Income tax department changed the rules, now employees will get more salary.

The Income Tax Department has changed the rules for assessing rent-free accommodation provided by a company to its employees. Along with this, employees who are well paid and live in rent-free accommodation provided by the company will now be able to save more. This is likely to increase the take-home pay of employees.

The Central Board of Direct Taxes (CTBT) has issued a notification on August 18 regarding amendments to the Income Tax Rules. These rules will be applicable from September 1. The Finance Act 2023 brought amendments for the purposes of computing ‘facility’ in respect of value of concessional accommodation provided to an employee by his company. The rules for calculating convenience have now been announced. The income tax department said on Saturday that the classification and boundaries of cities and population have now been revised based on the 2001 census as per the 2011 census.

As per the revised notification, the assessment of accommodation provided by the company to the private sector employees will be as follows:

• In cities with a population of more than 40 lakhs, the assessment will be 10% of wages, up from 15% earlier. And earlier the population limit was 25 lakhs.
• In cities with a population between 15 lakh and 40 lakh, the assessment will be 7.5% of salary, up from 10% earlier.
• In cities with a population of less than 1.5 million, the assessment has been raised to 5 percent of salary, up from 7.5 percent previously. The population limit was less than 10 lakhs.
• (Census as per 2011 Census)

Amit Maheshwari, tax partner, AKM Global, said that employees who are getting adequate salary and accommodation from the employer will be able to save more as their taxable base will now decrease with the revised rates. Gaurav Mohan, Chief Executive Officer (CEO) of AMRG & Associates said that these provisions incorporate data from the 2011 census and are aimed at rationalizing the calculation of presumptive value.

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Mohan said the taxable wages of workers availing of rent-free accommodation would decrease, thereby increasing the net take-home pay. However, this will also have a double effect, increasing employee savings but reducing government revenue. Low-income workers with modest housing will not benefit much from the tax relief.