Income Tax new rules for salaried taxpayers: Employees who receive rent-free housing from their employers will now pay less in taxes, increasing their take-home pay. The new regulation will take effect on September 1, 2023. New income tax rules tells the taxable value of rent-free accommodation will be reduced which means less tax resulting in an increase in take-home salary.
Significant tax relief has been announced by the income tax division, with homes provided by the employer being rented free. The tax for workers staying in these facilities has been reduced. Starting today, September 1, 2023, the new regulation will be in place.
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New Income tax rules for company-provided rent-free homes
- 10 percent of salary in cities having a population exceeding 40 lakh as per the 2011 census.
- 7.5 percent of salary in cities having a population exceeding 15 lakh but not exceeding 40 lakh as per the 2011 census.
What is perquisite?
“Perquisite” may be defined as any casual emolument or benefit attached to an office or position in addition to salary or wages. “Perquisite” is defined in the section 17(2) of the Income tax Act as including:
(i) Value of rent-free/accommodation provided by the employer.
(ii) Value of any concession in the matter of rent respecting any accommodation provided to the assessee by his employer.
(iii) Any sum paid by employer in respect of an obligation which was actually payable by the assessee.
(iv) Value of any benefit/amenity granted free or at concessional rate to specified employees etc.
(v) The value of any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the employer, or former employer, free of cost or at concessional rate to the assesssee.
(vi) Any sum payable by the employer, whether directly or through a fund other than a recognized provident fund or an approved superannuation fund to effect an assurance on the life of the assessee or to effect a contract for an annuity.
(vii) The amount of any contribution to an approved superannuation fund by the employer in respect of the assessee, to the extent it exceeds one lakh rupees; and
(viii) The value of any other fringe benefit or amenity as may be prescribed.
What is Rent Free Accommodation (RFA)?
“Rent-free housing is a perk provided by the employer to employees, in which the employee receives a place to live from the employer for little to no cost. It’s an employee benefit that is taxed under the “Salaries” heading and is related to their employment.” experts says.
How new income tax rules will impact the Employee?
Employees will pay less tax due to the decreased taxable value of rent-free housing, increasing their take-home pay. Starting from 1st September, under the new amendments, employees who are provided with unfurnished rent-free accommodation from non-government sources will get a reduction in the valuation of such houses i.e., their taxable base is going to be reduced now with the revised rates
“Employees who reside in housing that is owned or rented by their employers may experience a decrease in the taxable perquisite value, resulting in a lower tax burden. which would allow them to obtain a little more cash,” experts says.
How Will you benefit?
A tax and investment expert, said the employer must review the “perquisite” calculation in light of the value of the rent-free period. He added that “only a handful of employers provide rent-free accommodation,” which clarifies who will be impacted by this change. He continued by saying that the salaries of the employees would directly be affected. The salary received in hand will be more due to less tax.
The Central Board of Direct Taxes (CBDT) has notified amendments to the Income Tax Rules for valuing perquisites of rent-free or concessional accommodation by employers to employees. This change was made to the Finance Act of 2023’s definition of “perquisite” for the purpose of valuing rent-free or inexpensive housing provided to an employee by his employer.
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