Tax Department Revises Rules For Evaluating Rent-Free Accommodation For Private Employees

Individuals using rent-free accommodation provided by their employers will now have the opportunity to increase their savings and take home a much bigger portion of their income. 

These amendments will be implemented from September 1 this year. 

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The Income Tax (I-T) department has made things easier for employees availing accommodations provided by employers. According to the latest changes, individuals using rent-free accommodation provided by their employers will now have the opportunity to increase their savings and take home a much bigger portion of their income. 

According to a PTI report, the Central Board of Direct Taxes (CBDT) has approved and notified the amendments in the income tax rules and these will be implemented from September 1 this year. 

On the basis of the notification, any unfurnished accommodation provided to employees, other than those employed by the central or state government, which is owned by the employer will be valued under two categories. These categories will value the accommodation at either 10 per cent of salary in cities with a population exceeding 40 lakh as per the 2011 census or 7.5 per cent of salary in cities with a population above 15 lakh but under 40 lakh on the basis of the 2011 census. 

Earlier, these categories valued employer-provided accommodation at 15 per cent in cities with 25 lakh population, on the basis of the 2001 census, or 10 per cent in cities with population between 10-25 lakhs as per the 2001 census. 

Commenting on the benefits of the amended policy for employees with substantial salaries, AKM Global Tax Partner Amit Maheshwari said, “Employees who are drawing substantial salaries and receiving accommodation from the employer will be able to save more since their taxable base is going to be reduced now with the revised rates. The perquisite value shall be lower resulting in relief to them in the form of take-home pay.” 

The report quoted AMRG & Associates CEO Gaurav Mohan and added, “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. This change will lead to disproportionate benefits for higher-income employees who receive expensive accommodations. Lower-income employees with more modest accommodations might not experience significant tax relief. “