The Central Board of Direct Taxes (CBDT) has notified amendments to the Income Tax Rules for valuing perquisites of rent-free or concessional accommodation by employers to employees. Employees who receive rent-free housing from their employers will have to pay only less in taxes, increasing their take-home pay. The new regulation has taken effect from September 1, 2023 and the new income tax rules emphasises that the taxable value of rent-free accommodation will be reduced which means less tax resulting in an increase in take-home salary.
The Finance Act, 2023, 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 new income tax rules that will provide relief to the taxpayers provides that:
| Previous Categorisation and Rates | New Categorisation and Rates |
| Population | Perquisite Rate | Population | Perquisite Rate |
| More than 25 lakhs | 15% | More than 40 lakhs | 10% |
| Between 10 lakhs and 25 lakhs | 10% | Between 15 lakhs and 40 lakhs | 7.5% |
| Less than 10 lakhs | 7.5% | Less than 15 lakhs | 5% |
Perquisite is defined as any casual emolument or benefit attached to an office or position in addition to salary or wages. “Perquisite” is defined in the section 17(2) of the Income Tax Act, 1961.
“Rent-free housing is a perk provided by the employer to employees, in which the employee receives a place to live from the employer for little to no cost. It’s an employee benefit that is taxed under the “Salaries” heading and is related to their employment.”
The new income tax rules is definitely set to impact the taxpayers. The Employees will pay less tax due to the decreased taxable value of rent-free housing, increasing their take-home pay. Starting from 1st September, 2023 under the new amendments, employees who are provided with unfurnished rent-free accommodation from non-government sources will get a reduction in the valuation of such houses i.e., their taxable base is going to be reduced now with the revised rates.
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