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        Income Tax

        Example:- X, a director-employee of a private sector company based at Indore (population: 24Lakhs), draws ₹ 90,000 p.m. as basic salary. Other allowances and benefits attached to his office are: DA (forming part of Salary): 20% of basic salary; bonus: 30% of basic salary; commission: 800 p.m. and rent free house (lease rent paid by the employer: ₹ 40,000 p.m.) Determine the value of perquisite.

        10 August, 2015

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        Chapter No. 13 - Salary - Perquisites - Accommodation (Rent Free / Concessional) - Rule 3(1)

        .  Calculation of salary for the purpose of RFA: Basic Salary + DA + Commission

        Basic Salary = 90,000 x 12                                                                  = 10,80,000

        DA = 20% of 10,80,000                                                                       = 2,16,000

        Commission = 800 x 12                                                                       = 9,600

        Bonus = 30% x 10,80,000                                                                    = 3,24,000

        TOTAL                                                                                                 16,29,600

        TAXABLE VALUE IS LOWER OF THE FOLLOWING:

        1. 15 % x 16,29,600 = 2,44,440
        2. 40,000 x 12 = 4,80,000

        ₹ 2,44,440 is lower, so this is the value of RFA.

        Rent-free accommodation valuation: taxable value is the lower of a percentage of salary or employer-paid rent for perquisite computation. Taxable value of a rent-free accommodation perquisite is the lower of (a) 15% of salary (computed as basic salary plus DA plus commission) and (b) employer paid annual rent. In the example the aggregated annual basic, DA and commission are used to calculate the 15% benchmark, which is then compared with the annual lease rent to determine the taxable perquisite.
                        Cases where this provision is explicitly mentioned in the judgment/order text; may not be exhaustive. To view the complete list of cases mentioning this section, Click here.
                          Provisions expressly mentioned in the judgment/order text.

                              Rent-free accommodation valuation: taxable value is the lower of a percentage of salary or employer-paid rent for perquisite computation.

                              Taxable value of a rent-free accommodation perquisite is the lower of (a) 15% of salary (computed as basic salary plus DA plus commission) and (b) employer paid annual rent. In the example the aggregated annual basic, DA and commission are used to calculate the 15% benchmark, which is then compared with the annual lease rent to determine the taxable perquisite.


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