Income Tax and Valuation of Rent Free House (Accommodation) provided by employer to employee under Section 17(2)(i) (ii) & Rule 3(1) of Income Tax Act, 1961

Income Tax and Valuation of Rent Free House (Accommodation) provided by employer to employee under Section 17(2)(i) (ii) & Rule 3(1) of Income Tax Act, 1961

For purpose of valuation of the perquisite of unfurnished accommodation, all employees are divided into two categories:

(i) Central Government & State Government employees; and

(ii) Others.

For employees of the Central and State Governments the value of perquisite shall be equal to the licence fee charged for such accommodation as reduced by the rent actually paid by the employee.

For all others, i.e., other than government employees, the valuation of perquisite in respect of accommodation would be at prescribed rates, as discussed below: (a) where the accommodation provided to the employee is owned by the employer, the rate is 15 per cent of salary in cities having population exceeding 25 lakhs as per the 2001 census. The rate is 10 per cent of salary in cities having population exceeding 10 lakhs but not exceeding 25 lakhs as per 2001 Census. For other places, the perquisite value would be 7 per cent of the salary.

(b) Where the accommodation so provided is taken on lease/rent by the employer, the prescribed rate is 15 per cent of the salary or the actual amount of lease rental payable by the employer, whichever is lower, as reduced by anyamount of rent paid by the employee.

For furnished accommodation, the value of perquisite as determined by the above method shall be increased by

(i) 10 per cent of the cost of furniture, appliances and equipments, or

(ii) Where the furniture, appliances and equipments have been taken on hire, by the amount of actual hire charges payable – as reduced by any charges paid by the employee himself.

If an accommodation is provided by an employer in a hotel the value of the benefit in such a case shall be 24 per cent of the annual salary or the actual charges paid or payable to such hotel, whichever is lower, for the period duringwhich such accommodation is provided as reduced by any rent actually paid or payable by the employee. If accommodation in hotel provided to the employees does not exceed in aggregate fifteen days then no perquisites shall becharged.

Reference: – As Per Section 17(2) (i) (ii) & Rule 3(1) Of the Income Tax Act 1961

17. For the purposes of sections 15 and 16 and of this section,—

(2) “perquisite” includes—

(i) the value of rent-free accommodation provided to the assessee by his employer;

(ii) the value of any concession in the matter of rentrespecting any accommodation provided to the assessee by his employer;

[Explanation 1.—For the purposes of this sub-clause, concession in the matter of rent shall be deemed to have been provided if,—

(a) in a case where an unfurnished accommodation is provided by any employer other than the Central Government or any State Government and—

1. the accommodation is owned by the employer, the value of the accommodation determined at the specified rate in respect of the period during which the said accommodation was occupied by the assessee during the previous year, exceeds the rent recoverable from, or payable by, the assessee;
2. the accommodation is taken on lease or rent by the employer, the value of the accommodation being the actual amount of lease rental paid or payable by the employer or fifteen per cent of salary, whichever is lower, in respect of the period during which the said accommodation was occupied by the assessee during the previous year, exceeds the rent recoverable from, or payable by, the assessee;

(b) in a case where a furnished accommodation is provided by the Central Government or any State Government, the licence fee determined by the Central Government or any State Government in respect of the accommodation in accordance with the rules framed by such Government as increased by the value of furniture and fixtures in respect of the period during which the said accommodation was occupied by the assessee during the previous year, exceeds the aggregate of the rent recoverable from, or payable by, the assessee and any charges paid or payable for the furniture and fixtures by the assessee;

(c) in a case where a furnished accommodation is provided by an employer other than the Central Government or any State Government and—

1. the accommodation is owned by the employer, the value of the accommodation determined under sub-clause (i) of clause (a) as increased by the value of the furniture and fixtures in respect of the period during which the said accommodation was occupied by the assessee during the previous year, exceeds the rent recoverable from, or payable by, the assessee;
2. the accommodation is taken on lease or rent by the employer, the value of the accommodation determined under sub-clause (ii) of clause (a) as increased by the value of the furniture and fixtures in respect of the period during which the said accommodation was occupied by the assessee during the previous year, exceeds the rent recoverable from, or payable by, the assessee;

(d) in a case where the accommodation is provided by the employer in a hotel (except where the assessee is provided such accommodation for a period not exceeding in aggregate fifteen days on his transfer from one place to another), the value of the accommodation determined at the rate of twenty-four per cent of salary paid or payable for the previous year or the actual charges paid or payable to such hotel, whichever is lower, for the period during which such accommodation is provided, exceeds the rent recoverable from, or payable by, the assessee.

Explanation 2.—For the purposes of this sub-clause, value of furniture and fixture shall be ten per cent per annum 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 as reduced by any charges paid or payable for the same by the assessee during the previous year.

Explanation 3.—For the purposes of this sub-clause, “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 the payment of tax;

(d) value of the perquisites specified in this clause;

(e) any payment or expenditure specifically excluded under the proviso to this clause.]

Explanation 4.—For the purposes of this sub-clause, “specified rate” shall be—

(i) fifteen per cent of salary in cities having population exceeding twenty-five lakhs as per 2001 census;

(ii) ten per cent of salary in cities having population exceeding ten lakhs but not exceeding twenty-five lakhs as per 2001 census; and

(iii) seven and one-half per cent of salary in any other place;

Valuation of perquisite.

3. For the purpose of computing the income chargeable under the head “Salaries”, the value of perquisites provided by the employer directly or indirectly to the assessee (hereinafter referred to as employee) or to any member of his household by reason of his employment shall be determined in accordance with the following sub-rules, namely:—

(1) The value of residential accommodation provided by the employer during the previous year shall be determined on the basis provided in the Table below :

TABLE I

Provided that nothing contained in this sub-rule shall apply to any accommodation provided to an employee working at a mining site or an on-shore oil exploration site or a project execution site, or a dam site or a power generation site or an off-shore site—

(i)  which, 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

(ii)  which is located in a remote area:

Provided further that 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 with reference to the Table above for a period not exceeding 90 days and thereafter the value of perquisite shall be charged for both such accommodations in accordance with the Table.

Explanation.—For the purposes of this sub-rule, 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 in accordance with Sl. No. (2)(a) of Table I, as if the accommodation is owned by the employer.