Page 196 - DCOM301_INCOME_TAX_LAWS_I

Unit 7: Income under the Head Salaries

Thus, the basic principles governing valuation of perquisites are as follows: Notes
1. The valuation is done on the basis of their value to the employee and not the employer’s
cost for providing the same.

2. The value of perquisite is included in the salary income only if the perquisite is actually
provided to the employee.
3. Perquisite which is not actually enjoyed by the employee (though the terms of employment
provide for the same) cannot be valued and taxed in the employee’s hands. Therefore,
where the employee waives his right of perquisite, he cannot be taxed thereon.

The valuation of various perquisites is done as follows:
1. Valuation of the Perquisite of Rent Free Accommodation: For purpose of valuation of the
perquisite of unfurnished accommodation, all employees are divided into two categories:

a) Central Govt. & State Government employees, and
b) Others.
For employees of the Central and State governments the value of perquisite shall be equal
to the licence fee charged for such accommodation as reduced by the rent actually paid by
the employee.

Example: Mr. X, a Senior Officer in Delhi administration draws ` 20,000 per month as
basic salary. The government has provided him with a rent free unfurnished flat whose market
rent is ` 3,000 per month, though as per government rules, its licence fees is fixed at ` 700
per month. Determine the value of perquisite in respect of rent free accommodation.

Solution:
In a case of government employee, the value of rent free accommodation is ` 8,400 (` 700 × 12)
i.e. the licence fees fixed by the government.

For all others, i.e., those salaried taxpayers not in employment of the Central government
and the State government, the valuation of perquisite in respect of accommodation would
be at prescribed rates, as discussed below:
(a) Where the accommodation provided to the employee is owned by the employer,
the rate is 15% of ‘salary’ in cities having population exceeding 25 lakh as per the
2001 census.
(b) The rate is 10% of salary in cities having population exceeding 10 lakhs but not
exceeding 25 lakhs as per 2001 Census.
(c) For other places, the perquisite value would be 7.5% of the salary.
Where the accommodation so provided is taken on lease or rent by the employer, the
prescribed rate is 15% of the salary or the actual amount of lease rental payable by the
employer, whichever is lower, as reduced by any amount of rent paid by the employee.
For furnished accommodation, the value of perquisite as determined by the above method
shall be increased by:
(a) 10% of the cost of furniture, appliances and equipment, or
(b) where the furniture, appliances and equipment have been taken on hire, by the
amount of actual hire charges payable as reduced by any charges paid by the
employee himself.

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