Income Tax Rules 2002 prescribe how employer-provided accommodation, vehicles and other benefits are valued for calculating employees’ taxable salary.
The Federal Board of Revenue (FBR) has explained the rules for calculating the taxable value of employee benefits, including employer-provided accommodation and vehicles, for tax year 2027.
According to the Income Tax Rules 2002, updated up to September 15, 2026, the value of all perquisites, allowances and benefits provided by employers must be included in employees’ taxable income under the head of salary.
Rules 3 to 7 prescribe the valuation mechanism for these benefits.
Tax valuation of employer-provided accommodation
Under Rule 4, the value of accommodation provided by an employer is determined according to the amount the employer would have paid if the accommodation had not been provided.
However, the taxable value cannot be less than 45% of the minimum of the basic salary time scale, or the basic salary where no time scale exists.
An exception applies where a house rent allowance of 30% is admissible. In such cases, the valuation cannot be lower than 30% of the minimum of the basic salary time scale or the basic salary where no time scale exists.
Tax valuation of employer-provided vehicles
Rule 5 establishes separate valuation rates for motor vehicles provided to employees.
Where a vehicle is used partly for personal and partly for official purposes, its taxable value is calculated at 5% of the cost incurred by the employer to acquire the vehicle.
If the vehicle is leased, the calculation is based on 5% of its fair market value at the commencement of the lease.
However, where a vehicle is provided exclusively for personal use, the taxable value increases to 10% of its acquisition cost or fair market value at the commencement of the lease.
Directors also covered under salary rules
Rule 6 clarifies that the definition of an employee also includes a director of a company.
Meanwhile, Rule 7 states that these valuation rules apply to salary income received after June 30, 2006.
Tax year 2027 covers the period from July 1, 2026, to June 30, 2027.