Following an amendment to the Finance Act 2023 for calculating “perquisite” regarding concessional housing, the Central Board of Direct Taxes (CBDT), in a notification this week, announced the modification of Rule 3 of the Income-tax Rules 1961 concerning rent-free accommodation offered to an employee by the employer.
Saturday’s notification will allow employees who receive rent-free accommodation from their employers and earn substantial salaries to increase their savings and take-home salary. These new norms of the income tax department will come into effect from September 1.
As indicated in the notification, for employees who aren’t part of the central or state government and receive unfurnished accommodations owned by their employers, the revised valuation will be as follows:
In cities with a population exceeding 40 lakh based on the 2011 census, the valuation will now be 10 per cent of the salary. In cities with a population exceeding 15 lakh but not exceeding 40 lakh, the valuation will be 7.5 per cent of the salary.
Previous Categorisation and Rates
New Categorisation and Rates
More than 25 lakh
More than 40 lakh
Between 10 lakh and 25 lakh
Between 15 lakh and 40 lakh
Less than 10 lakh
Less than 15 lakh
Source: PIB press release.
CBDT Notifies New Rules For Tax Exemption Of Life Insurance Premiums Exceeding Rs 5 Lakh
CBDT released revised directives concerning earnings from life insurance policies involving substantial premiums. According to the updated tax rules, payouts from life insurance policies with an annual premium surpassing Rs 5 lakh will now be liable to taxation.
This fresh directive renders the exemptions outlined in the Income Tax Act. The modifications will take effect from the fiscal year 2023-24. The CBDT also provided clarification that this identical regulation will be applicable in cases involving multiple policies if the aggregate annual premiums for all policies surpass Rs 5 lakh within a financial year. The total predominant sum from the amalgamated policies would be liable to taxation.
The Income Tax Act’s Section 10 (10) provides exclusions for specific amounts acquired through life insurance policies, encompassing those attributed as bonuses. Nonetheless, these exemptions will cease to be valid under the recent CBDT regulations. This endeavour brings clarity and prevents ambiguity while calculating income from substantial life insurance policies.
Furthermore, if premiums are due for multiple life insurance policies, excluding unit-linked insurance policies, issued on or after April 1, 2023, the exemption specified in the mentioned clause will solely pertain to those policies where the cumulative premium does not surpass Rs 5 lakh for any fiscal years within the tenure of any of those policies. However, these provisions will not be applicable in the event of any payout received upon an individual's demise.
Says Naval Goel, founder and CEO of PolicyX.com, “Prior to the declaration of no exemptions under section 10(10D) of The Insurance Act, people were utilizing life insurance policies as significant investment avenues. However, the intended purpose of insurance is for safeguarding rather than investment. Hence, in order to address this, the decision to eliminate exemptions for high-value life insurance policies with premiums exceeding Rs 5 lakh is a commendable step.”