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For perquisites taxable in the hands of the employee for the purpose of taxation, the employee is the “assessee”. As a general rule the taxable value of perquisites in the hands of the employees is its cost to the employer. However, rules for valuation of perquisites are mentioned in Rule 3 of the Income Tax Rules.

Valuation of rent free residential accommodation provided to the Employees other than Government Employees will be made as under:

Unfurnished Accommodation

1. Where unfurnished is provided by the employer in a city having a population of more than 25 lacs as per 2001 census and the accommodation is owned by the employer himself; then the value of perquisite will be 15% of the salary
2. Where unfurnished is provided by the employer in a city having a population of more than 10 lacs but not exceeding 25 lacs as per 2001 census and the accommodation is owned by the employer himself; then the value of perquisite will be 10% of the salary
3. Where unfurnished is provided by the employer in any other place and the accommodation is owned by the employer himself; then the value of perquisite will be 7.5% of the salary

After computing the value of the perquisite as mentioned above, it will be reduced by the rent if any actually paid by the employee.

Furnished Accommodation

Where furnished accommodation is provided to the employees other than the government employees; then the value of the perquisite shall be first computed as if unfurnished accommodation is provided. The value so arrived at shall be increased by 10% of the cost of furniture (including television sets, radio sets, refrigerators, other household appliances, air conditioning plant or equipment) and in case, the furniture is hired from a third party, the actual hire charges payable for the same as reduced by any charges paid or payable for the same by the employee during the previous year.

Where accommodation is taken on lease or rent by the employer

In such cases, the value of perquisite shall be the lower of the actual amount of lease rental paid or payable by the employer or 15% of the salary as reduced by the rent, if any, actually paid by the employee.

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