Salaried Employees Get Tax Relief on Rent-Free Accommodation

New Delhi, September 4: Salaried employees in India can now heave a sigh of relief, as the Income Tax Department has made major changes to the rules related to rent-free accommodation.

The new rules, which are effective from September 1, 2023, will reduce the taxable value of rent-free accommodation for employees, leading to higher take-home salaries.

The changes in the rules are based on the 2011 census, and take into account the population of the city where the accommodation is located.

The Finance Act, 2023, had brought in an amendment for the purposes of calculation of ‘perquisite’with regard to the value of rent-free or concessional accommodation provided to an employee, by his employer. The rules for calculating perquisites have been notified now.
“The categorisation and the limits of cities and population have now been based on the 2011 census as against the 2001 census earlier,” the income tax department said in a statement on Saturday.

As per the notification, where unfurnished accommodation is provided to private sector employees and such accommodation is owned by the employer then the revised limits of population are more than 40 lakh (in place of 25 lakh), between 15 lakh to 40 lakh (in place of 10 lakh), and lastly less than 15 lakh (earlier less than 10 lakh).

The earlier perquisite rates of 15 per cent, 10 per cent and 7.5 per cent of the salary have now been reduced to 10 per cent, 7.5 per cent and 5 per cent of the salary respectively in the amended Rule.

The Rule has also been further rationalised so as to compute a fair tax implication of the
same accommodation being occupied by an employee for more than one previous year.

Salaried Employees

The previous rules, which were based on the 2001 census, had higher taxable values for rent-free accommodation. For example, the taxable value for unfurnished accommodation in cities with a population of more than 40 lakh was 15% of the employee’s salary.

The changes in the rules are a welcome relief for salaried employees, as they will now be able to save more money on their taxes.

The higher take-home salaries will also boost the economy, as employees will have more money to spend.

If you are an employee who receives rent-free accommodation from your employer, you should consult with a tax advisor to determine how the new rules will affect you.

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