192. Rule 3(a)(iii) of Income-tax Rules – Valuation of perquisite represented by rent-free residential accommodation in the case of non-Government employees

1. Under rule 3(a)(iii) the value of the perquisite in the form of rent-free residential accommodation provided by an employer other than the Government and statutory corporations wholly owned by the Government, etc., referred to in rule 3(a)(i ) and (ii), is to be taken at 10 per cent of the salary paid to the employee.  However, if the actual rental value of the accommodation is in excess of 20 per cent of the salary the value of the perquisite is to be increased by the amount of such excess. Having regard to the high cost of rented accommodation in metropolitan cities, instructions had been issued that in the case of rent-free accommodation provided at Bombay, Calcutta, Delhi and Madras only the excess over 30 per cent of the employee’s salary should be added for the purpose of determining the perquisite value of the accommodation.

2. The Central Government has had occasion to review the situation in the light of the increasing costs of rented accommodation not only in the aforesaid cities but in all other parts of the country as well.  Keeping in view the steep escalation in rents the Central Government has decided that in the case of rent-free accommodation provided by an employer to an employee at Bombay, Calcutta, Delhi and Madras, the perquisite value will be calculated by adding the excess over 60 per cent of the salary of the employee.  The valuation in regard to other places in India would be with reference to the excess over 50 per cent.  The examples given below will clarify the position :

Example I

Rent-free residential accommodation
in Bombay/Calcutta/Delhi/Madras
Rs.
Salary of the employee
48,000
Rent paid by the employer
36,000
Perquisite to be valued as under :
First 10 per cent of salary
4,800
Next 50 per cent (ignored)
24,000
Excess over 60 per cent
7,200
Total value of the perquisite
12,000

Example II

Rent-free residential accommodation
at any other place
Rs.
Salary of the employee
48,000
Rent paid by the employer
36,000
Perquisite to be valued as under:
First 10 per cent of salary
4,800
Next 40 per cent (ignored)
19,200
Excess over 50 per cent
12,000
Total value of the perquisite
16,800

3. In cases of rent-free furnished accommodation, an addition in respect of the perquisite by way of furniture at the rate of 10 per cent per annum of the original cost of such furniture is to be made.  If such furniture is hired from a third party, the actual hire charges payable should be added.

4. This relaxation will come into effect from the assessment year 1984-85 and will, therefore, relate to tax deduction at source on salaries during financial year 1983-84.

Circular : No. 374 [F. No. 200/135/83-IT(A-I)], dated 14-12-1983.

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