Valuation of Rent Free Accommodation

How to do the Valuation of Rent Free Accommodation for private and government employees and When RFA is not taxable or exempted from Income Tax? In the course of the employment employer can provide the accommodation to its employee so that they can fulfill their duties more diligently without getting worried about the residential problem. Income Tax Section 17 and Rule 3 of Income Tax Rules, 1962 deals with the valuation of different perquisites.

From Income tax perspective this facility is considered as perquisite and taxable under the head salary. But generally it raises the question what should be the value of that free accommodation, to solve this query income tax has given different conditions and formula through which we can calculate taxable value of rent free house.

Government employee (state /central Government):

License fee determined by govt.xxxxx
Add: 10% of cost of house appliances owned by employerxxxxx

Or

Higher charges of house appliances hired by employer

xxxxx
Less: any amount recovered from employeexxxxx
Value of perquisitexxxxx

Non-Government employee:

  • Accommodation owned by employer:
Population

% Salary

Upto 10 lakh

7.5% of salary

Or
Above 10 lakhs upto 25 lakhs

10% of salary

Or
Above 25 lakhs

15% of salary

Add: if furnished house
10% of cost of furniture owned    xxxxx
Or
Higher charges of furniture hired by employerxxxxx
Value of perquisitexxxxx

 

  • Accommodation hired by employer: 
    15% of salary or actual hire charges
    Whichever is lower
    xxxxx
    Add: if furnished house
    10% of cost of furniture owned by employerxxxxx

    Or

    Higher charges of furniture hired by employerxxxxx
    Less: any amount recovered from employeexxxxx
    Value of perquisitexxxxx
  • Accommodation given in hostel: 24% of salary or actual hire charges (Whichever is lower) 
  1. This is applicable only if accommodation is provided for 15 days and upto 15 days it will be tax free and after that it is taxable
  2. Salary for the purpose of calculating it value of rent free accommodation will be calculated as per the below formula.

    Salary means: Basic pay + Dearness Allowance (if) + commission + taxable allowance + leave encashment + any other monetary payment

Exemption for RFA in remote area

Exception for accommodation in mining site, onshore oil exploration site, etc.
An exception is provided for any accommodation 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:
1) is of a temporary nature and having plinth area not exceeding 800 square feet, is located not less than eight kilometers away from the local limits of any municipality or a cantonment board; or

2) is located in a remote area. Remote area means an area that is located at least 40 kilometers away from a town having a population not exceeding 20,000 based on latest published all-India census

Reference: Rule 3 of Income Tax Rules,1962

Rule Valuation of perquisites.

3. For the purpose of computing the income chargeable under the head “Salaries”, the value of perquisites provided by the employer directly or indirectly to the assessee (hereinafter referred to as employee) or to any member of his household by reason of his employment shall be determined in accordance with the following sub-rules, namely:—

(1) The value of residential accommodation provided by the employer during the previous year shall be determined on the basis provided in the Table below (See page 1.36) :

TABLE I

Sl. No.CircumstancesWhere accommodation is unfurnishedWhere accommodation is furnished
(1)(2)(3)(4)
(1)Where the accommodation is provided by the Central Government or any State Government to the employees either holding office or post in connection with the affairs of the Union or of such State.License fee determined by the Central Government or any State Government in respect of accommodation in accordance with the rules framed by such Government as reduced by the rent actually paid by the employee.The value of perquisite as determined under column (3) and increased by 10% per annum of the cost of furniture (including television sets, radio sets, refrigerators, other household appliances, air-conditioning plant or equipment) or if such furniture is hired from a third party, the actual hire charges payable for the same as reduced by any charges paid or payable for the same by the employee during the previous year.
(2) Where the accommodation is provided by any other employer and—
(a) where the accommodation is owned by the employer, or(i) 15% of salary in cities having population exceeding 25 lakhs as per 2001 census;(ii) 10% of salary in cities having population exceeding 10 lakhs but not exceeding 25 lakhs as per 2001 census;

(iii) 7.5% of salary in other areas,

in respect of the period during which the said accommodation was occupied by the employee during the previous year as reduced by the rent, if any, actually paid by the employee.

The value of perquisites as determined under column (3) and increased by 10% per annum of the cost of furniture (including television sets, refrigerators, other household appliances, air-conditioning plant or equipment or other similar appliances or gadgets) or if such furniture is hired from a third party, by the actual hire charges payable for the same as reduced by any charges paid or payable for the same by the employee during the previous year.
(b) where the accommodation is taken on lease or rent by the employer.Actual amount of lease rental paid or payable by the employer or 15% of salary whichever is lower as reduced by the rent, if any, actually paid by the employee.The value of perquisite as determined under column (3) and increased by 10% per annum of the cost of furniture (including television sets, radio sets, refrigerators, other household appliances, air-conditioning plant or equipment or other similar appliances or gadgets) or if such furniture is hired from a third party, by the actual hire charges payable for the same as reduced by any charges paid or payable for the same by the employee during the previous year.
(3)Where the accommodation is provided by the employer specified in serial number (1) or (2) in a hotel (except where the employee is provided such accommodation for a period not exceeding in aggregate fifteen days on his transfer from one place to another).Not applicable.24% of salary paid or payable for the previous year or the actual charges paid or payable to such hotel, which is lower, for the period during which such accommodation is provided as reduced by the rent, if any, actually paid or payable by the employee:

Provided that nothing contained in this sub-rule shall apply to any accommodation 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—

 (i)  which, being of a temporary nature and having plinth area not exceeding 800 square feet, is located not less than eight kilometres away from the local limits of any municipality or a cantonment board; or

(ii)  which is located in a remote area:

Provided further that where on account of his transfer from one place to another, the employee is provided with accommodation at the new place of posting while retaining the accommodation at the other place, the value of perquisite shall be determined with reference to only one such accommodation which has the lower value with reference to the Table above for a period not exceeding 90 days and thereafter the value of perquisite shall be charged for both such accommodations in accordance with the Table.

Explanation.—For the purposes of this sub-rule, where the accommodation is provided by the Central Government or any State Government to an employee who is serving on deputation with any body or undertaking under the control of such Government,—

 (i)  the employer of such an employee shall be deemed to be that body or undertaking where the employee is serving on deputation; and

(ii)  the value of perquisite of such an accommodation shall be the amount calculated in accordance with Sl. No. (2)(a) of Table I, as if the accommodation is owned by the employer.

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