What is Rent Free Accommodation?
Perquisites are considered as a very important element of Income from Salary. One of the important perquisites given to employees is Rent-free Accommodation (RFA). It means a place of residence which the employer gives to an employee to stay in. RFA can be given either free of cost or at a concessional rate. The term accommodation shall include:
- A flat
- Farm House or part thereof
- Hotel
- Guest House
- Service apartment
- Caravan
- Mobile home
- Ship or other floating structures
For the purpose of computation of tax, employees are divided in the following two categories
- Central and State Government employees
- Private sector employees or other employees
Types of rent-free accommodation
- Furnished rent-free accommodation
- Unfurnished rent-free accommodation
Taxability of Rent Free Accommodation
Value of Furnished RFA
| Particulars | Amount |
| Value of Unfurnished accommodation | XXXX |
| Plus: 10% p.a of cost of furniture, if the furniture is owned by the employer or actual rent of furniture. | XXXX |
| Amount Taxable | XXXX |
Value of Unfurnished RFA
1. Central and State Government employees
License fees of the House determined by the government will be taxable.
2. Private sector employees or other employees
- If employer owns the property:
| City population as per 2001 census | % of Salary Taxable |
| Up to 10 lakhs | 7.5% |
| Exceeding 10 lakhs but up to 25 lakhs | 10% |
| Exceeding 25 lakhs | 15% |
- If taken on lease by employer:
| Particulars | Amount |
| Actual lease rent paid by the employer | XXXX |
| 15% of Salary | XXXX |
| Whichever is less will be taxable | XXXX |
Taxability for Hotel Accommodation
Very often employer provides accommodation in a hotel to the employee (whether Government or non-Government). For the purpose of income tax, hotel accommodation provided to an employee in a hotel will be valued as under:
| Accommodation is unfurnished | Accommodation is furnished |
| It is not taxable |
– The actual Charges paid/ payable to such hotel; or Whichever is less will be taxable |
Exemption
- Perquisite value shall be exempt if Accommodation provided in a Hotel for a period not exceeding 15 days on the transfer of the employee from one place to another
- Accommodation provided by the employer shall be a tax-free perquisite if accommodation is provided to the employee in a remote area
- A rent-free house is not taxable if it is provided to a High Court Judge, Supreme Court Judge Union Minister, Leader of Opposition in Parliament, an official in Parliament, and serving Chairman and member of UPSC
- If an employee is transferred and a housing facility is provided to him at the new location ( he is yet to vacate a house given at the old location), for a period of 90 days immediately after transfer only one house at the option of the employee is chargeable to tax and the other one will be tax -free
Definition of Salary
Salary for purpose of Taxability of Rent free accommodation shall include = Basic pay+ Dearness Allowance/pay (if forms part of superannuation or retirement benefits) + Bonus + Commission + Fees + All taxable allowances + All monetary payments chargeable to tax excluding perks, from one or more employers.
FAQ
House Rent Allowance is an Allowance that an employee gets from his or her employer for fulfilling the rental expenses of their house. RFA is accommodation which covers house or property provided by the employer for the residential purpose of the employee.
The value of perquisite in respect of accommodation provided to government employees is equal to the license fee which would have been determined by the Central or State Government in accordance with the rules framed by the Government for allotment of houses to its officers.
In case an employer provides accommodation at a concessional rate, the value of the perquisite would be calculated using one of the methods mentioned above. If some amount is recovered from the employee such amount shall be deducted and the balance amount would be taxable as perquisite.
Arrear of Salary received in PY should also be clubed while calculating RFA?
If gifts are given in cash will that form a part of salary for the purposes of RFA
gift is considered as perquisite so it is excluded from salary in rfa.
I am staying in rent free accommodation, Am I entitled for HRA
Hey Savita,
No, if you stay in a Rent free accommodation, you will not be entitled to HRA deduction.
Rules for rent free accommodation to contractual employees in Health Department Punjab
What if Emplyee stays more than 15 days in hotel?