193. Rule 3(a)(iii) of Income-tax Rules - Valuation of perquisite represented by free boarding and lodging in the case of hotel employees
Circular No. 311 was issued by the Central Board of Direct Taxes on 24 August 1981. Its subject is 193. Rule 3(a)(iii) of Income-tax Rules - Valuation of perquisite represented by free boarding and lodging in the case of hotel employees.
This is a clarification. The Board is stating how it reads a provision. That reading binds the department; it does not bind a court, and where the section says otherwise the section wins.
Supersedes the Board's circular dated 2 March 1960 on the valuation of free boarding and lodging of hotel employees. That circular had prescribed, for employees obliged to live on the hotel's premises, lodging at twelve per cent of salary if furnished and ten per cent if unfurnished, or the usual rent, whichever was less, and boarding at the hotel's actual cost including overheads, the formula applying only to bona fide employees and not to directors with a substantial interest in the hotel company. The Board now says the rules themselves cover the ground: rent-free residential accommodation is valued under rule 3(a)(iii) and free food under rule 3(g), so the 1960 formula no longer holds.
The specific provisions in rule 3 of the Income-tax Rules, 1962 covered the valuation, leaving no room for the separate 1960 formula.
193. Rule 3(a)(iii) of Income-tax Rules - Valuation of perquisite represented by free boarding and lodging in the case of hotel employees
1. Attention is invited to Board’s Circular, dated 2-3-1960 issued from F. No. 35/24/59-IT(A-I) on the above subject. A copy of this circular is enclosed for ready reference [printed here as Annex].
2. Rule 3 of the Income-tax Rules, 1962 lays down the mode of valuation of perquisites. The provisions of rule 3(a)(iii) would apply for valuation of rent-free residential accommodation provided by an employer to an employee. The valuation of perquisites in the form of free food will have to be determined in terms of rule 3(g).
3. In view of the specific provision contained in the rules as mentioned hereinabove, the Circular of 1960 stands superseded.
ANNEX - CIRCULAR DATED 2-3-1960 REFERRED TO IN CLARIFICATION
1. The Board observe that no uniform practice is being followed in all the Commissioner’s charges for the valuation of perquisites by way of free boarding and lodging in the case of hotel employees who are obliged to live in the hotel premises and who are provided free boarding. It has now been decided that the value of such perquisites should be determined as under :
Lodging - 12 per cent or 10 per cent of the salary (according as the accommodation provided is furnished or unfurnished) or the usual rent of the accommodation, whichever is less.
Boarding - The hotel’s actual cost (including overheads) of the food supplied to the employees.
2. The above formula is to be applied only to bona fide employees and not to directors who have a substantial interest in the hotel company.
Circular : No. 311 [F. No. 200/50/77-IT(A-I)], dated 24-8-1981.
In a short-deduction proceeding against a hotel, or in an employee's assessment where the value of free accommodation and meals is in issue.
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.