Rent free accommodation income tax liability

Rent-free accommodation (RFA) is a perquisite under Section 17(2) of the IT Act. Here is the complete tax treatment:

1. Taxability: RFA provided by an employer to an employee is a taxable perquisite — included in 'Salary' and taxed at applicable slab rates.

2. Valuation of RFA Perquisite (Rule 3 of IT Rules):

a) Government Employees: Value of RFA = License fee charged by the government for similar accommodation (typically very low)

b) Other Employees (Private Sector):
- If accommodation is OWNED by employer:
→ In cities with population above 25 lakh: 15% of salary
→ In cities with population 10-25 lakh: 10% of salary
→ In cities below 10 lakh: 7.5% of salary
- If accommodation is LEASED/RENTED by employer and provided to employee:
→ Perquisite value = LOWER of (actual rent paid by employer) OR (15%/10%/7.5% of salary as above)

3. 'Salary' for this purpose: Basic + DA + bonus + commission + all monetary allowances (excluding HRA and retirement benefits)

4. Furnished Accommodation: Additional 10% of cost of furniture per annum (or actual hire charges if rented) is added to the perquisite value

5. TDS: Employer must include the RFA perquisite in the employee's salary and deduct TDS accordingly in Form 16

6. Employee's ITR: The perquisite value (as shown in Form 16) is included in 'Salary Income' in the employee's ITR — no separate disclosure needed beyond what Form 16 shows

7. Directors: RFA for a director (who is not an employee but a whole-time director) is also a perquisite — same rules apply

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varun kumar

Aashok Kumar Sharma

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