August 21, 2023: The Central Board of Direct Taxes (CBDT) on August 18 notified amendments to the Income Tax Rules for valuing perquisites of rent-free or concessional accommodation by employers to employees. The change will help employees drawing hefty salaries and using rent-free accommodation provided by employers to take a higher take-home salary . The rules come into effect from September 1.
“The Finance Act, 2023, brought in an amendment for the purposes of calculation of “perquisite” with regard to the value of rent-free or concessional accommodation provided to an employee by his employer. Accordingly, CBDT has modified Rule 3 of the Income-tax Rules, 1961 to provide for the same,” the finance ministry said in a press statement on August 19.
“The categorisation and the limits of cities and population have now been based on the 2011 census as against the 2001 census earlier. The revised limits of the population are 40 lakh in place of 25 lakh and 15 lakh in place of 10 lakh. The earlier perquisite rates of 15%, 10% and 7.5% of the salary have now been reduced to 10%, 7.5% and 5% of the salary, respectively in the amended Rule,” it explained.
What changes now?
According to the notification, in cases where an employer provides a company-owned unfurnished accommodation to an employee, its valuation would be 10% of the employee’s salary. This will be applicable for cities with a population of over 40 lakh as per the 2011 Census. Earlier, the valuation of such an accommodation was 15% of the employee’s salary, applicable for cities with a population of over 25 lakh as per 2001 Census. The valuation of a company owned unfurnished accommodation provided to an employee would be down to 7.5% of his salary in cities with a population between 15 lakh and 40 lakh as per 2011 Census. Similarly, the valuation an accommodation would be down to 5% of his salary in cities with a population of less than 15 lakh as per 2011 Census.
| Previous Categorisation and Rates | New Categorisation and Rates | ||
| Population | Perquisite Rate | Population | Perquisite Rate |
| More than 25 lakh | 15% | More than 40 lakh | 10% |
| Between 10 lakh and 25 lakh | 10% | Between 15 lakh and 40 lakh | 7.5% |
| Less than 10 lakh | 7.5% | Less than 15 lakh | 5% |
What are perquisites?
Defined in Section 17(2) of the Income tax Act, perquisites are fringe benefits offered by an employer to their employees. These are over and above the salary an employee receives. Perquisites are divided in two parts ─ monetary perquisites and non-monetary perquisites. While monetary perquisites are taxable for all employees, non-monetary perquisites are taxable for specified employees.
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