CBDT relaxes norms for rent-free homes provided by employers, take-home salary may increase

According to the new notification, the employees having rent-free accommodation provided by their employers and drawing substantial salaries can now save more and get a higher take-home salary as the income tax department revised norms.

These new norms will come into effect from 1 September.

According to the notification, other than the central or state government employees where unfurnished accommodation is provided to employees and such accommodation is owned by the employer then the valuation shall be: (i) 10 percent of salary (reduced from 15 percent) in cities having a population exceeding 40 lakhs as per 2011 census (earlier, 25 lakhs as per 2001 census), (ii) 7.5 percent of salary (reduced from 10 percent) in cities having a population exceeding 15 lakhs but not exceeding 40 lakhs as per 2011 census (earlier, 10 lakhs but not exceeding 25 lakhs as per 2001 census).

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Experts speak: 

Commenting on the new IT norms, AKM Global Tax Partner Amit Maheshwari said considering employees who are drawing substantial salaries and receiving accommodation from the employer, they will be able to save more since their taxable base is going to be reduced now with the revised rates. “The perquisite value shall be lower resulting in relief to them in the form of take-home pay,” Maheshwari said.

Speaking on similar lines, AMRG & Associates CEO Gaurav Mohan said these provisions incorporate the insights 2011 census data and aim to rationalize the perquisite value calculation.

“Employees enjoying rent-free accommodation would see the rationalisation of perquisite value leading to a reduction in taxable salary, increasing the net take-home pay. It is worth noting that the reduction in the perquisite value of rent-free accommodations will yield dual implications: on the one hand, it will generate tangible savings for employees, while on the other hand, it will result in a corresponding decrease in government revenue,” Mohan said.

Apart from this, Mohan said that lower-income employees with more modest accommodations might not experience significant tax relief. However, he mentioned the changes would lead to disproportionate benefits for higher-income employees who receive expensive accommodations.

Adding more, Mohan said the shift might prompt corporate employers to strategically revisit and potentially reshape their existing compensation frameworks, especially if they can capitalize on tax advantages for their workforce.

With agency inputs.

Updated: 19 Aug 2023, 02:58 PM IST