U/s 17(1) 'Salary' includes the value of any perquisite allowed or amenity provided by employer to employee. The world 'perquisite' has not been defined under Income-tax Act 1961. Perquisite simply means any casual emolument attached to an office. It can also be defined as "any casual emolument, fee or profit attached to an office or position, in addition to salary or wages". Perquisites may be given in a variety of forms. Value of perquisites is chargeable to tax under the head salary only if these perks are received by an employee from his or her employer and employer may be a present, past or prospective one. Eg: Rent free House
Rent Free House
Meaning of accommodation
It shall include a house, farm-house, flat, hotel accommodation, guest house, a caravan, mobile home, ship etc.
Before calculating the value of rent free house, following information is collected
All cities, towns have been divided into 3 categories depending upon their population as per census of 2001 as under
(A) All cities, towns having population exceeding 25 lakhs.
(B) All cities and towns having population exceeding 10 lakhs but not exceeding 25 lakhs.
(C) All other cities, towns having population of 10 lakhs or less than 10 lakhs.
Meaning of Salary for the purpose of Rent free accommodation
For the calculation of value of rent free accommodation, the word 'salary' includes:
(i) Basic salary, pay or wages.
(ii) Dearness Pay, Dearness Allowance if term of employment so provide or it enters into salary for calculation of value of service or retirement benefits.
(iii) Commission.
(iv) Bonus.
(v) Fees.
(vi) Value of all taxable allowances.
(vii) Any other monetary payment, which is chargeable to tax (by whatever name called).
(viii) Leave encashment of salary only if it pertains to the leave earned during the previous year in which rent free house is provided to the employee.
Salary does not include the following
(i) Dearness allowance if not paid as per terms of employment or if it does not enter into salary for computation of all retirement.
(ii) Any other allowance which is a exempt one.
(iii) Employer's contribution in employee's provident fund.
(iv) Value of other perquisites falling u/s 17(2).
(v) Leave encashment of salary if it relates to the leave earned in earlier previous years.
(vi) Income tax of employee if paid by employer.
All components of salary which are included in the term 'salary' are to be taken on accrual basis.
Hotel accommodation
An employee may be provided hotel accommodation (including motels, guest houses, etc.) on his transfer. It is treated in following manner :
(a) If hotel accommodation is provided as a result of shifting of employee from one place to other (i.e., transfer) for a total period not exceeding in aggregate 15 days in a previous year, it shall be fully exempted.
(b) If hotel accommodation is provided for a period exceeding 15 days, the perk shall be taxable in following manner:
(i) Calculated salary for rent free house:
(ii) Compute salary for [Number of days he stayed in the hotel-15 days]:
(iii) Calculate 24% of this salary;
(iv) Compare it with actual bill paid by employer to the hotel for such accommodation
Whichever is less is taxable.
Note. In case hotel accommodation is provided for more than 15 days then this perquisite is not taxable for first 15 days and it will be taxable for remaining days.
Cases where accommodation is exempt
For an employee who is working
(a) in remote area [an area located at least 40 kms. away from city limits of a town whose population is up to 20,000 as per latest census] at mining site; or at project execution site; or
(b) in offshore area [there is no limit as regard to distance] such accommodation shall be exempted.
(c) Value of rent free accommodation is not taxable, if rent free house has been provided to Supreme Court and High Court Judges, Union Minister, Leader of Opposition and Official of Parliament.
Case where More than one accommodation at the time of transfer
In case a person is allowed to retain more than one accommodations at the time of transfer then, for first three months value of one such house having lower value shall be taxable. If such accommodation is retained for more than three months thereafter value of both such houses shall be taxable.
I. Calculation of Value Rent Free House for unfurnished accommodation
(i) Owned by employer
(a) Govt. Employees: The value of house is rent fixed [license fee] by the govt. for such house. It can be rent charged by Govt. from another employee of same status for similar type of house. Market rental value of this type of accommodation is not taken into account and hence ignored.
(b) Other employees: Value of house to be taxed is calculated in following manner :
(i) In cities the population of which is more than 25 lakhs as per census of 2001 : 15% of Salary.
(ii) In cities the population of which is exceeding 10 lakhs but not exceeding 25 lakhs as per census of 2001 : 10% of Salary.
(iii) In cities and towns the population of which is 10 lakhs or less than 10 lakhs as per 2001 census: 7.5% of Salary.
(iv) Hotel accommodation [for more than 15 days on transfer from one place to another]:
24% of Salary (for the period or days for which accommodation is provided in hotel) or actual bill which ever is less is taxable.
(ii) Hired by employer
15% of Salary or Actual rent paid or payable by employer which ever is less is taxable in all cities.
II. For furnished accommodation
In case of all types of employees calculation of value of unfurnished house is as per following rules:
- If furniture is owned by employer add 10% p.a. of cost of furniture.
- If furniture is hired actual hire charges paid or payable by employer are added.
The term 'furniture includes usual items of furniture like sofas, beds, chairs, tables and household appliances. It also includes modern electrical appliances like television, radio, refrigerator, air conditioner, geyser, etc.
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