Impact of section 17(2) in computing
rent-free/concessional value of accommodation
CA V.K. Subramani
Rent-free accommodation or accommodation at concessional
rent is provided by the employer to employee as part of salary package. It is
altogether a different matter that, now a days employees after some time avail
housing loan for identifying own accommodation by way of purchase or
construction. In such case, the employee is given housing rent allowance (HRA)
instead of accommodation by the employer. The HRA so received would become
taxable subject to provisions of section 10(13A). However, the employee is
eligible for claiming housing loan interest while computing income under the
head 'house property' and principal amount of loan repaid as deduction under section
80C. These benefits, would not be available if the assessee opts for section
115BAC with property being claimed as self-occupied or not being occupied owing
to employment in other place and had to reside in a building not belonging to
him.
Valuation of rent-free accommodation is the focus of this
update and it is listed below --
(i) Where the accommodation is
provided by the Central Government or State Government to employee either
holding office or post in connection with the affairs of the Union or of such
State, the perquisite value shall be licence fee determined by the Central or
any State Government in respect of such accommodation;
(ii) Where the accommodation is
provided by any other employer and the accommodation is owned by the employer,
the value of perquisite is 15% of salary if the accommodation is in cities
having population exceeding 25 lakhs as per 2001 census and 10% of salary where
it is located in cities having population which exceeds 10 lakhs but does not
exceed 25 lakhs. The perquisite value is 7.5 % of salary if the population is
less than 10 lakhs.
(iii) Where the accommodation is
taken on lease or rent by the employer, the perquisite value would be the
actual amount of rent paid or payable by the employer or 15% of salary- whichever
is lower.
The most important term to be understood in this context is
meaning of the term 'salary'. Explanation 3 to section 17(2) specifies them.
It reads as under:
'salary' includes the
pay, allowances, bonus or commission payable monthly or otherwise or any
monetary payment, by whatever name called from one or more employers but does
not include the following:
(i) Dearness allowance or
dearness pay unless it enters in to retirement benefits;
(ii) Employer's contribution to
provident fund account of the employee;
(iii) Allowances which are
exempted from payment of tax;
(iv) Value of perquisites
specified in section 17(2) of the Act;
(v) Any payment or expenditure
specifically excluded in proviso to section 17(2); and
(vi) Lump-sum payment received
at the time of termination of service or super-annuation or voluntary
retirement like, gratuity, severance pay, leave encashment, voluntary
retirement benefits, commutation of pension and similar payments.
Thus, the item (iv) dealing with value of perquisites
specified in section 17(2) requires a little bit of elucidation. The following
perquisites independent of their taxability as perquisite, are not to be
considered for the purpose of perquisite value of accommodation:
1. Any expenditure paid by the
employer which but for such payment is payable by the employee. Example: salary
of domestic servant of employee reimbursed by the employer;
2. Amount paid by the employer
for effecting an assurance on the life of the assessee-employee;
3. Interest-free or concessional
loans;
4. Travel, tour, accommodation
and other expenses borne or reimbursed by the employer for the holiday availed
by the employee referred to rule 2B;
5. Value of free food and
non-alcoholic beverages provided by the employer;
6. The value of any gift,
voucher or token in lieu of which such gift may be received by the employee
from the employer;
7. Membership fees and annual
fees for credit card if reimbursed by the employer;
8. Club membership fee if
reimbursed by the employer;
9. Benefit by way of use of any
movable asset of employer by the employee or any member of his family;
10. Benefit from transfer of any
movable asset of employer to the employee.