said  accommodation was  occupied by the  employee during the  previous year

(b) Where the  accommodation is  taken on lease or rent  by the employer

Actual amount of lease or  rent paid or payable by the  employer,

or

15% of  salary 

whichever is lower

Actual amount of lease  or rent paid or payable  by the employer,

or 

15% of salary 

whichever is lower

Actual amount of lease  or rent paid or payable  by the employer,

or 

15% of salary 

whichever is lower

 

Note :

 

1.            In case the house is provided at concessional rate, first it will assumed as if the house has been  provided rent free and the value determined as per (a) or (b) above shall be reduced by the rent,  if any, actually paid by the employee. 

 

2.            Where the accommodation is provided by the Central Government or any State Government to  an employee who is serving on deputation with any body or undertaking under the control of  such Government,— 

(i)            the employer of such an employee shall be deemed to be that body or undertaking where the  employee is serving on deputation; and 

(ii)           the value of perquisite of such an accommodation shall be the amount calculated as if the  accommodation is owned by the employer.

 

 

(ii)   Where the Accommodation is Furnished:

 

The value of perquisite shall be determined as if it is  an unfurnished accommodation (i.e. value determined as per chart given above.

Such value shall be  increased by 10% p.a. of the cost of furniture (including television sets, radio sets, refrigerators, other  household appliances, air conditioning plant or equipment or other similar appliances or gadgets) or if  such furniture is hired from a third party, the actual hire charges payable for the same. Such valuation  of furniture shall be as reduced by any charges paid or payable for such furniture by the employee  during the previous year. 

 

In case the furnished house is provided at concessional rent, it will be first assumed as if it has  been provided as rent free furnished accommodation and shall be valued as above. Thereafter, any  amount recovered from the employee as rent shall be deducted from such valuation. 

 

3.   Where the Accommodation is provided by the Employer (Government or other employer) in  a Hotel. 

 

The value of the accommodation shall be— 

 

(i)            24% of salary paid or payable for the previous year, or; 

 

(ii)           the actual charges paid or payable to such hotel; 

 

whichever is lower, for the period during which such accommodation is provided 

 

However, if the employee pays any rent, the value so determined shall be reduced by the rent,  actually paid or payable by the employee

 

Thus in the above case we shall first take 24% of the salary of the whole year and then such value  so determined shall be reduced proportionately for the period during which such accommodation is  provided. 

 

No Perquisite value even if Accommodation provided in a Hotel.—

 

There will be no perquisite  value if the accommodation is provided in a hotel if the following two conditions are fulfilled. 

 

(a)           Such accommodation is provided for a period not exceeding 15 days; and 

 

(b)          It has been provided on the transfer of the employee from one place to another. 

 

Note :

 

1. Meaning of Salary for Rent Free Accommodation : 

 

'Salary' includes the pay, allowances, bonus or commission payable monthly or otherwise or any monetary  payment, by whatever name called from one or more employers, as the case may be, but does not include the  following, namely: 

(a)          dearness allowance or dearness pay unless it enters into the computation of superannuation or  retirement benefits of the employee concerned; 

 

(b)          employer's contribution to the provident fund account of the employee; 

 

(c)           allowances which are exempted from payment of tax; 

 

(d)          the value of perquisites specified in section 17(2) of the Income-tax Act; 

 

(e)           any payment or expenditure specifically excluded under proviso to sub-clause (iii) of clause (2)  (relating to Employees Stock Option Plan or Scheme) or proviso to clause (2) of section 17 (relating to  medical facility or reimbursement of medical expenses); 

 

(f)           any lump sum payment like gratuity, leave encashment, commuted pension, etc. received at time of  termination of service or at the time of voluntary retirement or superannuation. 

 

Thus, dearness allowance/dearness pay shall be included in the meaning of salary for rent free  accommodation to the extent it is part of retirement benefits. It will also include all other allowances to the  extent these are taxable (i.e. excluding amount not taxable). 

 

2.            "Accommodation" includes a house, flat, farm house or part thereof, or accommodation in a hotel, motel,  service apartment, guest house, caravan, mobile home, ship or other floating structure; 

 

3.            "Hotel" includes licensed accommodation in the nature of motel, service apartment or guest house; 

 

4.            Salary is to be computed on 'due' basis for the period for which the rent free accommodation has been  provided to the employee e.g. if the rent-free accommodation is provided for the period 1.1.2020 to  31.3.2020 then only the salary due for the months of January, February and March shall only be taken.  Advance salary or arrear of salary shall not be included for this purpose;

 

5.            If the employee receives salary from more than one employer, the aggregate of the salary received from  both the employers, for the period for which the accommodation is provided, has to be taken into account  for valuation of rent-free accommodation even though the accommodation has been provided only by one  employer. 

 

 

4.   Exception to the above Rules

 

The above rules shall not apply in certain cases 

 

(A)   Accommodation provided at certain site or in a remote area [Proviso 1 to rule 3(1)]:

 

The  accommodation provided by the employer shall be a tax free perquisite if the accommodation is  provided to an employee working at mining site or an onshore oil exploration site or a project  execution site, or a dam site or a power generation site or an offshore site which— 

 

(a)           being of a temporary nature and having plinth area not exceeding 800 square feet, is located  not less than eight kilometres away from the local limits of any municipality or a cantonment  board; or 

 

(b)          is located in a remote area. 

 

"Remote area", means an area that is located at least 40 kilometers away from a town having a population not  exceeding 20,000 based on latest published all India census. 

 

(B) Accommodation provided at new place of posting on transfer while retaining the  accommodation at the other place [Proviso 2 to rule 3(1)]:

 

Where on account of his transfer from  one place to another, the employee is provided with accommodation at the new place of posting while  retaining the accommodation at the other place, the value of perquisite shall be determined with  reference to only one such accommodation which has the lower value (as determined according to the  above provisions) for a period not exceeding 90 days and thereafter the value of perquisite shall be  charged for both such accommodations.

 

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