Rent-Free Accommodation: Each employee, along with his/her salary, is provided with a prerequisite by the employer, and rent-free accommodation or accommodation with minimal charges is one such perquisite. Income Tax Rules 1962 state that the taxation of perquisites is valid, including rent-free accommodation or accommodation at a concessional rate. This article deals with the possibilities of the accommodation that the employee can get from the employer and how is the income tax charged on it.
There are two sections in which the employees get categorized
- Central Government and State Government employees.
- Private sector or non-governmental employees.
Division of Accommodation
There are two types of rent-free accommodation
- Unfurnished accommodation.
- Furnished accommodation.
Taxation on Rent Free Accommodation
There are several factors and possibilities that determine the taxability of the rent-free accommodation provided, and they will be discussed below.
For the accommodation provided by the Government
- Unfurnished Accommodation: The taxable amount for this type of accommodation is the difference between the license fees determined by the central or state government and the actual rent paid by the employee.
- Furnished Accommodation: The taxable amount is the same as that of the unfurnished accommodation along with the 10% per annum of the furniture cost owned by the government or the actual rent of the furniture if the employee hires it.
For the accommodation provided by the Private or Non-governmental Companies where the Employer owns the property
In such cases of accommodation, the value of the prerequisite for the employee is calculated based on the population of the town or city according to the census of 2001.
Unfurnished Accommodation
For this kind of accommodation, they are further categorized as
- Cities which have a Population of up to 10 Lakh People – The perquisite value is 7.5% of the employee’s salary.
- Cities with a Population Between 10 to 25 Lakh People – 10% of the employee’s salary are taken as the value of the perquisite.
- Cities with a Population of more than 25 Lakh People – The value of the perquisite is 15% of the employee’s salary.
Furnished Accommodation
In this case, the amount calculated for unfurnished accommodation is added with the cost of the furniture owned by the employer at a 10% per annum rate. For other circumstances of hiring the furniture, the actual hire charges are levied.
For the accommodation provided by the Private or Non-governmental Companies where the property is leased or rented by the Employer
Unfurnished accommodation by Private or Non-governmental Companies
There are two ways of levying the income tax for such accommodation. They are –
- The actual amount of the rent or lease for the property.
- 15% of the salary of the employee.
The lower of the two is taken as the value of the perquisite.
Furnished Accommodation
The taxable amount is the actual amount of the unfurnished accommodation added with the 10% per annum rate of the cost of the furniture if the employer owns it. Otherwise, actual hire charges for the furniture are to be paid.
Taxation on Hotel Accommodation
- Unfurnished hotel accommodation: No tax is levied on it.
- Furnished hotel accommodation: In this case, the lower among both the amounts are taken for taxation, they include:
- The charges paid or payable to the hotel.
- 24% of the employee’s salary.
However, a hotel stay of fewer than 15 days in case of transfer from one place to another is not counted as a perquisite of the employee and is not taxable.
Note:
- In each case, the actual amount of rent paid or payable by the employee gets deducted.
- An employee’s salary includes the pay, bonus, commission, taxable allowances, or any other form of payment.
- The furniture of a furnished accommodation includes television, refrigerator, air conditioner and other gadgets.
- The accommodation can include the following places such as a flat, house, farmhouse, hotel, guest house, mobile home, service apartment, caravan, motel, ship, or any other floating structures.
- When an employee gets transferred from one place to other, the employee is provided with a new accommodation at the new place and can retain the old housing for 90 days with the taxation of only one place. However, after 90 days, the employee needs to pay the taxes for both the accommodations.