PNB to Deduct TDS on Residential Accommodation Provided to Officers for FY 2026-27

Punjab National Bank (PNB) has ordered all its branches and offices to deduct Tax Deducted at Source (TDS) on the perquisite value of residential accommodation provided to officer employees for the Financial Year 2026-27.

Earlier, PNB had announced that it would bear 100% of the TDS liability on the perquisite value of interest-free loans and loans offered at concessional interest rates for FY 2026–27.

The decision has been taken following an order passed by the Madras High Court dismissing two writ petitions challenging the deduction of TDS on the value of residential accommodation provided by banks to their employees.

The matter relates to two writ petitions filed before the Madras High Court. The first petition, Writ Petition No. 14126/2008, was filed by the All India Bank Officers’ Confederation (AIBOC), Chennai, while the second petition, Writ Petition No. 39544/2024, was filed by the All India Punjab National Bank Officers’ Federation (AIPNBOF). Both organisations had challenged the deduction of TDS on the perquisite value of residential accommodation under Section 17(2) of the Income-tax Act, 1961, as amended by the Finance Act, 2007.

In these cases, the Madras High Court had earlier granted interim injunctions restraining the respondents from deducting TDS on the perquisite value of residential accommodation.

However, the Madras High Court, through its order dated October 14, 2026, dismissed both writ petitions. The court observed that the issue relating to the constitutional validity of Section 17(2) of the Income-tax Act, 1961, had already been considered and decided in favour of the Revenue by the court. It also noted that the decision had been upheld by the Supreme Court.

Following the dismissal of these petitions, PNB has advised all its branches and offices that income tax must be deducted at source on the perquisite value of rent-free or concessional furnished or unfurnished residential accommodation provided to PNB employees.

The bank has clarified that TDS will be applicable to all employees, irrespective of their membership in any officers’ association or federation, for the entire Financial Year 2026-27. This means the tax deduction will not be limited to employees who are members of the associations that filed the writ petitions.

Earlier, employees of a particular union were excluded from paying TDS. Now, employees of all unions will have to pay TDS.

What is the residential accommodation facility provided by PNB and what is the issue of TDS?

Banks provide residential accommodation to their officers. Officer takes a house or flat on rent and Bank pays the rent of the house/flat directly to the landlord.

Under income-tax rules, when an employer provides a house to an employee free of cost or at a reduced rent, the benefit received by the employee is treated as a taxable perquisite. This means the employee receives a benefit in addition to their regular salary.

For example, suppose an officer receives accommodation from PNB at a rent lower than its taxable value under the prescribed rules. The difference, calculated according to the applicable valuation rules, may be treated as a taxable benefit.

The bank must consider this benefit while calculating the employee’s taxable salary and deducting TDS. The calculation depends on factors such as the type of accommodation, whether it is furnished, the applicable valuation rules and the rent paid by the employee.