Perquisites- Rent Free Accommodation or Accommodation provided at Concessional Rate

Perquisites- Rent Free Accommodation

Accommodation provided to the employee may be—

(i)      unfurnished

(ii)     furnished

Further, such accommodation may be provided:

(a)      rent free; or

(h)     at concessional rate.

As per amended rule 3(1), the valuation of accommodation should be done as under:

(A)      Accommodation provided by the Government to its employees

Where the accommodation is provided by central or State Government to their employees either holding office or post in connection with the affairs of Union or such State, the value shall be determined as under:

(i)   Where the accommodation is unfurnished:

(a)     If  the accommodation is provided rent free: The value shall be the license fee determined by Union or State Government in respect of accommodation in accordance with the rules framed by that government for allotment of houses to its officers.

(b)     Where the accommodation is provided at concessional rate: We shall first assume as if it is provided rent free and the valuation shall be the license fee. For valuation of concession, such license fee shall be reduced by the rent actually paid by the employee.

(ii) Where the accommodation is furnished:

The value of perquisite shall be determined as if it is an unfurnished accommodation which may be provided rent free or at concessional rate (i.e., value determined as per clause (i) above). Such value shall be increased by 10% p.a. of the cost of furniture (including television sets, radio sets, refrigerators, other household appliances, air conditioning plant or equipment) or if such furniture is hired from a third party, the actual hire charges paid or payable for the same. The valuation of furniture shall be reduced by any charges paid or payable for such furniture by the employee during the previous year.

1.       Rent free official residence provided to a judge of a High Court or to a judge of the Supreme Court is exempt from tax.

2.       Similarly rent free accommodation given to an official of Parliament, a Union Minister and a Leader of Opposition in Parliament is exempt from tax.

(B)      Where the Accommodation is provided by Any Other Employer

Accommodation provided as rent free or at concessional rate may be owned by the employer or taken on lease or rent by the employer.

(i) Where the accommodation is Un-furnished:

Nature of
Accommodation
Accommodation provided in a city having population exceeding 25 lakhs as per 2001 census Accommodation provided in a city having population exceeding 10 lakhs but not exceeding 25 lakhs as per 2001 census Accommodation provided in any other city having population not exceeding 10 Lakhs
(a) Where the
accommodation is owned by the employer
15% of salary in respect of the period during which the said accommodation was occupied by the employee during the previous year. 10% of salary in respect of the period during which the said accommodation was occupied by the employee during the previous year. 7.5% of salary in respect of the period during which the said accommodation was occupied by the employee during the previous year.
(b) Where the
accommodation is taken on
lease or rent
by the employer
Actual amount of lease or rent paid or payable by the employer, or 15% of salary,
whichever is lower,
Actual amount of lease or rent paid or payable by the employer, or 15% of salary, whichever is lower, Actual amount of lease or rent paid or payable by the employer, or 15% of salary, whichever is lower.
1. In case the house is provided at concessional rate, first it will be assumed as if the house has been provided rent free and the value determined as per (a) or (h) above shall be reduced by the rent, if any, actually paid by the employee.

2. 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,—

(i) the employer of such an employee shall be deemed to be that body or undertaking where the employee is serving on deputation; and

(ii) the value of perquisite of such an accommodation shall be the amount calculated as if the accommodation is owned by the employer.

(ii) Where the accommodation is Furnished:

The value of perquisite shall be determined as if it is an unfurnished accommodation (i.e. value determined as per chart given above. Such value shall be increased by 10% p.a. of the cost of furniture (including television sets, radio sets, refrigerators, other household appliances, air conditioning plant or equipment or other similar appliances or gadgets) or if such furniture is hired from a third party, the actual hire charges payable for the same. Such valuation of furniture shall be as reduced by any charges paid or payable for such furniture by the employee during the previous year.

In case the furnished house is provided at concessional rent, it will be first assumed as if it has been provided as rent free furnished accommodation and shall be valued as above. Thereafter, any amount recovered from the employee as rent shall be deducted from such valuation.

(C)      Where the accommodation is provided by the employer (Government or other employer) in a hotel

The value of the accommodation shall be—

(i)      24% of salary paid or payable for the previous year, or;

(ii)     the actual charges paid or payable to such hotel;

whichever is lower, for the period during which such accommodation is provided

However, if the employee pays any rent, the value so determined shall be reduced by the rent, actually paid or payable by the employee.

Thus in the above case we shall first take 24% of the salary of the whole year and then such value so determined shall be reduced proportionately for the period during which such accommodation is provided.

No Perquisite value even  if accommodation provided in a hotel.—

There will be no perquisite value if the accommodation is provided in a hotel if the following two conditions are fulfilled:

(a)     Such accommodation is provided for a period not exceeding 15 days; and

(b)     it has been provided on the transfer of the employee from one place to another.

Meaning of ‘Salary’ for Rent Free Accommodation

1. ‘Salary’ includes the pay, allowances, 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 the following, namely:—

(a)       dearness allowance or dearness pay unless it enters into the computation of superannuation or retirement benefits of the employee concerned;

(b)     employer’s contribution to the provident fund account of the employee;

(c)       allowances which are exempted from payment of tax;

(ci)     the value of perquisites specified in section 17(2) of the Income-tax Act;

(e)       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);

(f)        Any lump sum payment like gratuity, leave encashment, commuted pension, etc. received at time of termination of service or at the time of voluntary retirement or superannuation.

Thus, dearness allowance/dearness pay shall be included in the meaning of salary for rent free accommodation to the extent it is part of retirement benefits. It will also include all other allowances to the extent these are taxable (i.e. excluding amount not taxable).

2.         “Accommodation” includes a house, flat, farm house or part thereof, or accommodation in a hotel, motel, service apartment, guest house, caravan, mobile home, ship or other floating structure;

3.         “Hotel” includes licensed accommodation in the nature of motel, service apartment or guest house;

4.       Salary is to be computed on ‘due’ basis for the period for which the rent free accommodation has been provided to the employee e.g. if the rent-free accommodation is provided for the period 1 .1.2021 to 31.3.2021 then only the salary due for the months of January, February and March shall only be taken. Advance salary or arrear of salary shall not be included for this purpose;

5.      If the employee receives salary from more than one 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 valuation of rent-free accommodation even though the accommodation has been provided only by one employer.

The above rules shall not apply in certain cases

(A) Accommodation provided at certain site or in a remote area [Proviso 1 to rule 3(1)]

The accommodation provided by the employer shall be a tax free perquisite if the accommodation is provided to an employee working at mining site or an onshore oil exploration site or a project execution site, or a dam site or a power generation site or an offshore site which

(a)      being of a temporary nature and having plinth area not exceeding 800 square feet. is located not less than eight kilometres away from the local limits of any municipality or a cantonment board; or

(b)       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 Rs. 20,000 based on latest published all India census.

(B) Accommodation provided at new place of posting on transfer while retaining the accommodation at the other place [Proviso 2 to rule 3(1)]:

Where on account of his transfer from one place to another, the employee is provided with accommodation 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 provisions) for a period not exceeding 90 days and thereafter the value of perquisite shall be charged for both such accommodations.

Example -1

R, furnishes the following particulars of his remuneration for the previous year 2021-22: 

 
(i) Basic salary 24,000 p.m.
(ii) Dearness allowance (40% of which forms part of salary for retirement benefits) 2,000 p.m.
(iii) Lunch Allowance 400 p.m.
(iv) Medical Allowance 1,000 p.m.
(v) City Compensatory Allowance 600 p.m.
(vi) Children Education Allowance (per child for 2 children) 360 p.m.

He is provided with a rent-free accommodation in Delhi. The cost of the furniture provided is ₹2,00,000 and  two air-conditioners, which have been taken on hire by the company, have also been provided in the  accommodation. The hire charges of each air conditioner is ₹4,000 p.a. Compute the value of the rent-free  accommodation if the accommodation is provided by: 

(i)        the Government and the value of the accommodation as per Government rules is ₹1,000 p.m. 

(ii)       Reserve Bank of India and the accommodation has been taken on rent by RBI at ₹10,000 p.m. 

(iii)      XYZ Ltd. and the accommodation has been taken on rent by the company at ₹10,000 p.m. 

Solution  :

Accommodation provided by Government to its employee:

The perquisite value shall be the value of the  accommodation as per Government rules which in this case is ₹1,000 p.m. Therefore, the value of the furnished  accommodation shall be:

 
Value of unfurnished accommodation (₹1,000 x 12)   12,000
10% of the cost of furniture 20,000  
Hire charges of two ACs 8,000 28,000
    40,000

Accommodation provided by RBI or XYZ Ltd.:

In this case, the perquisite value shall be 15% of the salary  or rent paid by RBI/the company, whichever is less. Salary for this purpose shall include the following: 

 
Basic Salary 24,000 
Dearness allowance (only that portion which is taken into account for retirement benefits) 800
Lunch Allowance 400
Medical Allowance 1,000
City Compensatory Allowance 600
Children Education Allowance (₹720 – 200) 520
  27,320

The perquisite value of unfurnished accommodation shall be ₹4,098 or ₹10,000 whichever is less. 

Therefore, the perquisite value of the furnished accommodation shall be as under: 

 
Perquisite value of unfurnished accommodation (₹4,098 x 12) 49,176 
Perquisite value of furniture (as calculated in the case of government employees) 28,000
  77,176

Since the rent-free accommodation has been given for full year, we can calculate 15% of yearly salary also. 

Yearly salary shall be ₹2,88,000 + 9,600 + 4,800 + 12,000 + 7,200 + 6,240 = ₹3,27,840. 

 
15% of salary shall be 49,176
+ Perquisite value of furniture 28,000
  77,176

Example -2 : 

A is working as a General Manager of P Company Ltd. Particulars of his salary for the financial year 2021-22  are as under: 

 
(i) Salary 20,000 p.m. 
(ii) Bonus 38,400 
(iii) Conveyance Allowance (70% spent on official duties) 4,000 p.m. 
(iv) Medical Allowance 1,000 p.m. 
(v) Employer’s contribution to recognised provident fund 20% of Salary 

He has been provided with a rent-free accommodation in Gurgaon whose population in 20 lakhs. 

Compute the value of the rent-free accommodation to be included in the salary income of A for the  assessment year 2022-23, if: 

(a)       the accommodation is owned by the company; 

(b)       the accommodation has been taken on rent by the company at ₹14,000 p.m.

Solution  :

Calculation of salary for valuation of rent free accommodation 

 
Basic salary 2,40,000   
Bonus 38,400  
Taxable conveyance allowance (48,000 – 33,600) 14,400   
Medical allowance 12,000 3,04,800 
10% of salary   30,480 
Rent paid by the company   1,68,000 

(a)       The value of unfurnished accommodation in this case shall be 10% of the salary, i.e., ₹30,480. 

(b)       The value of unfurnished accommodation in this case shall be 15% of the salary, i.e., ₹45,720 or the rent  paid by the company, i.e., ₹1,68,000, whichever is less.

The perquisite value shall therefore, be ₹45,720.

See also  Perquisites - Fringe Benefits or Amenities which shall be Taxable Perquisite in the hands of All Employees
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