The Income Tax Department Publishes Guidelines for Valuing Employer-Provided, Rent-Free Housing

The Income Tax Department Publishes Guidelines for Valuing Employer-Provided, Rent-Free Housing

Employees who earned high salaries and received rent-free housing from their employment will now be able to save more and receive a bigger take-home pay since the income tax rate has increased.

The agency has updated the standards for valuing these homes. The Central Board of Direct Taxes (CBDT) announced changes to the Income Tax rules, which will take effect on September 1.

According to the notification, where unfurnished housing is provided to employees other than those working for the federal government or a state government and the employer owns the housing, the valuation shall be:

• 10% of salary (reduced from 15%) in cities with a population greater than 40 lakhs as of the 2011 census (previously, 25 lakhs as of the 2001 census).
• In cities with a population greater than 15 lakhs but not more than 40 lakhs as of the 2011 census (before ten lakhs but not more than 25 lakhs as of the 2001 census), 7.5% of the salary (down from 10%).

Amit Maheshwari, a partner at AKM Global Tax, said, “Because of new rates, employees who earned high incomes and received benefits from their employers will be able to save more money because their taxable base would be less. The take-home income for them will increase as a result of the lower perquisite value”.

Gaurav Mohan, CEO of AMRG and Associates, remarked, “These regulations try to streamline the calculation of perquisites value by including the insightful 2011 census data”.

‘Rationalizing perquisite value would result in a lower taxable wage for employees who live in rent-free housing, improving their take-home pain. It is important to remember that the decline in the perquisite value of rent-free housing will have two effects: on the one hand, it will result in real savings for employees, and on the other, it will cause a comparable decline in government revenue,’ Mohan said.

Conclusion

This modification will result in disproportionate benefits for higher-income workers provided with price lodging. Lower-income employees who live in more basic accommodations could only get a few tax benefits. Additionally, if corporate employers can take advantage of tax benefits for their staff, this shift may push them to review and modify their current compensation schemes proactively.