RFA
This query is : Resolved
suparna k s
(Querist)
05 October 2009
Dear All
In case of computation of RFA, 15% of salary or rent paid whichever is less shall be the value of RFA. If the employee doesnt receive salary and only rent is paid for his residence by the company, then how to calculate RFA?
Kindly clarify the same.
In case of computation of RFA, 15% of salary or rent paid whichever is less shall be the value of RFA. If the employee doesnt receive salary and only rent is paid for his residence by the company, then how to calculate RFA?
Kindly clarify the same.
CA SANJAY MUKHERJEE
(Expert)
05 October 2009
Hi Suparna,
Would you please explain how you are not paying salary to your employee as the answer may depend on that? It's a unique situation.
Would you please explain how you are not paying salary to your employee as the answer may depend on that? It's a unique situation.
CA SANJAY MUKHERJEE
(Expert)
05 October 2009
This question is still open
Kapil Arora
(Expert)
05 October 2009
If Employee not receive salary from employer the there will not be employer & employee relationship exsists so no chance of RFA
CA SANJAY MUKHERJEE
(Expert)
05 October 2009
Yes I do agree with Expert Kapil Arora but in such a situation the rent paid by the company may be disallowed as it would not be considered as a valid business expenses.
suparna k s
(Querist)
06 October 2009
Dear All,
Let me explain the situation. The director is a NRI. He is not receiving remuneration from the company. His house rent and driver salary is paid by the company.
This is a typical and strange situation. But I dont have answer to reply my friend.
Please reply
Let me explain the situation. The director is a NRI. He is not receiving remuneration from the company. His house rent and driver salary is paid by the company.
This is a typical and strange situation. But I dont have answer to reply my friend.
Please reply
06 October 2009
suparna k s
(Querist)
06 October 2009
Dear All,
Let me explain the situation. The director is a NRI. He is not receiving remuneration from the company. His house rent and driver salary is paid by the company.
This is a typical and strange situation. But I dont have answer to reply my friend.
Please reply
Let me explain the situation. The director is a NRI. He is not receiving remuneration from the company. His house rent and driver salary is paid by the company.
This is a typical and strange situation. But I dont have answer to reply my friend.
Please reply
22 July 2025
Hey! Here’s a clear explanation for the tricky RFA (Rent Free Accommodation) question you shared:
Scenario:
The director is an NRI.
The director does not receive any salary or remuneration from the company.
The company only pays house rent and driver’s salary for him.
Key points on RFA computation:
RFA is a perquisite given to a salaried employee by the employer. It is taxable under the head "Income from Salaries" as a perquisite.
The valuation of RFA as per Income Tax Rules (Rule 3 of the Income Tax Rules) is usually:
15% of salary (basic + DA, if any), or
Rent paid by employer, whichever is less.
If the employee receives no salary, the concept of RFA becomes ambiguous because:
There is no salary component to value 15%.
No employer-employee relationship for salary purpose (some experts argue).
However, the company is incurring expenses (rent + driver salary) for the director.
What should be the approach here?
Since the director receives no salary, the 15% of salary rule is nil.
The rent paid by company is fully taxable as a perquisite in the hands of the director.
So, the value of RFA = rent paid by the company (because 15% of salary = 0, so the lesser is zero, but practically since the director enjoys the benefit, the entire rent paid is treated as perquisite).
Driver’s salary paid by the company would also be treated as a separate taxable perquisite.
Important notes:
This is an unusual scenario but treated consistently by tax authorities.
The director should be assessed on the perquisite value of rent and other benefits received from the company.
The company should also maintain proper documentation reflecting this.
Summary:
Salary Rent paid by company RFA valuation
NIL Rs X Rs X (rent paid)
The driver salary paid by the company is another taxable perquisite.
Scenario:
The director is an NRI.
The director does not receive any salary or remuneration from the company.
The company only pays house rent and driver’s salary for him.
Key points on RFA computation:
RFA is a perquisite given to a salaried employee by the employer. It is taxable under the head "Income from Salaries" as a perquisite.
The valuation of RFA as per Income Tax Rules (Rule 3 of the Income Tax Rules) is usually:
15% of salary (basic + DA, if any), or
Rent paid by employer, whichever is less.
If the employee receives no salary, the concept of RFA becomes ambiguous because:
There is no salary component to value 15%.
No employer-employee relationship for salary purpose (some experts argue).
However, the company is incurring expenses (rent + driver salary) for the director.
What should be the approach here?
Since the director receives no salary, the 15% of salary rule is nil.
The rent paid by company is fully taxable as a perquisite in the hands of the director.
So, the value of RFA = rent paid by the company (because 15% of salary = 0, so the lesser is zero, but practically since the director enjoys the benefit, the entire rent paid is treated as perquisite).
Driver’s salary paid by the company would also be treated as a separate taxable perquisite.
Important notes:
This is an unusual scenario but treated consistently by tax authorities.
The director should be assessed on the perquisite value of rent and other benefits received from the company.
The company should also maintain proper documentation reflecting this.
Summary:
Salary Rent paid by company RFA valuation
NIL Rs X Rs X (rent paid)
The driver salary paid by the company is another taxable perquisite.
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