The Central Board of Direct Taxes (CBDT) has introduced an amendment to the Income Tax Rules, 1962, relating to the valuation of perquisites for residential accommodation provided by employers. The amendment, effective from September 1, 2023, brings changes to the categorization and limits of cities and populations, along with revised perquisite rates based on the 2011 census. This press release discusses the key aspects of the amendment and its implications.
Analysis: The Finance Act of 2023 incorporated amendments for the calculation of perquisites concerning the value of rent-free or concessional accommodation provided by employers to employees. As a result, the CBDT has modified Rule 3 of the Income Tax Rules, 1962, to accommodate these changes. The amended rule provides detailed guidelines for determining the value of residential accommodation perquisites based on various scenarios and parameters.
The significant changes introduced by the amendment include a shift in categorization and limits of cities and populations based on the 2011 census. The earlier perquisite rates of 15%, 10%, and 7.5% have been revised to 10%, 7.5%, and 5% of the salary, respectively. The revised rates are applicable according to the population criteria, categorizing cities as per the census data.
Furthermore, the amendment ensures that the valuation of perquisites considers situations where an employee occupies the same accommodation for more than one previous year, aiming for a fair tax implication.
Conclusion: The CBDT’s amendment to the Income Tax Rules, 1962, reflects the government’s commitment to maintaining up-to-date and relevant regulations. By incorporating the 2011 census data and adjusting the perquisite rates, the amendment seeks to create a more balanced and accurate system for valuing residential accommodation perquisites. Employers and employees alike will benefit from the clarity and transparency provided by this amendment, enhancing the overall efficiency of the taxation framework.
Also Read: Correction to Income Tax Notification for Accommodation Perquisite Valuation
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Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
New Delhi, 19th August, 2023
PRESS RELEASE
CBDT notifies Rule for determination of value of perquisite in respect of residential accommodation provided by employer
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 categorization 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 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. This is summarized as under:
| 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% |
The Rule has also been further rationalized so as to compute a fair tax implication of the same accommodation being occupied by an employee for more than one previous year.
Notification No. 65/2023 dated 18th August, 2023 has been published and is available at https://egazette.nic.in.
(Surabhi Ahluwalia)
Pr. Commissioner of Income Tax
(Media & Technical Policy) &
Official Spokesperson, CBDT
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MINISTRY OF FINANCE
(Department of Revenue)
(CENTRAL BOARD OF DIRECT TAXES)
Notification No. 65/2023-Income-Tax | Dated 18th August, 2023
G.S.R. 615(E).—In exercise of the powers conferred by sub-clause (i) and Explanation to sub-clause (2) of section 17 read with section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules,1962, namely:‒
1. Short title and commencement.— (1) These rules may be called the Income tax (Eighteenth Amendment), Rules, 2023.
(2) They shall come into force with effect from the 1st day of September, 2023.
2. In the Income-tax Rules, 1962, in rule 3,—
(i) for sub-rule (1), the following shall be substituted, namely: –
‘(1) The value of residential accommodation provided by the employer, for the purpose of sub-clauses (i) and (ii) of sub-section (2) of section 17, during the previous year shall be determined on the basis provided in the table I given below:
TABLE-I
|
Sl. No. |
Circumstances | Where accommodation is unfurnished | Where accommodation is furnished |
| (1) | (2) | (3) | (4) |
| (1) | Where the accommodation is provided by the Central Government or any State Government to the employees either holding office or post in connection with the affairs of the Union or of such State. | License fee determined by the Central Government or any State Government in respect of accommodation in accordance with the rules framed by such Government as reduced by the rent actually paid by the employee. |
The value of perquisite as determined under column (3) and increased by 10% per annum of the cost of furniture (including television sets, radio sets, refrigerators, other household appliances, air-conditioning plant or equipment) 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 employee during the previous year. |
| (2) | Where the accommodation is provided by any other employer and— | ||
| (a) where the accommodation is owned by the employer, or | (i) 10% of salary in cities having population exceeding 40 lakhs as per 2011 census; | The value of perquisite as determined under column (3) and increased by 10% 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, by the actual hire charges payable for the same as reduced by any charges paid or payable for the same by the employee during the previous year. | |
| (ii) 7.5% of salary in cities having population exceeding 15 lakhs but not exceeding 40 lakhs as per 2011 census; | |||
| (iii) 5% of salary in other areas, in respect of the period during which the said accommodation was occupied by the employee during the previous year as reduced by the rent, if any, actually paid by the employee. | |||
| (b) where the accommodation is taken on lease or rent by the employer. | Actual amount of lease rental paid or payable by the employer or 10% of salary, whichever is lower, as reduced by the rent, if any, actually paid by the employee. | The value of perquisite as determined under column (3) and increased by 10% 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, by the actual hire charges payable for the same as reduced by any charges paid or payable for the same by the employee during the previous year. | |
| (3) | Where the accommodation is provided by the employer specified in serial number (1) or (2) in a hotel (except where the employee is provided such accommodation for a period not exceeding in aggregate fifteen days on his transfer from one place to another). |
Not applicable | 24% of salary paid or payable for the previous year or the actual charges paid or payable to such hotel, which is lower, for the period during which such accommodation is provided as reduced by the rent, if any, actually paid or payable by the employee: |
Provided that nothing contained in this sub-rule shall apply to any accommodation temporarily 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, having plinth area not exceeding 1000 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 ninety days and thereafter the value of perquisite shall be charged for both such accommodations in accordance with the Table:
Provided also that where the accommodation is owned or taken on lease or rent by the employer and the same accommodation is continued to be provided to the same employee for more than one previous year, the amount calculated in accordance with SL. No.2(a) or 2(b) shall not exceed the amount so calculated for the first previous year, as multiplied by the amount which is a ratio of the Cost Inflation Index for the previous year for which the amount is calculated and the Cost Inflation Index for the previous year in which the accommodation was initially provided to the employee.
Explanation 1.- 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.
Explanation 2.— For the purposes of third proviso,-
(i) “Cost Inflation Index” means the index notified by the Central Government in Official Gazette under clause (v) of Explanation to section 48;
(ii) “first previous year” means the previous year 2023-2024, or the previous year in which the accommodation was provided to the employee, whichever is later.;
(ii) in the Explanation, for clause (v), the following clause shall be substituted, namely:-
‘(v) “remote area”, for purposes of proviso to sub-rule(1) means any area other than an area which is located-
(a) within the local limits of ; or
(b) within a distance, measured aerially, of 30 kilometers from the local limits of, any municipality or a cantonment board having a population of 1,00,000 or more based on the 2011 census’;
[Notification No. 65/2023/F. No. 370142/21/2023-TPL Part (1)]
AMRIT PRITOM CHETIA, Under Secy.
Note: The principal rules were published in the Gazette of India, Extraordinary, Part-II, Section-3, Sub-section (ii), vide notification number S.O. 969 (E) dated the 26th March, 1962 and was last amended vide notification number G.S.R. 607(E) dated 17 August, 2023.
What is the meaning of “accommodation temporarily provided” used in the first proviso of Rule 3