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Rent Free House [Section 17(2)(i) Rule 3(1)] for Computing Salary Income

 

as amended by notification No. 94/2009 dated 18-12-2009]

Before calculating the value of rent free house, following information is collected

  1. Nature of employment : Govt., Semi Govt. or any other.

  2. Place where rent free house is provided :

All cities, towns have been divided into 3 categories depending upon their population as per census of 2001 as under—

  1. All cities, towns having population exceeding 25 lakhs.

  2. All cities and towns having population exceeding 10 lakhs but not exceeding 25 laths.

  3. All other cities, towns having population of 10 lakhs or less than 10 laths.

  4. Meaning of accommodation. It shall include a house, farm-house, flat, hotel accommodation, guest house, a caravan, mobile home, ship etc.

Exempted accommodation : For an employee who is working

  1. in remote area [an acre located at least 40 kms. away from city limits of a town whose population is up to 20,000 as per latest census] at mining site ; or at project execution site; or

  2. in offshore area [ there is no limit as regard to distance ] such accommodation shall be exempted.

  3. Value of rent free accommodation is not taxable, if rent free house has been provided to Supreme Court and High Court Judges, Union Minister, Leader of Opposition and Official of Parliament.

More than one accommodation : In case a person is allowed to retain more than one accommodation, for first three months value of one such house having lower value shall be taxable. If such accommodation is retained for more than three months thereafter value of both such houses shall be taxable.

Hotel accommodation : An employee may be provided hotel accommodation (including motels, guest houses, etc.) on his transfer. It is treated in following manner :

(a)        If hotel accommodation is provided for a total period not exceeding in aggregate 1 days in a previous year, it shall be fully exempted.

(b)       If hotel accommodation is provided for a period exceeding 15 days the perk shall be taxable in following manner

(i) Calculated salary for rent free house as given below

            (ii) Compute salary for number of days he stayed in the hotel

            (iii) Calculate 24% of this salary

            (iv) Compare it with actual bill paid by employer to the hotel for such accommodation;

            Whichever is less is taxable.

Note. In case hotel accommodation is provided for more than 15 days then this perquisite is not taxable for first 15 days and it will be taxable for remaining days.

4. Nature of accommodation. Owned by Employer/Hired or leased by employer.

5. Meaning of Salary :

For the calculation of value of rent free accommodation, the word ‘salary’ includes

  1. Basic salary, pay or wages.

  2. Dearness Pay, Dearness Allowance if term of employment so provide or it enters into salary for calculation of value of service or retirement benefits.

  3. Commission.

  4. Bonus.

  5. Fees.

  6. Value of all taxable allowances.

  7. Any other monetary payment, which is chargeable to tax (by whatever name called).

  8. Leave encashment of salary only if it pertains to the leave earned during the previous year in which rent free house is provided to the employee.

‘Salary’ Does Not Include the following

  1. Dearness allowance if not paid as per terms of employment or if it does not enter into salary for computation of all retirement.

  2. Any other allowance which is a exempt one.

  3. Employer’s contribution in employee’s provident fund.

  4. Value of other perquisites falling u/s 17(2).

  5. Leave encashment of salary if it relates to the leave earned in earlier previous years.

  6. Income tax of employee if paid by employer.

For the calculation of value of rent free accommodation, all components of salary which are included in the term ‘salary’ are to be taken on accrual basis. For example advance salary and arrears of salary is not included as it does not relates to that previous year but any salary which has accrued but is not received in that year will be included.

If employee is simultaneously working with more than one employer

Salary (as defined earlier) received from all such employers shall be taken into account while calculating salary for the calculation of value of rent free accommodation.

Salary from all employers should be in respect of the period for which accommodation has been provided.

 
More.. Topics ... @ ' SALARY'
Salary-Definition & Meaning

Computation of Salary Income

Definition of Word ‘Salary’ [ Section 17(1)]

Section-15 : List of Incomes Chargeable to Income Tax under the head ‘ SALARIES’

Important Points / Characteristics for Computing Salary Income

Provident Fund

Treatment of Provident Funds (PF) for Computing Salary Income

Taxable Portion of annual accretion to RPF [Section 17(1)(vii)]. for Computing Salary Income

Transferred Balance from URPF to RPF [Section 17(1)(vii] for Computing Salary Income

Refund from Provident Fund [Section 17(3)(ii)] for Computing Salary Income

New Pension Scheme [ NPS] for Central Government and other Employees joining new jobs on or after 1-1-2004 for Computing Salary Income

 
Allowance [ Section 17(3)]

Allowance [ Section 17(3)] – for Computing ‘Salary’ Income

Fully Exempted Allowances for Computing ‘Salary’ Income

Fully Taxable Allowances for Computing ‘Salary’ Income

House Rent Allowance (HRA) for Computing ‘Salary’ Income

Allowances covered u/s 10 (14) for Computing ‘Salary’ Income

Meaning Of Salary For Different Purposes
PERQUISITES [Section 17(2)]

Meaning and Types of Perquisites [ Section 17(2)]

Taxability of Perquisites for Computing Salary Income

Perks Exempted From Tax for all Employees and not added in Salary Income

Rent Free House [Section 17(2)(i) Rule 3(1)]

Rules Regarding Calculation Of Value Of Rent Free House

Valuation Of Rent Free Accomodation (Unfurnished & Furnished)

Valuation of Rent Free Accommodation Provided as Concessional Rent [Sec. 17(2)ii)]

Obligation of Employee of Rent Free House met by Employer [Section 17(2)(iv)]

Sum payable by the Employer directly or through a fund to effect an assurance / an annuity [Section 17(2)(v)]

Any specified security or sweat equity shares allotted or transferred to employee [Section 17(2)(vi)] [ w.e.f. 1-4-2009]

Contribution to an Approved Superannuation Fund by the Employer [Sec. 17(2)(vii)]

Interest free or Concessional loan from employer [Rule 3(7)(i)]

Valuation of Perk in respect of Travelling, Touring, Accommodation

Food or Beverages Facility by Employer to Employee

Valuation of Perquisite in respect of Gift Voucher or Token

Valuation of Perquisite in respect of Credit Card

Valuation of Perquisite in respect of Club Facility

Use of Moveable Assets by Employer to Employee

Transfer Of Moveable Assets to the employee

Meaning of Specified Employee for Taxable Perquisites [Section 17(2)(iii) Rule 3]

Valuation of Perquisite of Motor Car or any Other Automotive Conveyance [Rule 3(2)]

Perquisite of Free domestic servants [Rule 3(3)]

Perquisite in respect of free supply of gas, electric energy, water supply [Rule 3(4)]

Free Educational Facilities to Children of Employee’s Household [Rule 3(5)]

Facility of Free or Concessional Private Journey to an employee by the employer engaged in the carriage of passengers or goods [Rule 3(6)]
PROFITS IN LIEU OF SALARY [17(3)]

Receipts treated as Profit in Lieu of Salary [ Section 17(3)]

Leave Travel Concessional (LTC) Assistance [Section 10(5)]

Death-Cum-Retirement Gratuity [Section 10(10)]

Non-Government employees receiving gratuity under payment of Gratuity Act, 1972 [POGA]

Non-Government Employees receiving gratuity (Not covered under payment of Gratuity Act)

PENSION [Monthly and Commuted] for Computing Salary Income

Leave Encashment [Section 10(10AA)] for Computing Salary Income

Any amount received as compensation on termination of employment [Section-10B]

Any amount received on voluntary retirement [Section 10(10C)]

Payment received from Recognised Provident Fund [Section 10(12)]

Any payment from Superannuation Fund [Section 10(13)]

 
DEDUCTIONS OUT OF GROSS SALARY [ Section-16]

Entertainment Allowance to Government Employees [Section-16(ii)]

Tax on Employment Under Section - 16(iii)

 
DEDUCTIONS U/S 80C OUT OF GROSS TOTAL INCOME

Section - 80C : Deductions from Gross Total Income (GTI) in case of Individual and HUF

Qualifying Amount ( Q.A.) for Deduction U/s 80C

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