CA Aashish Ramchand
Perquisites are considered as a very important element of Income from Salary. Taxation of perquisites will be valued as per Rule 3 of Income Tax Rules, 1962. Rent free accommodation is one of the perquisites provided to employees by employer. This article will cover the in depth knowledge regarding this perquisites.
Page Contents
The term accommodation includes the following:
1. A flat,
2. Farm House or part thereof
3. Hotel
4. Guest House
5. Service apartment
6. Caravan
7. Mobile home
8. Ship or other floating structures
Employees are divided in the following two categories:
1. Central and State Government employees
2. Private sector employees or other employees
What is the type of rent free accommodation?
1. Furnished rent free accommodation
2. Unfurnished rent free accommodation
Taxability of Rent Free Accommodation
A] Value of Furnished rent free accommodation
Value of Unfurnished accommodation
Plus: 10% per annum of cost of furniture, if the furniture is owned by owned by the employer or actual rent of furniture
B] Value of Unfurnished rent free accommodation
i) Central and State Government employees
License fee of House determined will be taxable
ii) Private sector employees or other employees
a) If it is owned by employer
-
- City having population upto 10 lakhs as per 2001 census – 5% of Salary
- City having population exceeding 10 lakhs but upto 25 lakhs as per 2001 census – 10% of Salary
- City having population exceeding 25 lakhs as per 2001 census – 15% of Salary
b) If taken on leased by employer
-
- Actual lease rent paid by employer
- 15% of Salary
Whichever is less will be taxable
Taxability for Hotel Accommodation
a) If Hotel Accommodation is unfurnished
It is not taxable
b) If Hotel Accommodation is furnished
- Actual charges paid or payable for such hotel
- 24% of the salary
Whichever is less will be taxable
Note: If the hotel accommodation is provided for not more than 15 days on transfer of employee from one place to another then it will not be taxable.
What is Salary includes for purpose of Taxability of Rent free accommodation?
Salary includes all emoluments paid to an employee but excludes dearness allowance which is not included in the computation for retirement benefits, allowance which are exempt from tax, value of perquisites under section 17(2), employer’s contribution to PF and lump sum payments received on retirement.
Let me provide you with an illustration to explain this concept clearly –
Let us take the case of Mr. Narayan, an employee of X Pvt. Ltd, posted at Ajmer (population: 18 lakh), drawing Rs. 3,00,000/- as basic salary, Rs. 10,000/- as dearness allowance which forms part of salary for all retirement benefits and Rs. 5,000/- as commission. The company also provides him with a rent free unfurnished accommodation in Ajmer. The house is owned by the company. Fair rent of the accommodation is Rs. 55,000/- per annum.
In this case the value of the perquisite in respect of rent free accommodation owned by the employer depends upon the salary of the employee. Salary for this purpose of computation of the perquisite value works out to be Rs. 3,15,000/- i.e. Rs. 3,00,000 + Rs. 10,000 + Rs. 5,000. Fair rent of the accommodation is not taken into consideration. As the accommodation is situated in a city having a population exceeding 10 lakh but not exceeding 25 lakh, 10% of the salary i.e. Rs. 31,500 is the taxable value of the perquisite.
(Author is CA by profession & Co-Founder of Make My Returns (www.makemyreturns.com) & can be reached at connect@makemyreturns.com)
(Republished With Amendments)
Sir, how would be the perquisite calculation in case the accommodation type is a furnished Single Room or Shared Accommodation vs unfurnished regular accommodation, both maintained by employer.
Company has taken a property on Leasee and has provided the same to Top Employee. The Annual composite rent paid by the Company is Rs. 25 Crs with no bifurcation between Rent for Building and Furniture.
What Shall be the Perq. value taxable in the hand of Top Employee.
I have got transferred from one location to another and Housing perquisites as per rule 3 is applicable for previous location and not for present location as it is a remote area.I have retained my accommodation in the previous location for one month. In this case, will housing perquisites be taxable for this one month as I have retained accmodation for one month in previous location? or is it not applicable as the new location is remote and housing requisites are not taxable here?
you have max 90 days time to vacate the old accommodation.
What about arrears of bonus..will it include in salary
if a company owned flat is used by diector without any rent. and the same person is drawing a nominal salary of 10000 from the company how would that be accounted for taxation
and in case two if the same director is getting salary from other company directorship in his capacity will that impact on the taxation for the rent free accomodation or on corporation tax of the property??
Is Academic allowance to be included in Salary for calculating Rent free Accommodation
7.5 % of salary for city less than population of 10 lakh
You have written 5%
There is a error in your data. If the population is less than 10 Lakhs then value of perquisites will be 7.5% of the salary. Please change this.
If I am working in public sector enterprise (psu),unfurnished accommodations provided by them owned by government .
In which category will come
a–government
B- private
Please suggest.
LEAVE ENCASHMENT ON SUPERANNUATION EXCLUDED ?
The article is very useful and informative.I shall be grateful, if kindly clarify following-
as indicated for the purpose of valuation of perquisite the salary excludes lump sum payments received at the time of superannuation for leave encashment.
Request please clarify for PSU/non govt employee
whether the total leave encashment is excluded or only non taxable portion as per Sec 10(10AA).
Thanks & regards
In case, director is drawing no salary and is provided rent free accommodation by employer, how will perquisite of value of rent free accommodation be calculated
If the rent free accommodation is received by a person who is an employee and also a director, but who is not drawing any salary from the company, then the value of perquisites can’t be computed as per Section 17(2) and the provisions of section 28(iv) also can’t be attracted since there is employer-employee relationship. In such case, the value of perquisite shall be computed as per Section 23(1) of the Act.
Section 23(1): For the purposes of section 22, the annual value of any property shall be deemed to be (a) the sum for which the property might reasonably be expected to let from year to year;
ITO v.s Raghu Nandan Modi (ITAT Kolkata)
Is arrears of bonus included in salary???
Thanks for the info. I shall be grateful, if kindly clarify in case of small towns, where population is defined Block wise, and the place is not at all considered as city, then which population is to be considered ? is the district total population or the Block ? I am posted at Cooch Behar, in West Bengal which is a district head quarter comprising of two blocks.
is arrears of bonus received in this py included in computing salay for RFUFA?
I am BHU employee in varanasi up and resides in residential quarter and do not receive HRA in lieu of this and also licence fee is deducted from my salary .whether am I undder central government employee or other category?In what process
my rent free accomodation will be calculated?
Sir,
In an Electricity company of state Govt. (Electricity Corporation) value of unfurnished accommodation ?????
My electricity bill,water etc are getting detected in my salary.
Kindly clarify that these should be minuses in my value of rent free accomadation
Whether retirement benefits receive before retirement be included in salary for computation of rent free accommodation or not
Dear Sir,
If any company provides accommodation and charging minimum rent amt. then how we calculate the valuation of perquisites?
Can over time amt. less at the time of calculating perquisites?
I am getting BASIC+DA+BONUS+TAXABLE ALLOWANCES For calculating perqu.
Pls guide me about perquisites at the time of minimum rent charged.
Thanks & Regards
Shamim
sir,
kindly respond which census should be considered 2001 or 2011
What will be salary for computation,if I am getting Basic+HRA+conveyance allowance+medical allowance+education allowance+special allowance.
Dear Sir,
If any company provides Rent free accommodation only for 6 months & next 6 months paid HRA. then how we calculate the valuation of Rent free house and what amount should be taken as Salary for the purpose of valuation ( 6 Months Salary or 12 months Salary)
Thanks & Regards
Rajendra
which census sholud be taken as base(2001 or 2011)
Thanks sir, the article is very helpful.
Arun Radhakrishnan