190. Rule 3(a)(i) of Income-tax Rules – Valuation of perquisite represented by rent-free residential accommodation in the case of Government employees – Effect of amendments made by Income-tax (Third Amendment) Rules, 1974

1. The Income-tax (Third Amendment) Rules. 1974, notified by the Central Board of Direct Taxes on 21-9-1974, have substituted sub-clause (i) of clause (a) of rule 3 of the Income-tax Rules, relating to valuation of the perquisite represented by rent-free residential accommodation in the case of Government employees, etc., by a new sub-clause.  The provisions of the new sub-clause are explained hereunder.

2. Under rule 3(a )(i), as it stood prior to the amendment made by the Income-tax (Third Amendment) Rules, 1974, the perquisite value of rent-free residential accommodation (whether furnished or unfurnished) provided to (a) persons holding an office or post in connection with the affairs of the Union or of a State, and (b ) officers of Government whose services have been lent to a body or undertaking under the control of Government (occupying residential accommodation allotted to the body or undertaking by the Government) was to be taken to be the rent which would have been determined as payable by the person in accordance with the rules framed by the Government for allotment of residences to its officers.  Under the new provision, the perquisite value of rent-free residential accommodation in such cases will be determined as follows :

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1. If the accommodation is unfurnished, the perquisite value of the accommodation will be determined on the same basis as adopted hitherto.  The perquisite value will thus be taken to be an amount equal to the rent which has been or would have been determined as payable by the person concerned in accordance with the rules framed by the Government for allotment of residences to its officers.

2. If the accommodation is furnished, the value of the perquisite will first be computed in accordance with (1) above as if the accommodation was furnished; the amount so computed will then be increased by an amount equal to 15 per cent of the original cost of the furniture (including television sets, radio sets, refrigerators, other household appliances and air-conditioning plant and equipment, if any) provided by the employer.  If the furniture is hired by the employer, the value of perquisite will, instead, be increased by the hire charges payable by the employer.

The effect of the new provision is that the perquisite value of free furniture (including television sets, radio sets, refrigerators, other household appliances and air-conditioning plant and equipment) provided to all categories of salaried taxpayers will be taken to be 15 per cent of the original cost of such furniture or, where the furniture is hired, the hire charges payable by the employer.

3. The new provision has come into force on 21-9-1974 and will, accordingly, apply for the assessment year 1975-76 and subsequent years.  The new provisions will, however, have to be taken into account for the purposes of deducting income-tax on income chargeable under the head, “Salaries” under section 192 during the financial year 1974-75.

Circular : No. 150 [F. No. 142(46)/74-TPL], dated 19-11-1974

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