1. Why the Change? The government has updated the rules about how they calculate the value of homes that employers provide to their employees for free. This update makes things fairer and clearer.
2. Owned Homes Valuation: When an employer owns the home they're giving to an employee, the new rules change how much it adds to the employee's salary for tax purposes. The changes depend on how many people live in the city where the home is located. Here's how it works:
- If the city has over 40 lakh people: They'll add 10% of the employee's salary (used to be 15%).
- If the city has 25 to 40 lakh people: They'll add 7.5% of the employee's salary (used to be 15%).
- If the city has 15 to 24.99 lakh people: They'll add 7.5% of the employee's salary (used to be 10%).
- If the city has 10 to 14.99 lakh people: They'll add 5% of the employee's salary (used to be 10%).
- If the city has less than 10 lakh people: They'll add 5% of the employee's salary (used to be 7.5%).
3. Leased or Rented Homes Valuation: When an employer rents or leases a home to give to an employee, they'll add a smaller amount to the employee's salary for tax. It will be either the actual rental amount or 10% of the employee's salary – whichever is less. This used to be 15% before.
4. Keeping the Same Home Over Years: If an employee gets the same free home for more than a year, the way they figure out its value for tax won't change a lot each year. The value won't be higher than the first year, and they'll adjust it with something called the Cost Inflation Index. This rule starts from the financial year 2023-2024 or the year they got the home, whichever is later.
5. Adjusted First Year's Value: When they adjust the value, they'll use a simple formula: Adjusted first year’s value = First year’s value * CII of the later year / CII of the first year
6. When Do These Changes Start? Starting from September 1, 2023, these new rules will be in place. If you got the home for free before this date, the old rules still count.
In Short: The government changed the rules about how they calculate the value of homes employers give to employees for free. If the employer owns the home:
- They'll add less to the salary for tax if the city is smaller.
- For rented homes, they'll add a smaller amount to the salary.
- If you have the same home for years, the value won't change a lot each year.
These rules start from September 1, 2023. If you got the home before this date, the old rules still apply.
