Employers usually provide several facilities to their employees one of which is Accommodation for Residence of the Employee. Sometimes, this accommodation is given to the employee without any charge and in some cases a nominal rent is received from the employee.
Such facilities which are given not in cash but in kind by the employer are referred to as Perquisites. If these facilities were not given by the employer, the employee would have incurred expenditure for such facilities from his own pocket.
And therefore, such perquisites (facilities) are considered as additional benefits arising to the employee from his employment and income tax is also liable to be paid on such facilities received in kind by the employee.
Such additional facilities are added to the salary income of the employee as Perquisites in the Income Tax Return and chargeable to Tax as per Income Tax Slab Rates.
- Recommended Read: Computation of Income Tax on Salary
Income Tax treatment of Rent Free or Concessional Rate of Accommodation
In some cases, the Accommodation is Rent Free to the Employee i.e. No Rent is liable to be paid by the Employee and in some cases, a concessional rent is charged from the employee. Both of these are benefits given to the employee in kind and therefore form a part of perquisites and income tax is liable to be paid on such perquisites.
Accommodation given to an employee is divided in the following categories and tax treatment of each category is separate:-
- Accommodation given by Govt
- Unfurnished Accommodation
- Furnished Accommodation
- Accommodation given by Non Govt.
- Unfurnished Accommodation
- Furnished Accommodation
Income Tax on Accommodation given by the Govt.
If any accommodation is given by the Central or the State Govt to its employees, income tax would be levied in the manner specified below.
| License Fee determined by Central or State Govt | xxx | |
| (Less) | Rent paid by the Employee | (xxx) |
| (=) | Taxable value of perquisite for Unfurnished Accommodation | xxx |
| License Fee determined by Central or State Govt | xxx | |
| (Add) | Lease Charges of Furniture in case of Leased Furniture or 10% Depreciation on Furniture in case it is owned by Employer | xxx |
| (Less) | Rent paid by the Employee | (xxx) |
| (=) | Taxable value of perquisite of Furnished Accommodation | xxx |
Income Tax on Rent Free/ Concessional Accommodation given by Non Govt
In case the employer is not Central or State Govt., the income tax on Rent Free/ Concessional Rate of Accommodation would be levied in the manner specified below:-
In case of Unfurnished Accommodation
In case of Unfurnished Accommodation, it should first be ascertained whether the accommodation is owned by the employer or the employer has taken the accommodation on lease.
| Population exceeds 25 Lakhs | Population exceeds 10 Lakh but less than 25 Lakh | Population is less than 10 Lakh |
| 15% of Salary | 10% of Salary | 7.5% of Salary |
| (Less) Rent paid by Employee | (Less) Rent paid by Employee | (Less) Rent paid by Employee |
| Actual Rent paid by Employer or 15% of Salary (whichever is lower) | xxx | |
| (Less) | Rent paid by Employee | (xxx) |
| (=) | Taxable value of Perquisite | xxx |
In case of Furnished Accommodation
| Value of Unfurnished Owned Accommodation as computed above | xxx | |
| (Add) | Lease Charges of Furniture in case of Rented Furniture or 10% Depreciation on Furniture in case it is owned by Employer | xxx |
| (Less) | Rent received | (xxx) |
| (=) | Taxable Value of Perquisite | xxx |
| Value of Unfurnished Leased Accommodation as computed above | xxx | |
| (Add) | Lease Charges of Furniture in case of Leased Furniture or 10% Depreciation on Furniture in case it is owned by Employer | xxx |
| (Less) | Rent received | (xxx) |
| (=) | Taxable Value of Perquisite | xxx |
Income Tax on Accommodation provided by Employer in a Hotel
| Lease Charges payable to the Hotel or 24% of Salary (whichever is lower) | xxx | |
| (Less) | Rent paid by the Employee | (xxx) |
| (=) | Taxable Value of Perquisite | xxx |
However, in case such accommodation is provided for a period not exceeding 15 days on his transfer from one place to another, it wont be considered as a Perquisite. and therefore tax wont be levied in such a case.
Exception for Accommodation on Account of Transfer
Where on account of Transfer of an Employee from one place to another, the employee is provided with at the new place of posting while retaining the accommodation at the other place, the taxable value of such accommodation is determined with reference to only 1 such accommodation which has the lower value for a period not exceeding 90 days and thereafter the value of perquisite shall be charged for both accommodations.
Meaning of Salary for the purpose of computation of Taxable Value
Salary includes pay, allowance, bonus, commission or any other monetary payment by whatever name called but does not include:-
- Dearness Allowance or Dearness Pay unless it enters into the computation of Superannuation or Retirement Benefits of the Employee
- Employers Contribution to the Provident Fund Account of the Employee
- Allowance which are exempted from the payment of Tax
- Value of Perquisites specified in Section 17(2)
Other Relevant Points
- Furniture includes TV, Radio, Refrigerator, AC, Other Gadgets etc
- Accommodation includes a House, Flat, Farm House or part thereof or accommodation in a motel, service apartment, guest house, caravan, mobile home, ship or other floating structure
- Motel includes licensed accommodation in the nature of Motel, Service Apartment or Guest House
- Salary is to be computed on due basis for the period for which the rent free accommodation has been provided to the employee.
If the employee receives salary from more than 1 employer, the aggregate of the salary received from both the employers for the period for which the accommodation is provided has to be taken into account for the purpose of rent free accommodation even though the accommodation has been provided only by 1 employer.
