ACCOUNTING FOR PERQUISITE OF FURNISHED ACCOMODATION

Hi Sanjay! Here's how to account for the perquisite of furnished accommodation provided rent-free by the company to its Managing Director (MD), considering the valuation under Section 17(2) of the Income Tax Act and the TDS deducted.

Background:

• Accommodation owned by the company, provided rent-free to MD.

• Perquisite value (as per Section 17(2)): ₹7.50L

• TDS deducted on perquisite: ₹2.25L

Accounting Treatment in Company Books

1. Perquisite Valuation (₹7,50,000) – Not an actual cash outflow, but a deemed expense for the MD (for income tax purposes).

   • Since this is a perquisite to the MD and not an expense to the company, no expense is recorded in the company’s Profit & Loss Account.

   • The company’s books continue to show no rent income or rent expense, as it is the company’s own asset.

2. TDS Deducted (₹2.25L)

   • The company deducts TDS on the perquisite and deposits it with the government.

   • This is a liability and cash outflow for the company.

Journal Entries

Important Notes:

• No accounting entry is passed for the perquisite valuation ₹7.5L in company books, since it is for income tax purposes only and does not involve cash flow or expense for the company.

• The TDS is deducted and paid by the company but is a part of the MD’s tax liability.

• The company may disclose the perquisite value in notes to accounts or director’s remuneration disclosure but no P&L impact.