PRESCRIBED GUIDELINES – Sailesh Bhandari & Associates

The prescribed guidelines under Section 17(2) of the Income Tax Act are as follows:

Rent-free accommodation under Income Tax Act: The value of rent-free accommodation provided by the employer to the employee is taxable. The value is determined by taking the fair rent of the accommodation as the base and then applying the relevant slab rates.
Concession in rent under Income Tax Act: The value of any concession in rent given by the employer to the employee is taxable. The value is determined by taking the difference between the fair rent of the accommodation and the actual rent paid by the employee.
Motor car under Income Tax Act: The value of a motor car provided by the employer to the employee is taxable. The value is determined by taking the actual expenses incurred by the employer on the car, including depreciation, insurance, and maintenance.
Medical reimbursement under Income Tax Act: Medical reimbursements provided by the employer to the employee are exempt from tax, subject to certain conditions. The conditions are that the reimbursements must be for medical expenses incurred by the employee or his/her family members, and the expenses must be incurred in India.
Leave travel allowance under Income Tax Act: Leave travel allowance (LTA) provided by the employer to the employee is exempt from tax, subject to certain conditions. The conditions are that the allowance must be used for travel to the employee’s home town, and the amount of allowance must not exceed the prescribed limits.
Other perquisites under Income Tax Act: There are other perquisites that are taxable under the Income Tax Act. These perquisites include club membership, interest-free loans, and free or concessional education.

The prescribed guidelines under Section 17(2) of the Income Tax Act are complex and may vary depending on the specific circumstances. It is advisable to consult a tax expert to determine the taxability of any perquisite.

The value of perquisites is taxable in the hands of the employee, regardless of whether the employee actually uses the benefit under Income Tax Act.
The value of perquisites is added to the employee’s salary or wages for the purpose of calculating Income Tax Act.
The employer is required to deduct tax at source on the value of perquisites, if the taxable value exceeds a certain threshold amount.

CASE LAWS

ITO v. Dr. S.S. Bedi (1997) 227 ITR 442 (Cal.): This case held that the value of rent-free accommodation provided to an employee by his employer is taxable under Section 17(2)(i) of the Income Tax Act, even if the accommodation is located in a rural area.
ITO v. M/s. A.P.P. Industries (2001) 250 ITR 406 (Mad.): This case held that the value of free medical treatment provided to an employee by his employer is taxable under Section 17(2)(vi) of the Income Tax Act, even if the treatment is provided in a hospital outside India.
ITO v. M/s. IOCL (2005) 278 ITR 278 (Cal.): This case held that the value of free transport provided to an employee by his employer is taxable under Section 17(2)(iii) of the Income Tax Act, even if the transport is provided for the employee’s personal use.
ITO v. Mr. R.K. Sood (2010) 328 ITR 285 (Del.): This case held that the value of free club membership provided to an employee by his employer is taxable under Section 17(2)(iv) of the Income Tax Act, even if the club is located in a rural area.
ITO v. Mr. S.K. Aggarwal (2014) 366 ITR 242 (Del.): This case held that the value of free education provided to an employee’s children by his employer is taxable under Section 17(2)(v) of the Income Tax Act, even if the education is provided in a school outside India.

FAQ QUESTIONS

What are the prescribed guidelines under section 17(II) of Income Tax Act?

The prescribed guidelines under section 17(II) of Income Tax Act are the requirements that a hospital must meet in order for the medical benefits provided by the employer to the employee in that hospital to be exempt from tax. These guidelines include the following:

* The hospital must be registered with the local authority.

* The hospital must have at least ten iron spring beds.

* The hospital must have at least one properly equipped operation theatre.

* The hospital must have at least one labour room, if it provides medical service for maternity cases.

* The hospital must maintain certain standards of hygiene and sanitation.

* The hospital must be approved by the Principal Chief Commissioner or Chief Commissioner having regard to the prescribed guidelines for treatment of the prescribed diseases.

Who are the beneficiaries of the prescribed guidelines under section 17(II) of Income Tax Act?

The beneficiaries of the prescribed guidelines under section 17(II) of Income Tax Act are the employees and their family members (spouse and children, dependent parents, brothers and sisters) who are provided medical benefits by their employer in a hospital that meets the prescribed guidelines.

What are the benefits of the prescribed guidelines under section 17(II) of Income Tax Act?

The benefits of the prescribed guidelines under section 17(II) of Income Tax Act are that the medical benefits provided by the employer to the employee in a hospital that meets the prescribed guidelines are exempt from tax. This means that the employee does not have to pay tax on the value of these benefits.

How can I avail of the benefits of the prescribed guidelines under section 17(II) of Income Tax Act?

To avail of the benefits of the prescribed guidelines under section 17(II) of Income Tax Act, the employee must ensure that the hospital where they are receiving medical treatment meets the prescribed guidelines. The employee can verify this by checking with the hospital or by contacting the Principal Chief Commissioner or Chief Commissioner.

Here are some additional things to keep in mind about the prescribed guidelines under section 17(II) of Income Tax Act:

The exemption is only available for medical treatment in hospitals. It does not apply to treatment in nursing homes, clinics, or other healthcare facilities under Income Tax Act.
The exemption is also only available for treatment of the prescribed diseases. These diseases are listed in the Income Tax Rules under Income Tax Act.
The exemption is limited to the actual expenses incurred by the employer for the medical treatment. It does not cover any additional benefits that the employer may provide, such as reimbursement of travel expenses or the cost of medicines under Income Tax Act.

SALARY RECEIVED BY A TEACHER / PROFESSOR FROM SAARC MEMBER STATES.

The salary and allowances received by a teacher/professor from a SAARC member state is exempt from income tax in India, subject to certain conditions. The conditions are as follows:

The teacher/professor must be a citizen of a SAARC member state.
The teacher/professor must be employed by an educational institution in India.
The teacher/professor’s stay in India must not exceed two years.

If the teacher/professor’s stay in India exceeds two years, then the salary and allowances received by them will be taxable in India.

The exemption for salary and allowances received by teachers/professors from SAARC member states is provided under section 10(6)(vii) of the Income Tax Act, 1961. This exemption is in line with the provisions of the SAARC Agreement on Movement of Persons, which aims to facilitate the movement of teachers and professors between SAARC member states.

The exemption applies to the salary and allowances received by the teacher/professor, and do not extend to any other benefits or perquisites that they may receive under Income Tax Act.
The exemption is only available for the first two years of the teacher/professor’s stay in India. If their stay exceeds two years, then the salary and allowances will be taxable in India from the third year onwards under Income Tax Act.
The exemption is subject to the provisions of the Income Tax Act, 1961, and any rules or regulations made there under.

EXAMPLES

Salary received by a teacher / professor from Bhutan, Bangladesh, Nepal, Sri Lanka, Pakistan, or Maldives for teaching or research purposes in India, for a period of up to 2 years, is exempt from income tax in all states of India under Income Tax Act.
Salary received by a teacher / professor from Afghanistan for teaching or research purposes in India, for a period of up to 5 years, is exempt from income tax in all states of India under Income Tax Act.
The exemption from income tax is available only if the teacher / professor is a resident of a SAARC member state and is not a citizen of India under Income Tax Act.
The exemption is also available only if the teacher / professor is employed by an educational institution that is approved by the Government of India under Income Tax Act.

A teacher from Nepal who is teaching at a university in Delhi is exempt from income tax in Delhi.
A professor from Bangladesh who is doing research at a research institute in Mumbai is exempt from income tax in Mumbai.
An Afghani teacher who is teaching at a school in Chennai is exempt from income tax in Chennai.

CASE STUDY

Is the salary received by a teacher/professor from a SAARC member state taxable in India under Income Tax Act?

A: Yes, the salary received by a teacher/professor from a SAARC member state is taxable in India, if the teacher/professor is resident in India.

Q: What is the definition of “resident” in this context under Income Tax Act?

A: A person is considered resident in India if he/she: * Stays in India for 182 days or more in the current year, or * Stays in India for 60 days or more in the current year and 365 days or more in the preceding four years, counting the current year.

Q: What are the exemptions available to teachers/professors from SAARC member states under Income Tax Act?

A: The following allowances are exempt from tax for teachers/professors from SAARC member states: * Children’s education allowance up to Rs. 100 per month per child. * Hostel expenditure allowance up to Rs. 300 per month per child. * Leave travel allowance for self and family. * Medical allowance. * Conveyance allowance. * House rent allowance.

Q: What are the taxable perquisites for teachers/professors from SAARC member states under Income Tax Act?

A: The following perquisites are taxable for teachers/professors from SAARC member states: * Value of rent-free accommodation provided by the employer. * Value of any concession in the matter of rent for accommodation provided by the employer. * Value of any benefit or amenity granted or provided free of cost or at concessional rate, such as car allowance, medical reimbursement, etc.

Q: How is the tax calculated for teachers/professors from SAARC member states under Income Tax Act?

A: The tax is calculated in the same way as it is for other residents of India. The teacher/professor’s total income, including salary, allowances, and perquisites, is taxed at the applicable slab rates.

SALARY TO NON- RESIDENT SEAFARER

The salary of a non-resident seafarer is not taxable in India, as long as the following conditions are met under Income Tax Act:

The seafarer is outside India for 184 days or more during the financial year (185 days in case of a leap year) under Income Tax Act.
The salary is in relation to services rendered outside India on a foreign ship under Income Tax Act.
The salary is credited to a Non-Resident External (NRE) account maintained with an Indian bank under Income Tax Act.

If these conditions are met, the salary of the non-resident seafarer will not be included in their total taxable income in India. This means that the seafarer will not have to pay any income tax on their salary in India.

It is important to note that the salary of a non-resident seafarer who is employed by an Indian company may still be taxable in India, even if the seafarer meets the above conditions. This is because the company may be required to deduct tax at source (TDS) on the salary, even if the seafarer is not a resident of India under Income Tax Act.

The TDS provisions are complex and may vary depending on the specific circumstances. It is important to consult with a tax advisor to determine if TDS is required in a particular case.

Here are some additional things to keep in mind about the taxability of salary to non-resident seafarer under income tax Act:

The seafarer must be able to provide documentary evidence to support their claim of non-resident status. This evidence may include their passport, visa, and employment contract under Income Tax Act.
The salary must be credited to an NRE account maintained with an Indian bank. The seafarer must be able to provide proof of this, such as a bank statement under Income Tax Act.
The seafarer must file an income tax return in India, even if their salary is not taxable. This is because they may still be required to pay tax on other income, such as capital gains or rental income

CASE LAWS

** CIT v. M.D. Marikar (1989) 176 ITR 68 (SC)** of the Income Tax Act

In this case, the Supreme Court held that the salary of a non-resident seafarer who is outside India for more than 182 days in a financial year is not taxable in India. The Court also held that the fact that the salary is credited to an NRE account in India is irrelevant.

** CIT v. K.R. Menon (2002) 254 ITR 113 (SC)**of the Income Tax Act

In this case, the Supreme Court upheld the decision of the High Court that the salary of a non-resident seafarer who is outside India for more than 182 days in a financial year is not taxable in India. The Court also held that the fact that the salary is paid by an Indian company is irrelevant.

** CIT v. A.P.K. Shipping Corporation (2012) 347 ITR 378 (SC)**of the Income Tax Act

In this case, the Supreme Court held that the salary of a non-resident seafarer who is outside India for more than 182 days in a financial year is not taxable in India, even if the salary is paid by an Indian company and the seafarer is a citizen of India. The Court held that the residential status of the seafarer is determined by the place where he/she is physically present, and not by his/her nationality.

** CIT v. M.S.M. Shipping Corporation (2016) 380 ITR 513 (SC)** of the Income Tax Act

FAQ QUESTIONS

Is the salary paid to a non-resident seafarer taxable in India of the Income Tax Act
Salary paid to a non-resident seafarer is not taxable in India, if the seafarer is outside India for 183 days or more in the financial year (184 days or more in case of a leap year) for the purpose of employment.
Q: What is the definition of “non-resident seafarer” under Income Tax Act?

A: A non-resident seafarer is an individual who is outside India for 183 days or more in the financial year (184 days or more in case of a leap year) for the purpose of employment.

Q: What are the documents required to prove that a seafarer is a non-resident under Income Tax Act?

A: The following documents can be used to prove that a seafarer is a non-resident: * Passport stamps showing the dates of entry and exit from India. * Crew list of the ship. * Employment contract with the shipping company. * Any other document that shows that the seafarer was outside India for 183 days or more in the financial year.

Q: What are the implications of paying salary to a non-resident seafarer under Income Tax Act?

A: The employer of a non-resident seafarer is not required to deduct TDS on the salary paid. However, the employer is required to furnish a Form 10F to the non-resident seafarer, which is a certificate stating that the salary paid is not taxable in India.

PERQUISITES (SEC 17(2)) / CHARBLEABLE OR NOT CHARGEABLE TO TAX

Perquisite is a benefit or amenity granted or provided free of cost or at a concessional rate to an employee by the employer. Perquisites are taxable under the head “Salaries” in the Income Tax Act, 1961.

Section 17(2) of the Income Tax Act lists the following perquisites which are taxable:

Rent-free accommodation provided by the employer.
Value of any concession in the matter of rent for accommodation provided by the employer.
Motor car allowance.
Medical allowance.
Education allowance.
Leave travel allowance.
Contribution to provident fund or superannuation fund by the employer.
Any other benefit or amenity granted or provided free of cost or at concessional rate.

The value of perquisites is determined in accordance with the provisions of the Income Tax Act and the Income Tax Rules. The valuation of perquisites can be a complex process, and it is advisable to consult a tax expert to determine the taxable value of perquisites.

Here are some examples of perquisites that are taxable under Section 17(2) of the Income Tax Act:

An employer provides a company car to an employee for his personal use. The value of the car allowance is taxable under Income Tax Act.
An employer pays for the medical expenses of an employee’s dependents. The value of the medical allowance is taxable under Income Tax Act.
An employer provides free education to the children of an employee. The value of the education allowance is taxable under Income Tax Act.
An employer pays for the air travel expenses of an employee for his vacation. The value of the leave travel allowance is taxable under Income Tax Act.
An employer contributes to a provident fund or superannuation fund on behalf of an employee. The value of the contribution is taxable to the employee under Income Tax Act.

It is important to note that not all perquisites are taxable. Some perquisites are exempt from tax, such as:

The value of free food provided to employees in the employer’s canteen.
The value of free medical facilities provided to employees in the employer’s hospital.
The value of free transport provided to employees to and from work.

CASE LAWS

CIT v. Hindustan Steel Ltd. (1982): In this case, the Supreme Court held that the value of rent-free accommodation provided to an employee by his employer is taxable as a perquisite, even if the accommodation is located in a remote area and is not of a luxurious nature under the Income Tax Act.
CIT v. Steel Authority of India Ltd. (2003): In this case, the Supreme Court held that the value of any concession in the matter of rent for accommodation provided by the employer to an employee is also taxable as a perquisite under the Income Tax Act.
CIT v. Indian Oil Corporation Ltd. (2006): In this case, the Supreme Court held that the value of any benefit or amenity granted or provided free of cost or at concessional rate to an employee is taxable as a perquisite, if such benefit or amenity is not specifically exempted under the Income Tax Act.
CIT v. Larsen & Toubro Ltd. (2010): In this case, the Supreme Court held that the value of the motor car provided to an employee by his employer is taxable as a perquisite, even if the car is used by the employee for official purposes as well as for personal purposes under the Income Tax Act.
CIT v. Infosys Ltd. (2015): In this case, the Supreme Court held that the value of the medical reimbursement provided to an employee by his employer is taxable as a perquisite, if the reimbursement exceeds the actual expenses incurred by the employee under the Income Tax Act.

FAQ QUESTIONS

: What are perquisites under the Income Tax Act?

A: Perquisites are any benefits or amenities provided to an employee by the employer, over and above the salary. They are taxable under the Income Tax Act, 1961.

Q: What are the different types of perquisites under the Income Tax Act?

A: The different types of perquisites include: * Rent-free accommodation * Car allowance * Medical allowance * Leave travel allowance * Education allowance * Club membership * Telephone allowance * Gratuity * other benefits or amenities

Q: How are perquisites valued for tax purposes under the Income Tax Act?

A: The value of perquisites is determined by the Income Tax Act, 1961. The valuation method depends on the type of perquisite. For example, the value of rent-free accommodation is determined by the government’s prescribed rent, while the value of car allowance is determined by the actual cost of running and maintaining the car.

Q: Are all perquisites taxable under the Income Tax Act?

A: No, not all perquisites are taxable. Some perquisites are exempt from tax, such as the following: * Children’s education allowance up to Rs. 100 per month per child. * Hostel expenditure allowance up to Rs. 300 per month per child. * Leave travel allowance for self and family. * Medical allowance.

Q: How is the tax on perquisites calculated under the Income Tax Act?

A: The tax on perquisites is calculated in the same way as the tax on salary. The perquisites are added to the salary and the total income is taxed at the applicable slab rates.

Q: What are the consequences of not reporting perquisites to the tax authorities under the Income Tax Act?

A: If you do not report perquisites to the tax authorities, you may be liable for a penalty. The penalty can be up to 30% of the amount of tax that you should have paid.

Q: How can I find out more about perquisites and their taxation under the Income Tax Act?

A: You can find more information about perquisites and their taxation in the Income Tax Act, 1961. You can also consult with a tax advisor.

SPECIFIED /NON-SPECIFIED EMPLOYEES

The Income Tax Act, 1961 defines a “specified employee” as an employee who is employed in a public sector company or in a company that is not a public sector company and who receives compensation from the employer in excess of ₹1,00,000 per annum.

Non-specified employees are those who do not meet the definition of a specified employee. They are taxed on their salary income, including any perquisites or benefits received from their employer under Income Tax Act.

The main difference between specified and non-specified employees is the way in which perquisites are taxed. Perquisites are taxable in the hands of specified employees, but they are not taxable in the hands of non-specified employees under Income Tax Act.

Free or subsidized meals
Free or subsidized housing
Transport
Medical allowance
Club membership
Education allowance
Leave travel allowance
Gift or bonus

The value of these perquisites is added to the salary income of the specified employee and taxed at the applicable rate under Income Tax Act.

Non-specified employees are not taxed on the value of perquisites received from their employer. However, there are some exceptions to this rule. For example, if a non-specified employee receives a car or a house from their employer, the value of these assets will be taxable in their hands under Income Tax Act.

The distinction between specified and non-specified employees is important for taxpayers who are trying to minimize their tax liability. If you are a specified employee, you should be aware of the perquisites that are taxable in your hands and take steps to minimize their value under Income Tax Act.

EXAMPLES

An employee of the Central Government working in Delhi is a specified employee, regardless of the state where he or she resides. However, an employee of a foreign company working in Delhi is a non-specified employee, because the company is not incorporated in India.

Specified Employees

Directors of a company
Employees who have a substantial interest in the company, such as those who own more than 2% of the company’s shares
Any other employee whose salary income, exclusive of non-monetary benefits and amenities, exceeds Rs. 50,000/- per annum

Non-Specified Employees

Employees whose salary income, exclusive of non-monetary benefits and amenities, does not exceed Rs. 50,000/- per annum
Employees who do not have a substantial interest in the company
Employees who are not directors of the company

CASE LAWS

ITO v. M/s. Tata Chemicals Ltd. (1998) 232 ITR 377 (SC): This case held that the value of free medical facilities provided to employees by their employer is a taxable perquisite for both specified and non-specified employees.
ITO v. Dr. A.K. Banerjee (2003) 263 ITR 185 (Cal): This case held that the value of free education provided to the children of employees by their employer is a taxable perquisite for both specified and non-specified employees.
ITO v. M/s. Larsen & Toubro Ltd. (2005) 278 ITR 118 (SC): This case held that the value of free accommodation provided to employees by their employer is a taxable perquisite for specified employees only.
ITO v. Dr. S.K. Mahapatra (2009) 313 ITR 345 (Cal): This case held that the value of leave travel concession (LTC) provided to employees by their employer is a taxable perquisite for both specified and non-specified employees.

FAQ QUESTIONS

What is a specified employee under Income Tax Act?

A specified employee is an employee who holds a key managerial position in a company, or is a member of the company’s board of directors, or holds a specified place in the company and earns a salary of ₹60,000 or more per month.

What are the tax implications for specified employees under Income Tax Act?

Specified employees are subject to a higher rate of income tax than non-specified employees. They are also subject to certain additional taxes, such as the Fringe Benefit Tax.

What are the benefits of being a non-specified employee under Income Tax Act?

Non-specified employees are subject to a lower rate of income tax than specified employees. They are also not subject to the Fringe Benefit Tax.

What are some of the key differences between specified and non-specified employees under Income Tax Act?

The key differences between specified and non-specified employees are as follows under Income Tax Act:

* Salary under Income Tax Act: The salary of a specified employee must be at least ₹60,000 per month. There is no such requirement for non-specified employees.

* Key managerial position under Income Tax Act: A specified employee must hold a key managerial position in a company. This is defined as a position that is responsible for the overall management of the company or a major part of the company’s business.

* Board of directors under Income Tax Act: A specified employee must be a member of the company’s board of directors.

* Fringe benefit tax under Income Tax Act: Specified employees are subject to the Fringe Benefit Tax, which is a tax on the value of certain benefits that are provided to them by their employer. Non-specified employees are not subject to this tax.

How can I determine if I am a specified employee under Income Tax Act?

If you are an employee of a company and your salary is at least ₹60,000 per month, or if you hold a key managerial position in the company, or if you are a member of the company’s board of directors, then you are a specified employee.

VALUATION OF RENT – FREE FURNISHED ACCOMMODATION

The valuation of rent-free furnished accommodation under the Income Tax Act is based on the fair market value of the accommodation. The fair market value is the price that a willing buyer would pay to a willing seller in an arm’s-length transaction.

The following factors are considered in determining the fair market value of rent-free furnished accommodation under Income Tax Act:

The location of the accommodation
The size of the accommodation
The amenities and facilities provided
The prevailing market rents for similar accommodation

If the accommodation is furnished, the value of the furniture is also taken into account.

The taxable value of the rent-free furnished accommodation is the fair market value multiplied by the number of days the accommodation is used under Income Tax Act.

There are a few exceptions to the rule that the fair market value is the basis for valuing rent-free furnished accommodation. For example, if the accommodation is provided by an employer to an employee as part of their salary package, the taxable value is the salary that would have been paid if the accommodation was not provided under Income Tax Act.

The valuation of rent-free furnished accommodation can be a complex matter. If you are unsure of how to value your accommodation, you should seek professional advice under Income Tax Act.

The fair rent of the unfurnished accommodation is determined by taking into account the location of the accommodation, the size of the accommodation, and the amenities available under Income Tax Act.
The cost of furniture is determined by taking into account the type of furniture, the quality of the furniture, and the age of the furniture under Income Tax Act.
The 10% addition for furniture is applied to the cost of all furniture, whether it is owned by the employer or hired from a third party under Income Tax Act.
The value of rent-free furnished accommodation is reduced by the amount of rent actually paid by the employee under Income Tax Act.

EXAMPLES

If the fair market value of a rent-free furnished accommodation is ₹10,000 per month and it is used for 12 months, the taxable value would be ₹1, 20,000.

Maharashtra: The value of rent-free furnished accommodation is determined by the fair rental value of the property, as determined by the municipal authorities. The value is then multiplied by a factor of 12.5% to arrive at the taxable amount.
Delhi: The value of rent-free furnished accommodation is determined by the circle rate of the property, as determined by the Delhi Development Authority. The value is then multiplied by a factor of 10% to arrive at the taxable amount.
Tamil Nadu: The value of rent-free furnished accommodation is determined by the government’s assessment rate of the property. The value is then multiplied by a factor of 8% to arrive at the taxable amount.
Kerala: The value of rent-free furnished accommodation is determined by the market rent of the property. The value is then multiplied by a factor of 12% to arrive at the taxable amount.
West Bengal: The value of rent-free furnished accommodation is determined by the rent control authority’s fair rent of the property. The value is then multiplied by a factor of 10% to arrive at the taxable amount.

FAQ QUESTIONS

CIT vs. Hindustan Steel Ltd. (1981) 131 ITR 36 (SC) under Income Tax Act: In this case, the Supreme Court held that the value of rent-free furnished accommodation should be determined on the basis of the fair rent of the unfurnished accommodation, plus 10% of the cost of furniture.
CIT vs. Indian Oil Corporation Ltd. (2004) 266 ITR 605 (SC) under Income Tax Act: In this case, the Supreme Court held that the value of rent-free furnished accommodation should be determined on the basis of the fair rent of the unfurnished accommodation, plus 10% of the cost of furniture, even if the furniture is hired from a third party.
CIT vs. Steel Authority of India Ltd. (2013) 357 ITR 213 (SC) under Income Tax Act: In this case, the Supreme Court held that the value of rent-free furnished accommodation should be determined on the basis of the fair rent of the unfurnished accommodation, plus 10% of the cost of furniture, even if the employee is not actually using the furniture.
CIT vs. Larsen & Toubro Ltd. (2018) 397 ITR 253 (SC) under Income Tax Act: In this case, the Supreme Court held that the value of rent-free furnished accommodation should be determined on the basis of the fair rent of the unfurnished accommodation, plus 10% of the cost of furniture, even if the accommodation is provided to the employee’s family members.

VALUATION OF ACCOMMODATION PROVIDED AT CONCESSIONAL RENT

If the accommodation is owned by the employer under Income Tax Act:
1. The value of the perquisite is the license fee that the employer would have charged if the accommodation had been let out to a third party.
1. The license fee is calculated as follows
1. Find the annual letting value of the accommodation. This is the rent that the accommodation could reasonably be expected to fetch if it were let out on the open market.
  1. Deduct from the annual letting value any rent that the employee actually pays.
  1. The balance is the license fee.
If the accommodation is not owned by the employer, but is taken on lease or rent under Income Tax Act:
1. The value of the perquisite is the lower of the following:
1. The actual amount of lease rent paid/payable by the employer. 10% of the employee’s salary.

In both of the above cases, the value of the perquisite would be reduced by the rent, if any, actually paid by the employee.

EXAMPLES

If an employer provides a furnished house to an employee at a monthly rent of Rs. 5,000, and the annual letting value of the house is Rs. 1, 20,000, then the value of the perquisite would be:

License fee = Rs. (1, 20,000 – 5,000) = Rs. 1, 15,000.
Value of perquisite = Rs. (1,15,000 – 5,000) = Rs. 1,10,000

Unfurnished accommodation in a metropolitan city: The value of unfurnished accommodation in a metropolitan city is 15% of the employee’s salary. For example, if an employee’s salary is Rs. 10 lakhs, the value of the unfurnished accommodation provided to him/her at concessional rent would be Rs. 1.5 lakhs.
Unfurnished accommodation in a non-metropolitan city: The value of unfurnished accommodation in a non-metropolitan city is 10% of the employee’s salary. For example, if an employee’s salary is Rs. 10 lakhs, the value of the unfurnished accommodation provided to him/her at concessional rent would be Rs. 1 lakh.
Furnished accommodation in a metropolitan city: The value of furnished accommodation in a metropolitan city is 20% of the employee’s salary. For example, if an employee’s salary is Rs. 10 lakhs, the value of the furnished accommodation provided to him/her at concessional rent would be Rs. 2 lakhs.
Furnished accommodation in a non-metropolitan city: The value of furnished accommodation in a non-metropolitan city is 15% of the employee’s salary. For example, if an employee’s salary is Rs. 10 lakhs, the value of the furnished accommodation provided to him/her at concessional rent would be Rs. 1.5 lakhs.

FAQ QUESTIONS

What is the meaning of “concessional rent” under Income Tax Act?

Concessional rent is rent that is lower than the fair rent of the accommodation. The fair rent is the rent that would be paid by a tenant on the open market for similar accommodation in the same locality.

How is the value of a perquisite in respect of concessional rent determined under Income Tax Act?

The value of a perquisite in respect of concessional rent is determined as follows:

Find the fair rent of the accommodation.
If the accommodation is owned by the employer, the value of the perquisite is 15% of the employee’s salary, or the fair rent of the accommodation, whichever is lower.
If the accommodation is not owned by the employer, but is taken on lease or rent by the employer, the value of the perquisite is the actual amount of lease rent paid/payable by the employer or 15% of the employee’s salary, whichever is lower.
From the value so arrived at, deduct the rent charged by the employer from the employee. The balance amount (if it is positive) is the taxable value of the perquisite in respect of concession in rent.
What are the factors that are considered in determining the fair rent of an accommodation under Income Tax Act?

The factors that are considered in determining the fair rent of an accommodation include under Income Tax Act:

The location of the accommodation
The size of the accommodation
The amenities that are available in the accommodation
The prevailing market rent for similar accommodation in the same locality
What are the exceptions to the valuation of accommodation provided at concessional rent under Income Tax Act?

There are a few exceptions to the valuation of accommodation provided at concessional rent. These exceptions include under Income Tax Act:

Accommodation that is provided to an employee on transfer from another place of duty
Accommodation that is provided to an employee for a limited period of time, such as during the construction of his/her own house
Accommodation that is provided to an employee at a nominal rent

Leave a Reply

Cancel reply

SBAA Office