• Notification Date: 21-08-2023
• Notification No: N/A

New Income Tax Rule for valuing Rent-free Accommodation Provided by Employers

The Income Tax Department (ITD) has announced that it will lower the tax for employees staying in company-provided rent-free homes. The Central Board of Direct Taxes (CBDT) has notified amendments to the Income Tax Rules which will come into effect from September 1. 

Under the new rules, the taxable value of rent-free accommodation will be reduced to 10 per cent of the annual salary of the employee. This means that employees will have to pay less tax on the rent-free accommodation provided by their employer and their take-home salary will only increase. 

The ITD has said that the new rules are being introduced to provide relief to employees who are staying in company-provided rent-free homes. The ITD has also said that the new rules will be beneficial for companies as they will save on the taxes that they have to pay on the rent-free accommodation provided to their employees. 

The new rules are applicable to all employees who are staying in company-provided rent-free homes, irrespective of their salary. However, there are certain exceptions to the new rules. For example, the new rules do not apply to employees who are staying in company-provided rent-free homes that are located in remote areas. 

As per the notification, where unfurnished accommodation is provided to employees other than the central or state government employees and such accommodation is owned by the employer then the valuation shall be: (i) 10 per cent of salary (reduced from 15 per cent) in cities having a population exceeding 40 lakh as per 2011 census (earlier, 25 lakh as per 2001 census), (ii) 7.5 per cent of salary (reduced from 10 per cent) in cities having a population exceeding 15 lakh but not exceeding 40 lakh as per 2011 census (earlier, 10 lakhs but not exceeding 25 lakhs as per 2001 census). 

According to AKM Global Tax Partner Amit Maheshwari, employees who earn high      incomes and have employer-provided housing will be able to save more because their taxable base will be decreased by the new rates. 

“The perquisite value shall be lower resulting in relief to them in the form of take-home pay.” AMRG & Associates CEO Gaurav Mohan said these provisions incorporate the insights from 2011 census data and aim to rationalise the perquisite value calculation. 

“Employees enjoying rent-free accommodation would see the rationalisation of perquisite value leading to a reduction in taxable salary, increasing the net take-home pay. It is worth noting that the reduction in the perquisite value of rent-free accommodations will yield dual implications: on the one hand, it will generate tangible savings for employees, while on the other hand, it will result in a corresponding decrease in government revenue,” PTI quoted Mohan as saying.