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Unit 7: Income under the Head Salaries

and perquisites and these are determined on due basis for the period during which rental Notes
accommodation is occupied by the employee in the previous year.

Example: Valuation of rent free unfurnished accommodation: Mr. Shyam, employed at
Mumbai, receives the following from his employer during the previous year:

Basic Salary 60,000
Bonus 1,800
Entertainment allowance (taxable) 6,000
Electricity expenses 2,000

Professional tax paid by the employer 2,000
Rent free house (owned by Employer):
Fair rent 48,000
Salary of gardener 2,400
Garden Maintenance 1,200
Salary of watchman 1,800

Determine the value of taxable perquisites in respect of rent free house assuming (a) Mr. Shyam
is a Government Officer and the fair rent as arrived at by the Government is ` 6,000 p.a
(b) Mr. Shyam is a semi-Government employee, and (c) Mr. Shyam is employed by a private
company.

Solutions:
(a) If Mr. Shyam is a Government Officer: As per Rule 3(1) of Income-tax Rules, ` 6,000 p.a.
being the rent of the house as per Government rules, will be the taxable value of the
perquisite.
(b) If Mr. Shyam is a semi-Government employee: As per Rule 3(1) of the Income-tax Rules,
the value of the perquisite in respect of rent free accommodation is taken at 15% of salary
of the employee (as the house is owned by the Employer and provided in Mumbai).
1. Salary = 67,800 (` 60,000 + 1,800 + 6,000)
2. 15% of salary = 10,170 and
3. Therefore, ` 10,170 is taxable value of the perquisite.

4. Further, the value of Electricity expenses and Professional Tax paid by the employer,
being perquisites, are not included in the salary for valuation of Rent Free House
Accommodation.
(c) If Mr. Shyam is employed in Private Company: The value of perquisite in this case shall
also be 10,170. Under the new rules there is no difference between the semi-Govt. and
other employees.

Example: Mr. Ramamoorthy, an employee of M/s. Gopalkrishnan & Co. of Chennai
receives during the previous year ended March 31, 2013 the following payments:
Basic Salary 40,000

Dearness allowance 3,000
Leave Salary 5,400

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