Calculation of value of perquisite on rent free accommodation depends on the following factors;
- Who has provided the accommodation to assessee. Is it a government or non-government organization.
- Is the accommodation furnished or unfurnished.
- Is the accommodation provided rent free or at a concessional rate to employee.
First we have to check the type of employer, then whether its furnished or unfurnished. At the end we have to find out how much employee is paying for the benefit and what is the taxable value of perquisite.
Tax calculation when accommodation is provided by government to its employees
If an unfurnished accommodation is provided by government to employees is rent free, then the value of perquisite shall be the licensee fee determined in accordance to the rules framed by that government.
If the accommodation is furnished, then in the first step you need to calculate the value of perquisite as if its unfurnished. Such value has to be added by 10% for the cost of furniture given to the employee in that same accommodation. If such furniture and other things are hired from a third party, then instead of 10% per year of the cost of furniture, you need to add actual hire charges paid or payable for the same.
In cases where the accommodation is provided at concessional rates, the value of perquisite as calculated shall be reduced by the amount of rent paid or payable for such furniture by the employee during the previous year.
Value of perquisite where the employee is on deputation
As per explanation to rule 3(1), in cases 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, then the employer of such employee shall be deemed to be that body or undertaking where the employee is serving on deputation.
Therefore, the taxable value of perquisite in such case shall be determined as if such accommodation is provided by an employer other than the central government or state government.
Value of perquisite when accommodation is provided by any other employer
In the case of non-government employers, value of perquisite for accommodation provided rent free or at concessional rate has to be calculated based on the following factors:
- Who is the owner of the accommodation
- Is it furnished or unfurnished
- How much money collected from employee for the benefits provided
Where the accommodation is provided by any non government employer, we have to first find out the population of the city as per 2001 census where such accommodation is provided.
If the population of the city is exceeding 25 lakhs and the accommodation is owned by employer, 15% of salary in respect of the period during which the said accommodation was occupied by the employee during the previous year will be considered as the taxable value of perquisite.
Value of perquisite will be reduced based on the population of the city. If accommodation provided in a city having a population exceeding 10 lakhs but not exceeding 25 lakhs as per the 2001 census and the accommodation is owned by the employer, then value of perquisite is 10% of the salary of the period during which the said accommodation was occupied by the employee during the previous year.
If the population of the city is not exceeding 10 lakhs, then instead of 10% or 15%, you need to consider 7.5% of salary in respect of the period during which the said accommodation was occupied by the employee during the previous year.
Where the accommodation is taken on lease or rent by the employer instead of owned by the employer, then the taxable value of perquisite will be the actual amount of lease or rent paid or payable by the employer, or 15% of salary whichever is lower.
If the accommodation is furnished, then the value as determined above will be added with 10% per annum of the cost of furniture to calculate the value of perquisite. If the accommodation is hired from a third party, the actual hire charges paid or payable for the furniture will get added instead of 10% p.a. of the cost of furniture.
As discussed in the case of a government employee, here also if any rent is actually paid or payable by the employee then that amount has to be reduced from the above value of the perquisite.
Meaning of salary
In the above calculation, we have discussed to take 15% or 10% or 7.5% of the salary based on population of the city while calculating perquisite. To calculate salary for this purpose, we have to understand its components to be included and excluded while calculating.
Salary for this purpose includes the pay, allowance, bonus or commission payable monthly or otherwise or any monetary payment, by whatever name called from one or more employers, as the case may be, but does not include following, namely,-
- dearness allowance unless it enters into the computation of superannuation or retirement benefits of the employee concerned;
- Employer’s contribution to the provident fund account of the employees;
- Allowances which are exempted from payment of tax;
- The value of perquisite specified in section 17(2) of the income tax act,1961.
- any payment or expenditure specifically excluded under proviso to sub clause (iii) of clause (2)(relating to employees stock option plan or scheme) or proviso to clause (2) of section 17 ( relating to medical facility or reimbursement of medical expenses);
- Lump-sum payments received at the time of termination of service or superannuation or voluntary retirement like gratuity, severance pay, leave encashment, voluntary retrenchment benefits, commutation of pension and similar payments.
Salary in this case computed in due basis for the period for which the rent free accommodation has been provided to the employee. For instance, if the rent free accommodation is provided for the period 1.4.2019 to 30.6.2019 then only the salary due for the months of April, may and June 2019 shall only be taken.
Taxable value of perquisite will be different if accommodation is provided in a hotel.
Cases where above rule for valuation of perquisite is not applicable
As per proviso 1 to rule 3(1), accommodation provided by employer will be considered as tax free perquisite if accommodation is provided to an employee working at a mining site or an onsite oil exploration site, or a project executive site, or a dam site, or a power generation site, or an offshore site which-
- Being of a temporary nature and having plinth area not exceeding 800 square feet, is located not less than 8 kilometres away from the local limits of any municipality or a cantonments board; or
- 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.
As per proviso 2 to rule 3(1), where on account of transfer from one place to another, the employer has provided accommodation to employee 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 as determined according to the above provision for a period of 90 days. After 90 days, the value of perquisite shall be charged for both such accommodation.
