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Rent Free Accommodation ( RFA )

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Divya Singhvi

Income from salary
Income Tax
Rent free accommodation
Last updated on May 28th, 2021

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:

  1. A flat
  2. Farm House or part thereof
  3. Hotel
  4. Guest House
  5. Service apartment
  6. Caravan
  7. Mobile home
  8. Ship or other floating structures

For the purpose of computation of tax, employees are divided in the following two categories:

Types of rent-free accommodation

  1. Furnished rent-free accommodation
  2. 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 fee of House determined will be taxable.

2. Private sector employees or other employees

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%
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
– 24% of salary

Whichever is less will be taxable
Charges recovered from the employee shall be deducted.

Exemption

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, from one or more employers.

ITR for Salaried Individuals
CA Assisted Income Tax Return filing for individuals having salary, Rental income from one house property & income from other sources.
[Rated 4.8 stars by customers like you]
ITR for Salaried Individuals
CA Assisted Income Tax Return filing for individuals having salary, Rental income from one house property & income from other sources.
[Rated 4.8 stars by customers like you]

FAQ

What is the Difference between RFA & HRA?

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.

What is the basis of valuation in case of govt employees for rent free house?

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.

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