New Income Tax notification: Salaried employees living in rent-free accommodation to save more now

• August 20, 2023
• CA Chandan Agarwal's Office

The Income Tax Department has notified rules for valuing rent-free accommodation provided by employers. Check details

The Income Tax Department has notified rules for valuing rent-free accommodation provided by employers. The notification will help employees who are drawing substantial salaries and living in rent-free accommodation provided by their employers to save more.

As the tax department has revised norms for valuing such houses, such salaried ITR filers will be able to get a higher take-home salary, according to experts.

The new amendments to the Income Tax rules notified by the Central Board of Direct Taxes (CBDT) will come into effect from September 1.

How the rent-free accommodation will be valued

According to the notification, the valuation of the unfurnished accommodation owned by the employer but provided to salaried employees other than the central or state government employees will be as follows:

• 10 per cent of salary (reduced from 15 per cent) in cities having a population exceeding 40 lakh as per census 2011 (earlier, it was 25 lakh as per 2001 census)
• 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, it was 10 lakh but not exceeding 25 lakh as per 2001 census).

In a report, News agency PTI quoted AKM Global Tax Partner Amit Maheshwari as saying that 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.”

According to AMRG & Associates CEO Gaurav Mohan, quoted in the report, these provisions incorporate the insights from 2011 census data and aim to rationalise the perquisite value calculation.

“Employees enjoying rent-free accommodation would see a 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,” Mohan was quoted as saying.

Mohan further said this change will lead to disproportionate benefits for higher-income employees who receive expensive accommodations. However, lower-income employees with more modest accommodations might not experience significant tax relief.

Experts say that new rules might prompt corporate employers to strategically revisit and potentially reshape their existing compensation frameworks, particularly if they can capitalize on tax advantages for their workforce.

Source: https://www.financialexpress.com/money/salaried-employees-living-in-rent-free-accommodation-to-save-more-now-new-cbdt-notification/3215659/