Valuation of Perquisites :

The Income-tax Rules, 1962 contain the provisions for valuation of perquisites. It is important to note that only those perquisites which the employee actually enjoys have to be valued and taxed in his hand. For example, suppose a company offers a housing accommodation rent – free to an employee but the latter declines to accept it, then the value of such accommodation obviously cannot be evaluated and taxed in the hands of the employees. For the purpose of computing the income chargeable under the head “Salaries”, the value of perquisites provided by the employer directly or indirectly to the employee or to any member of his household by reason of his employment shall be determined in accordance with new Rule 3.

(1) Valuation of residential accommodation [Sub-rule (1)] – The value of residential accommodation provided by the employer during the previous year shall be determined in the following manner –

Sl. No.	Circumstances	In case of unfurnished accomodation	In case of furnished accomodation
(1)	(2)	(3)	(4)
(1)	Where the accommodation is provided by the Central Government or any State Government to the employees either holding office or post in connection with the affairs of the Union or of such State.	License fee determined by the Central Government or any State Government in respect of accommodation in accordance with the rules framed by such Government as reduced by the rent actually paid by the employee.	The value of perquisite as determined under column (3) and increased by 10% per annum of the cost of furniture (including television sets, radio sets, refrigerators, other household appliances, air-conditioning plant or equipment). If such furniture is hired from a third party, the actual hire charges payable for the same as reduced by any charges paid or payable for the same by the employee during the previous year should be added to the value of the perquisite determined under column (3).
(2)	Where the accommodation is provided by any other employer (a) where the accommodation is owned by the employer	(i) 15% of salary in cities having population exceeding 25 lakhs as per 2001 census; (ii) 10% of salary in cities having population exceeding 10 lakhs but not exceeding 25 lakhs as per 2001 census; (iii) 7.5% of salary in other areas, in respect of the period during which the said accommodation was occupied by the employee during the previous year as reduced by the rent, if any, actually paid by the employee.	The value of perquisite as determined under column (3) and increased by 10% per annum of the cost of furniture (including television sets, refrigerators, other household appliances, air-conditioning plant or equipment or other similar appliances or gadgets). If such furniture is hired from a third party, the actual hire charges payable for the same as reduced by any charges paid or payable for the same by the employee during the previous year, should be added to the value of perquisite determined under column (3).
	(b) where the accommodation is taken on lease or rent by the employer.	Actual amount of lease rental paid or payable by the employer or 15% of salary, whichever is lower, as reduced by the rent, if any, actually paid by the employee.	The value of perquisite as determined under column (3) and increased by 10% per annum of the cost of furniture (including television sets, radio sets, refrigerators, other household appliances, air-conditioning plant or equipment or other similar appliances or gadgets). If such furniture is hired from a third party, the actual hire charges payable for the same as reduced by any charges paid or payable for the same by the employee during the previous year should be added to the value of perquisite determined under column (3).
(3)	Where the accommodation is provided by any employer, whether Government or any other employer, in a hotel.	Not applicable	24% of salary paid or payable for the previous year or the actual charges paid or payable to such hotel, which is lower, for the period during which such accommodation is provided as reduced by the rent, if any, actually paid or payable by the employee. However, where the employee is provided such accommodation for a period not exceeding in aggregate fifteen days on his transfer from one place to another, there would be no perquisite.

Notes:
(1) If an employee is provided with accommodation, on account of his transfer from one place to another, at the new place of posting while retaining the accommodation at the other place, the value of perquisite shall be determined wi th reference to only one such accommodation which has the lower perquisite value, as calculated above, for a period not exceeding 90 days and thereafter, the value of perquisite shall be charged for both such accommodations.

(2) Any accommodation provided to an employee working at a mining site or an on-shore oil exploration site or a project execution site, or a dam site or a power generation site or an off-shore site would not be treated as a perquisite, provided it satisfies either of the following conditions –

(i) the accommodation is of temporary nature, has plinth area not exceeding 800 square feet and is located not less than eight kilometers away from the local limits of any municipality or a cantonment board; or

(ii) the accommodation is located in a remote area i.e. an area that is located at least 40 kms away from a town having a population not exceeding 20,000 based on latest published all-India census.

(3) Where the accommodation is provided by the Central Government or any State Government to an employee who is serving on deputation with any body or undertaking under the control of such Government,-

(i) the employer of such an employee shall be deemed to be that body or undertaking where the employee is serving on deputation; and

(ii) the value of perquisite of such an accommodation shall be the amount calculated in accordance with Sl. No.(2)(a) of the above table, as if the accommodation is owned by the employer.

(4) “Accommodation” includes a house, flat, farm house or part thereof, or accommodation in a hotel, motel, service apartment, guest house, caravan, mobile home, ship or other floating structure.
(5) “Hotel” includes licensed accommodation in the nature of motel, service apartment or guest house.

Illustration 4
Mr. C is a Finance Manager in ABC Ltd. The company has provided him with rent-free unfurnished accommodation in Mumbai. He gives you the following particulars:

Basic salary	Rs 6,000 p.m.
Dearness Allowance	Rs 2,000 p.m. (30% is for retirement benefits)
Bonus	Rs 1,500 p.m.

Even though the company allotted the house to him on 1.4.2015, he occupied the same only from 1.11.2015. Calculate the taxable value of the perquisite for A.Y. 2016-17.

Solution

Value of the rent free unfurnished accommodation
= 15% of salary for the relevant period
= 15% of [(` 6000 × 5) + (` 2,000 × 30% × 5) + (` 1,500 × 5)] [See Note below]
= 15% of ` 40,500 = ` 6,075.
Note: Since, Mr. C occupies the house only from 1.11.2015, we have to include the salary due to him only in respect of months during which he has occupied the accommodation. Hence salary for 5 months (i.e. from 1.11.2015 to 31.03.2016) will be considered.

Illustration

Using the data given in the previous illustration 4, compute the value of the perquisite if Mr. C is required to pay a rent of ` 1,000 p.m. to the company, for the use of this accommodation.

Solution

First of all, we have to see whether there is a concession in the matter of rent. In the case of accommodation owned by the employer in cities having a population exceeding Rs 25 lakh, there would be deemed to be a concession in the matter of rent if 15% of salary exceeds rent recoverable from the employee. In this case, 15% of salary would be Rs 6,075 (i.e. 15% of Rs 40,500). The rent paid by the employee is Rs 5,000 (i.e., Rs 1,000 x 5). Since 15% of salary exceeds the rent recovered from the employee, there is a deemed concession in the matter of rent. Once there is a deemed concession, the provisions of Rule 3(1) would be applicable in computing the taxable perquisite.

Value of the rent free unfurnished accommodation	= Rs 6,075
Less: Rent paid by the employee (Rs 1,000 × 5)	= Rs 5,000
Perquisite value of unfurnished accommodation given at concessional rent	= Rs 1,075

Illustration

Using the data given in illustration 4, compute the value of the perquisite if ABC Ltd. has taken this accommodation on a lease rent of ` 1,200 p.m. and Mr. C is required to pay a rent of Rs 1,000 p.m. to the company, for the use of this accommodation.

Solution

Here again, we have to see whether there is a concession in the matter of rent. In the case of accommodation taken on lease by the employer, there would be deemed to be a concession in the matter of rent if the rent paid by the employer or 15% of salary, whichever is lower, exceeds rent recoverable from the employee. In this case, 15% of salary is Rs 6,075 (i.e. 15% of Rs 40,500). Rent paid by the employer is Rs 6,000 (i.e. Rs 1,200 x 5). The lower of the two is Rs 6,000, which exceeds the rent paid by the employee i.e. Rs 5,000 (Rs 1,000 x 5). Therefore, there is a deemed concession in the matter of rent. Once there is a deemed concession, the provisions of Rule 3(1) would be applicable in computing the taxable perquisite.

Value of the rent free unfurnished accommodation [Note1]	= Rs 6,000
Less: Rent paid by the employee (Rs 1,000 × 5)	= Rs 5,000
\ Value of unfurnished accommodation given at concessional rent	= Rs 1,000

Note 1 : Value of the rent free unfurnished accommodation is lower of

(i) Lease rent paid by the company for relevant period	= Rs 1,200 × 5 = Rs 6,000
(ii) 15% of salary for the relevant period (computed earlier)	= Rs 6,075

Illustration

Using the data given in illustration 4, compute the value of the perquisite if ABC Ltd. has provided a television (WDV ` 10,000; Cost ` 25,000) and two air conditioners. The rent paid by the company for the air conditioners is Rs 400 p.m. each. The television was provided on 1.1.2016. However, Mr. C is required to pay a rent of ` 1,000 p.m. to the company, for the use of this furnished accommodation.

Solution

Here again, we have to see whether there is a concession in the matter of rent. In the case of accommodation owned by the employer in a city having a population exceeding Rs 25 lakh, there would be deemed to be a concession in the matter of rent if 15% of salary exceeds rent recoverable from the employee. In case of furnished accommodation, the excess of hire charges paid or 10% p.a. of the cost of furniture, as the case may be, over and above the charges paid or payable by the employee has to be added to the value arrived at above to determine whether there is a concession in the matter of rent. In this case, 15% of salary is Rs 6,075 (i.e. 15% of Rs40,500). The rent paid by the employee is Rs 5,000 (i.e. Rs 1,000 x 5). The value of furniture (See Note 1 below) to be added to 15% of salary is Rs 4,625. The deemed concession in the matter of rent is Rs 6,075 + Rs 4,625 – Rs 5,000 = Rs 5,700. Once there is a deemed concession, the provisions of Rule 3(1) would be applicable in computing the taxable perquisite.

Value of the rent free unfurnished accommodation (computed earlier)	= Rs 6,075
Add: Value of furniture provided by the employer [Note 1]	= Rs 4,625
Value of rent free furnished accommodation	= Rs 10,700
Less: Rent paid by the employee (Rs 1,000 × 5)	= Rs 5,000
Value of furnished accommodation given at concessional rent	= Rs 5,700

Note 1: Value of the furniture provided = (Rs 400 p.m. × 2 × 5 months) + (Rs 25,000 × 10% p.a.
for 3 months) = Rs 4,000 + Rs 625 = Rs 4,625

Illustration

Using the data given in illustration 7 above, compute the value of the perquisite if Mr. C is a government employee. The licence fees determined by the Government for this accommodation was Rs 700 p.m.

Solution

In the case of Government employees, the excess of licence fees determined by the employer as increased by the value of furniture and fixture over and above the rent recovered/ recoverable from the employee and the charges paid or payable for furniture by the employee would be deemed to be the concession in the matter of rent. Therefore, the deemed concession in the matter of rent is Rs 3,125 [i.e. Rs 3,500 (licence fees: 700 x 5) + Rs 4,625 (Value of furniture) – Rs 5,000 (Rs 1,000 × 5)]. Once there is a deemed concession, the provisions of Rule 3(1) would be applicable in computing the taxable perquisite.

Value of the rent free unfurnished accommodation (Rs 700 × 5)	= Rs 3,500
Add: Value of furniture provided by the employer (computed earlier)	= Rs 4,625
Value of rent free furnished accommodation	= Rs 8,125
Less: Rent paid by the employee (Rs 1,000 × 5)	= Rs 5,000
Perquisite value of furnished accommodation given at concessional rent	= Rs 3,125