Valuation of Perquisites of Residential Accommodation Under Income Tax Act, 1961

Under the Income Tax Act, salary income includes remuneration in any form, including perquisites provided by an employer, such as residential accommodation. The valuation of residential accommodation as a perquisite depends on the nature of the employer, the location of the accommodation, and whether it is owned or leased. For government employees, the taxable value is the license fee fixed by the government, reduced by rent paid by the employee, with an additional 10% of the cost of furniture or actual hire charges if furnished. For non-government employees, valuation is based on a percentage of salary—10% in cities with population above 40 lakhs, 7.5% in cities with population between 15 and 40 lakhs, and 5% in other areas—reduced by rent paid. If the accommodation is leased, the lower of actual rent or 10% of salary is considered. Salary for valuation excludes dearness allowance, exempt allowances, employer’s provident fund contribution, and certain perquisites. Special exemptions apply to judges and officers of Parliament. An illustration demonstrates the practical computation of such perquisites.

Value of perquisite in respect of residential accommodation:

The valuation of residential accommodation provided by an employer to employee during the previous year shall be determined on the basis of circumstances.

• 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 states. License fee determined by the Central or State Government in respect of accommodation in accordance with the rules frame by the Government as reduced by the rent acutely paid by the employee.
• The value of perquisite as determined above and Increse by 10% per annum of the cost of furniture, which includes television, radio, refrigerators, other equipment, other house hold appliances or such furniture is hand from the third party, the actual hire charges payable for the same by the employee during the previous year.
• Where the accommodation is provided by any other employer and where the accommodation is owned by the employer,   10% of the salary in cities having population exceeding 40 lakhs as per 2011 census,
• 5% of the salary in cities having population exceeding 15 lakhs but not exceeding 15 lakhs as per 2011 census, 5% of the salary in other areas, in respect of the period during which the same accommodation was occupied by the employee during the previous year as reduced by the rent, if any, actually paid by the employee.
• Where the accommodation is taken on lease or rent by the employer, actual amount paid or payable or 10% of salary, whichever is lower, as reduced by the rent, if any, actually paid by the employee.

If the above accommodation is furnished, 10% of the cost of furniture is to be added in the salary income.

For calculation of valuation of perquisites, ‘Salary’ includes the pay, allowances, bonus or commission payable monthly or otherwise or monetary payment, by whatever name called does not include following,

(a) dearness allowance ;

(b) employer’s contribution to provident fund account of the employee;

(c) allowances which are exempted from payment of tax;

(d) the value of perquisites specified u/s 17(2) of the Act;

(e) any payment or expenditure specifically excluded under proviso to Section 17(2);

For Judges of the High Court & Supreme Court.

The value of rent free official residence provided to a judge or allowance paid to him shall not be included in computing the income chargeable under the head “Salaries”.

For Officers of Parliament.

The value of rent free furnished residence, which include maintenance, provided to an officer of Parliament shall not be included in the computation of his income chargeable under the head “Salaries” u/s 15 of the Act.

Illustration:

Mr. Shah is an employee of ABC Company Limited, at Delhi. During the financial year 2024-25, he is in the receipt of the following:

Perquisite:

He is also provided with furnished accommodation at Delhi. The cost of furniture and household appliances allowed for use of Mr. Shah is Rs.4,80,000. Rent for accommodation paid by Mr. Shah to ABC Company Ltd. Is Rs.1,20,000.

The value of perquisite is to be adopted as under: