Perquisites- Taxability of Rent-Free or Concessional Accommodation Provided by Employer (Section 17(2))

Under the Income Tax Act, 1961, rent-free or concessional accommodation provided by an employer is a taxable perquisite for employees. The valuation depends on whether the employee is in the private sector, government sector, or a specified employee.

1. Taxability & Valuation Rules

(A) For Private Sector Employees (Non-Government)

The taxable value is calculated as:

• 15% of salary(for cities with population >25 lakh)
• 10% of salary(for cities with 10–25 lakh population)
• 5% of salary(for cities with <10 lakh population)

Exception: If the employer leases the accommodation, the taxable value is the actual rent paid by the employer or 15%/10%/7.5% of salary, whichever is lower.

Salary for calculation includes:

• Basic Salary
• Dearness Allowance (if part of retirement benefits)
• Bonus
• Commission
• Other taxable allowances

Excludes: HRA, reimbursements, and non-monetary benefits.

(B) For Government Employees

• Taxable value = License fee determined by the government – Rent paid by the employee
• If the employee pays no rent, the entire license feeis taxable.

(C) Furnished Accommodation

If the accommodation is furnished, an additional 10% of the cost of furniture/appliances (if owned by the employer) or actual hire charges (if rented) is added to the taxable value.

2. Exemptions (When Not Taxable)

1. Accommodation in Remote Areas
   • If provided at mining/oil exploration sites, power plants, or offshore locations.
   • Exempt if located ≥8 km from city limitsand ≤800 sq. ft.
2. Hotel Stay for Official Work
   • If the employee is on a temporary transfer(up to 15 days).
3. Accommodation for Security Personnel
   • If provided due to security threats(e.g., judges, executives at risk).

3. Examples of Tax Calculation

4. Compliance & Reporting

• Employer’s Duty:Must include the perquisite value in Form 16 and deduct TDS.
• Employee’s Duty:Must report it under “Income from Salaries” in ITR.