IT department revises norms for valuing rent-free accommodation perquisites

IT norms for rent-free accommodation: The Income Tax Department has introduced new revisions to the norms for valuing perquisites related to rent-free or concessional accommodation provided by employers to employees.

These changes, set to take effect on September 1, 2023, are aimed at benefiting employees by reducing their taxable base and increasing their take-home salaries. The amendments, as notified by the Central Board of Direct Taxes (CBDT) on August 18, are in response to the provisions laid out in the Finance Act of 2023.

This amendment recalibrates the calculation of 'perquisite' concerning the value of rent-free or concessional accommodation offered to employees by their employers.

Revision of the categorisation limits 

One of the significant changes is the revision of the categorisation and population limits for cities, based on the 2011 census data instead of the earlier 2001 census data. The new categories are: cities with a population of more than 40 lakh, between 15 lakh and 40 lakh, and less than 15 lakh. These changes will impact the valuation of unfurnished accommodations owned by the employer.

Under the revised norms, the earlier perquisite rates of 15 per cent, 10 per cent, and 7.5 per cent of the salary have been reduced to 10 per cent, 7.5 per cent, and 5 per cent of the salary, respectively.

Tax relief 

This reduction in perquisite rates is expected to provide tax relief to employees receiving rent-free accommodations, leading to an increase in their net take-home pay. Experts in the field of taxation have expressed concern that this change could disproportionately benefit higher-income employees who enjoy more expensive accommodations. Lower-income employees with less extravagant accommodations might not experience significant tax relief as a result of these changes.

Furthermore, this shift might prompt companies to reevaluate their existing compensation structures, especially if they can leverage the new tax advantages to better serve their workforce. While this change is anticipated to generate tangible savings for employees, it is likely to result in a corresponding decrease in government revenue due to reduced tax liabilities associated with these perquisites.

(With PTI inputs)