CBDT vide Notification No. 65/2023 amends Rule 3 of the Income Tax Rules, 1962, namely- Determination of the value of residential accommodation provided by the employer

The Central Board of Direct Taxes (“CBDT”) vide Notification No. 65/2023 dated 18.08.2023, has amended Rule 3 of the Income-tax Rules, 1962 (“Rules”) prescribing the value of residential accommodation, provided by the employer for the purpose of sub clauses (i) and (ii) of sub-section (2) of section 17 during the previous year. The new amended Rule 3 is applicable from 01 September 2023 is described below.

There are no changes in the valuation of Rent Free Accommodation (RFA) provided by the Central Government (CG) or any State Government (SG) to their employees. The valuation shall be done in the same manner as it was being done before:

However, the notification has made significant changes in the case of the other employers (i.e. other than Government Employers). We have summarized the said changes in the below table for ease of understanding:

TABLE

• No change in the method of valuation where a furnished accommodation provided i.e., value determined as mentioned in the above table + 10% per annum of the cost of the furniture/appliance or actual rent of furniture/appliance provided, as applicable
• In case of any amount of rent is recovered from the employee, the same shall be deducted from the value of perquisite determined above table
• There is no change in the method of valuation in case where accommodation is provided in a hotel/service apartment
• The old rates shall be in use only to calculate the perquisite value for the period from 01 April 2023 to 31 August 2023 during the FY 2023-24

Further, in case the same accommodation is provided for more than one year, the valuation of RFA perquisite shall be determined at the minimum of the following two:

1. The perquisite value calculated as per the rules mentioned in the above table
2. Adjust the first year’s (i.e., FY 2023-24) value with the CII of the first year and CII of the subsequent year

The rent free accommodation is not taxable in the following cases:

• If the house is located in a remote location (such as mining site, oil exploration rig, power generation site etc.) and the same is located in either of the following locations:
  1. Size of the house id not more than 1000 sq. feet and the same is situated at least 8Kms away from the local limits of a municipality or a cantonment board
  2. The accommodation is provided in at a location which is at least 30 Kms away from a town where the population is less than 1,00,000 as per 2011 census
• Accommodation is provided to the following:
  1. Judges of High Courts and Supreme Court
  2. Officer of the parliament
  3. Union Minister
  4. Leader of opposition in the Parliament
  5. Serving Chairman of UPSC

• Where an employee is provided with an accommodation at a new place of posting and also allowed accommodation at the place of his previous posting, the taxable value of perquisite shall be considered only in respect of the that accommodation which has a lower value, however this would apply only upto the period of 90days. After 90 days perquisite value of both the accommodations shall be considered as perquisite in the hands of the employee

NOTE: Salary shall include the following components on a due basis:

• Basic Salary
• Dearness Allowance
• Bonus
• Commission
• Fee
• Taxable allowances
• Leave salary encashment
• Any other monetary payment

Last updated: 13/09/2023

Article contributed by:

Sudhanshu Dixit

Senior Manager – Direct Tax

MBG Corporate Services