Rule 3(g) of Income-tax Rules - Valuation of perquisibte on account of services of household servants
Circular No. 122 was issued by the Central Board of Direct Taxes on 19 October 1973. Its subject is Rule 3(g) of Income-tax Rules - Valuation of perquisibte on account of services of household servants.
Takes a gardener's salary out of the perquisite computation. Section 17(2)(iv) makes a perquisite of any sum paid by the employer in respect of an obligation which, but for the payment, the employee would have had to meet; so the test is whether the employee himself would have been obliged to spend the money. The Board, with the Ministry of Law, reasons that an employee might want no gardener at all, or might be an enthusiast who would employ several, and that a gardener is engaged by the employer to maintain the garden and works whether or not the building is occupied. The expense is therefore maintenance of the house and grounds which the employer would have incurred anyway, and is not a sum paid in discharge of the employee's obligation, so it cannot be taxed as a perquisite in the employee's hands. It may, however, be taken into account in estimating the value of the rent-free residential accommodation under rule 3. Instruction No. 133 dated 10th December 1969, which had valued the perquisite for gardeners, night watchmen and sweepers on an ad hoc basis, stands modified to that extent.
The Board re-examined, in consultation with the Ministry of Law, whether salaries paid to gardeners of employer-owned buildings occupied by employees are taxable as a perquisite.
Rule 3(g) of Income-tax Rules - Valuation of perquisibte on account of services of household servants
1. I am directed to invite reference to the Board’s Instruction No. 133 [F. No. 40/25/69-IT(A-I)], dated 10- 12-1969 (Annex) on the above subject.
2. The Board in consultation with the Ministry of Law has re-examined the question of taxability of the salaries paid to the gardeners of the buildings belonging to the employers and occupied by the employees as a perquisite. Section 17(2)(iv) provides that the term "perquisite" includes "any sum paid by the employer in respect of any obligation which but for such payment would have been payable by the assessee". Hence, for this definition to apply, the position must be that if the employer had not laid out the money, the employee himself should have been obliged to do so. An individual might not be interested in having a gardener at all and he might allow the garden to run to weed. On the other hand, he might be an enthusiastic gardener who might himself have laid out large sums on the garden and have employed more gardeners than one. A gardener is employed by the employers primarily with a view to maintain the garden and he renders services whether or not the building is occupied by any employee. In view thereof, it amounts to the maintenance of the house and the grounds which the employer in any case would have done irrespective of the fact whether the building was occupied or vacant. As such, the amount spent on the salary of a gardener by the employer does not represent a sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the employee. The payment of salary to a gardener as such cannot be regarded as a perquisite so as to justify that amount being taxed in the hands of the employees. However, the expenses incurred by way of maintenance of a gardener may be taken into account for the purposes of estimating the value of the rent-free residential accommodation provided by the employer under rule 3 of the Income-tax Rules, 1962.
3. The Board’s Instruction No. 133, dated 10-12-1969 referred to in para 1 [Annex] above stands modified to the above extent.
Circular : No. 122 [F. No. 200/3/72-IT(A-I)], dated 19-10-1973.
ANNEX - PARA 1 OF INSTRUCTION NO. 133, DATED 10-2-1969 REFERRED TO IN CLARIFICATION
"lt has been decided by the Board that the taxable perquisite in the hands of the employee on account of services of gardeners, night watchmen and sweepers, provided by the employer should be calculated on the following ad hoc basis :
Sweeper : 75 per cent of actual wages or Rs. 60 per month, whichever is less.Gardener : 50 per cent of actual wages or Rs. 60 per month, whichever is less"
Watchman.
In a salary assessment or an employer's section 201 proceeding where domestic staff were valued as a perquisite.
Rules it names. Rule 3 of the Income-tax Rules, 1962. The 1962 Rules were replaced by the Income-tax Rules, 2026, which renumbered nearly everything: a rule number quoted here almost never means the same rule today.
Source: the Income Tax Department’s own published text — its page for this instrument.
