This article will cover the calculation of taxable perquisite value with regards to quarters provided to employees and hotel charges reimbursed by the employer. Applicable Taxes calculated as per amendments to finance act 2020.
A perquisite is a benefit offered to employees by the employer on account of their job or position. The benefits can be monetary, claimed as reimbursements or they can be non-monetary, usually in the form of free facilities that they have access to. Section 17(2) of Income tax act defines the term “perquisites” which has tax consequences. The value of rent-free accommodation furnished or unfurnished provided to the employee by his employer [sec. 17(2)(i) to 17(2) (viii) is treated as perquisite. The value of perquisite on free accommodation or hotel charge reimbursed by the employer is included under Salary. Some of these perquisites are fully taxable, partially taxable or fully exempt as a part of the tax assessment of the employee. Let us examine here the tax consequences on rent free accommodations enjoyed by an employee.
| Rent free unfurnished accommodation provided to Central and State Government employees is taxable under section 17(2)(i)(ii) read with Rule 3(1) | Since the employees are provided rent free accommodation, the amount of income accruing to RENT FREE accommodations cannot be determined ‘License Fees’ determined in accordance with rules framed by Government for allotment of houses shall be deemed to be the taxable value of perquisites. |
| Taxable perquisite value for Rent free unfurnished accommodation provided to other employees : Taxable value of the accommodations is worked out under section 17(2)(i)(ii) read with Rule 3(1) | The taxable value of perquisites A. If House Property is owned by the employer: i. 15% of salary, if the population of the city where accommodation is provided exceeds 25 lakhs as per 2001 census ii. 10% of salary, if the population of the city where accommodation is provided exceeds 10 lakhs but does not exceed 25 lakhs as per 2001 census iii. 7.5% of salary, if accommodation is provided in any other city B. If House Property is taken on lease or rent by the employer, the perquisite value shall be i. Lease rent paid or payable by the employer or 15% of the salary, whichever is lower *Salary includes: a) Basic Pay b) Dearness Allowance (only to the extent it forms part of retirement benefit salary) c) Bonus d) Commission e) All other allowances (only taxable portion) f) Any monetary payment which is chargeable to tax But does not include i. Value of any perquisite [under section 17(2)] ii. Employer’s contribution to PF iii. Benefits received at the time of retirement like gratuity, pension, etc. Note: 1) Rent free accommodation is not chargeable to tax if provided to an employee working at a mining site or an on-shore oil exploration site, etc.,— (i) which is being of temporary nature (subject to conditions) (ii) which is located in a remote area. 2) Rent-free accommodation is provided to High Court or Supreme Court Judges, Union Ministers, Leader of Opposition in Parliament, an official in Parliament, and Serving Chairman and members of UPSC is Tax-Free Perquisites. 3) The value so determined shall be reduced by the amount of rent, if any, paid by the employee. 4) If the employee is transferred and retain property at both the places, the taxable value of perquisites for an initial period of 90 days shall be determined with reference to only one accommodation (at the option of the assessee). The other one will be tax-free. However, after 90 days, the taxable value of perquisites shall be charged with reference to both the accommodations. |
| Rent free furnished accommodation provided to an employee is exempted from tax up to a limit as per section 17(2) (i)/(II) read with Rule 3( 1) | Taxable value of perquisites a) Find out taxable value of perquisite assuming accommodation to be provided to the employee is unfurnished b) Add: 10% of original cost of furniture and fixtures (if these are owned by the employer) or actual higher charges paid or payable (if these are taken on rent by the employer). Note: The value so determined shall be reduced by the amount of rent, if any, paid by the employee |
| Charges paid/payable by the employer for a furnished accommodation in a Hotel is exempted from tax up to a limit as per section 17(2)(i)(ii) read Rule 3(1) | Value of perquisite shall be lower of following: a) Actual charges paid or payable by the employer to such hotel b) 24% of salary Note: Hotel accommodation will not be chargeable to tax if : a) It is provided for a total period not exceeding in aggregate 15 days in the financial year; and b) Such accommodation in hotel is provided on employee’s transfer from one place to another place. |
Source: Income Tax Department
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