Rent Free Accommodation – Perquisite

Computing taxable value in case of rent free accommodation or accommodation provided at concessional rate

When accommodation is provided by the Government

Case I – When unfurnished accommodation is provided

Taxable Amount = License Fees – Rent actually paid by employee

Case II – When furnished accommodation is provided

The following amount will also be taxable in addition to the amount calculated in Case I

1. When furniture is owned by Government – 10% p.a. of the cost of furniture
2. In any other case – Actual hire charges payable

When accommodation is provided by any other employer

Case I – When unfurnished accommodation is provided and such accommodation is owned by employer

1. Cities having population exceeding 25 lakhs as per 2001 census – 15% of salary
2. Cities having population exceeding 10 lakhs but not exceeding 25 lakhs as per 2001 census – 10% of salary
3. Cities having population not exceeding 10 lakhs as per 2001 census – 10% of salary

Case II – When furnished accommodation is provided and such accommodation is owned by employer

The following amount will also be taxable in addition to the amount calculated in Case I

1. When furniture is owned by employer – 10% p.a. of the cost of furniture
2. In any other case – Actual hire charges payable

Case III – When unfurnished accommodation is provided and such accommodation is taken on lease or rent by the employer

Lower of the following amount will be taxable: –

1. Actual rent paid by the employer
2. 15% of the salary

Case IV – When furnished accommodation is provided and such accommodation is taken on lease or rent by the employer

The following amount will also be taxable in addition to the amount calculated in Case III

1. When furniture is owned by employer – 10% p.a. of the cost of furniture
2. In any other case – Actual hire charges payable

Case V – When unfurnished accommodation is provided by the employer in a hotel

It is not taxable.

Case VI – When furnished accommodation is provided by the employer in a hotel

Lower of the following amount will be taxable: –

1. Actual charges paid or payable for such hotel
2. 24% of the salary

Additional Points

1. Actual amount of rent paid or payable by the employee shall be deducted in each case.
2. Salary = Basic pay + DA (if forming part of retirement benefits) + Bonus + Commission + All taxable allowances
3. The following amount will not be consider will calculating salary

• Exempt allowances
• Value of perquisites under section 17(2)
• Employer’s contribution to provident fund
• Lump sum amount received at the time of termination of services such as gratuity, voluntary retrenchment compensation etc.

Exemptions in certain cases

1. Accommodation provided in hotel for tor a period not exceeding 15 days on account of transfer from one place to another, then it shall be exempted from tax.
2. Accommodation of temporary nature /remote area
   When any accommodation is provided to an employee working at a mining site or an on-shore oil exploration site or a project execution site or a dam site or a power generation site or an off-shore site which
   • is of temporary nature and having plinth area not exceeding 800 square feet, is located not less than 8 kilometers away from the local limits of any municipality or a cantonment board or
   • is located in a remote area.
3. On account of transfer from one place to another, the employee is provided with accommodation at new place of posting while retaining the accommodation at the other place
   • For first 90 days: Only one accommodation is taxable as per the above rules which have lower taxable value.
   • After 90 days: Both of the accommodation will be chargeable to tax as per above rules.
4. When the accommodation is provided by the Government to an employee who is serving on deputation with anybody or undertaking under the control of such Government
   • the employer of such an employee shall be deemed to be that body or undertaking where the employee is serving on deputation and
   • the value of perquisite of such an accommodation shall be the amount calculated as if the accommodation is owned by the employer.