The department of revenue has notified changes in the income tax rules that double the taxable income of private sector employees on account of housing perquisites.

The amendments came hours after Finance Minister P Chidambaram proposed the fringe benefit tax on employers in his Budget.

At present, in cities with over 400,000 population, the perquisite value of accommodation for private sector employees to be included in an employee's taxable income is treated as 10 per cent of his salary. This now doubles to 20 per cent.

The changes in the Income Tax Rules, notified by the Central Board of Direct Taxes on February 28, are effective from April 1 2005.

The new rules mean that a person earning an annual salary of Rs 10 lakh will have to fork out an additional Rs 33,660 annually by way of the higher tax on the  housing perquisite.

According to tax experts, the housing perquisite value of such a person will now double to Rs 2 lakh. As a result, his tax liability on account of the perquisite will double to Rs 67,320 a year.

For other cities, the perquisite value of accommodation, which was treated as 7.5 per cent of the salary, will now go up to 15 per cent. The value of accommodation is added to the taxable income and income tax is paid at the applicable rate.

However, the tax on perquisites like maintenance of a car, club membership, free meals, credit cards and tours and travel, which were earlier taxed in the hands of the employees, has been withdrawn. But this may not result in any relief for employees.

"We have amended these perquisite norms for employees in order to prepare the ground for the fringe benefit tax," a finance ministry official said.

"The use of accommodation provided to non-government employees will continue to be taxed in the hands of the employees, but at a higher rate. However, the government has not changed the tax rate for government employees," Ravi Prakash, senior manager, PricewaterhouseCoopers, told Business Standard.

In the case of the perquisite value of a car, employees are taxed at a rate ranging between Rs 1,200 (for small cars) and Rs 1,600 a month (for bigger vehicles) in addition to Rs 400 or 600 for a driver provided by the company.

"There will now be no perquisite value of car in the hands of the employees and the same will be considered as fringe benefit subject to Fringe Benefit Tax," Prakash said.

Similarly, travel benefit (other than by an airline or railway) to any employee or family members for personal or private journey free of cost or at concessional fare, has also been omitted. Free meals, gift or voucher, credit card and club membership have also been omitted.

Free or concessional housing loan, use of movable asset such as furniture and transfer of movable asset have however been retained.

"These items are likely to have been retained because there is no direct cost debited to the Profit & Loss Account," Prakash said.

He pointed out that expenses on telephone and mobiles, which are at present exempt, have also been omitted. "They will now be treated as a fringe benefit and employers will have to pay 30 per cent tax on 10 per cent of the total expenditure incurred on this account," he added.

Home truths The new rules mean that a person earning an annual salary of Rs 10 lakh will have to fork out an additional Rs 33,660 a year The housing perquisite value of such a person will now double to Rs 2 lakh As a result, his tax liability on account of the perquisite will double to Rs 67,320 a year