Because the income tax agency has altered standards for valuing such homes, employees who are paid well and get rent-free housing from their employers will now be able to save more and receive a greater take-home pay.
Changes to the Income Tax Rules have been announced by the Central Board of Direct Taxes (CBDT) and will take effect on September 1.
According to the notification, where unfurnished housing is provided to employees other than those working for the federal government or a state government and the housing is owned by the employer, the valuation shall be: (i) 10% of salary (reduced from 15%) in cities with a population greater than 40 lakh as of the 2011 census (previously, 25 lakh as of the 2001 census); (ii) 7.5 % of salary (reduced from 10%) in cities with a population greater than 15 lakh but n
Amit Maheshwari, an AKM Global Tax Partner, said that individuals who get housing benefits from their employers in addition to high wages would be able to save more money since the new rates will result in a smaller taxable base for them. The take-home income for them will increase as a consequence of the decreased perquisite value.
These regulations, according to CEO of AMRG & Associates Gaurav Mohan, attempt to rationalize the computation of perquisite value and take into account insights from the 2011 Census data.
“Employees with rent-free housing would experience perquisite value rationalization resulting to a decrease in taxable wage, improving the net take-home pay. It is important to keep in mind that the decline in the perquisite value of rent-free housing will have two effects: first, it will result in real savings for workers, and second, it will cause a comparable decline in government income, according to Mohan.
He said that this modification would result in disproportionate advantages for higher-earning workers who are given pricey lodgings. Employees with lower incomes who live in more basic lodgings could not get a lot of tax benefit.
Furthermore, if corporate employers can take advantage of tax benefits for their staff, this move may drive them to proactively review and even modify their current pay schemes, according to Mohan.
