Circular No. 662

What this is

Circular No. 662 was issued by the Central Board of Direct Taxes on 27 September 1993. Its subject is Rule 3(g) of Income-tax Rules - Valuation of perquisibte on account of services of household servants.

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.

What it does

Confines the ad hoc valuation of servant perquisites to servants actually provided by the employer. Board's Instruction No. 133 of 1969 valued the perquisite of a sweeper at 75 per cent of actual wages or Rs. 60 per month, whichever is less, and a gardener or watchman at 50 per cent of actual wages or Rs. 60 per month, whichever is less. The Board clarifies that this applies only where the servant is recruited and paid by the employer and his services placed at the employee's disposal. Where the employee engages the sweeper, gardener or watchman himself and the employer reimburses the wages, the reimbursement is fully taxable as income from salaries, with no ad hoc reduction.

Why it was issued

The Board received a representation asking whether reimbursement by the employer of the wages of a sweeper engaged by the employee was covered by the earlier instruction.

Who it reaches

• Salaried employees whose employers reimburse domestic servant wages
• Employers computing perquisite value for tax deduction under the salary head
• Employers who themselves recruit and depute sweepers, gardeners and watchmen
• Assessing Officers valuing perquisites under rule 3

The instrument, as the Board published it

Rule 3(g) of Income-tax Rules - Valuation of perquisibte on account of services of household servants
1. Board’s Instruction No. 133 [F. No. 40/25/69-IT(A-I), dated 10-12-1969 (Annex) provides that the taxable perquisite in the hands of the employee on account of the services of gardeners, night watchmen and sweepers provided by the employer should be calculated on the following ad hoc basis :—
(i) Sweeper - 75 per cent of actual wages or Rs. 60 p.m., whichever is less;
(ii) Gardener; and
(iii) Watchman - 50 per cent of actual wages or Rs. 60 p.m., whichever is less.
2. The Board has received representation to clarify whether reimbursement by the employer of wages of sweeper engaged by the employee is covered by the above instruction.
3. Board’s Instruction No. 133, dated 10-12-1969, is applicable only when the services of sweeper are provided by the employer, i.e., the sweeper is recruited by the employer and remunerated by him but his services are placed at the disposal of the employee. Therefore, the reimbursement of wages of sweeper, gardener or watchman engaged by the employee is fully taxable as income from "Salaries" in the hands of the employee.
Circular : No. 662, dated 27-9-1993.
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.

What to watch

• Everything turns on who recruits and pays the servant; a reimbursement arrangement gets the full amount taxed, however the payment is labelled.
• The ad hoc figures are those of a 1969 instruction and are expressed in rupees per month at 1969 levels; rule 3 perquisite valuation has been recast since, as the reliance on an old instruction shows.
• The concession, such as it is, covers only sweepers, gardeners and night watchmen — not other domestic staff.
• The text gives the underlying instruction's date as 10 December 1969 in the body but 10 February 1969 in the annex heading, so do not rely on the day.

Where you meet it

In a salary assessment or a section 201 proceeding against an employer for under-valuing servant perquisites in Form No. 16.

What it names

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.

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