valuation of rent free house

 

The term accommodation includes the following:

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

Employees are divided in the following two categories:

1. Central and State Government employees

2. Private sector employees or other employees

What is the type of rent free accommodation?

1. Furnished rent free accommodation

2. Unfurnished rent free accommodation

Taxability of Rent Free Accommodation

A] Value of Furnished rent free accommodation

Value of Unfurnished accommodation

Plus: 10% per annum of cost of furniture, if the furniture is owned by owned by the employer or actual rent of furniture

B] Value of Unfurnished rent free accommodation

i) Central and State Government employees

License fee of House determined will be taxable

ii) Private sector employees or other employees

a) If it is owned by employer

• • City having population upto 10 lakhs as per 2001 census – 5% of Salary
  • City having population exceeding 10 lakhs but upto 25 lakhs as per 2001 census – 10% of Salary
  • City having population exceeding 25 lakhs as per 2001 census – 15% of Salary

b) If taken on leased by employer

• • Actual lease rent paid by employer
  • 15% of Salary

Whichever is less will be taxable

Taxability for Hotel Accommodation

a) If Hotel Accommodation is unfurnished

It is not taxable

b) If Hotel Accommodation is furnished

• Actual charges paid or payable for such hotel
• 24% of the salary

Whichever is less will be taxable

Note: If the hotel accommodation is provided for not more than 15 days on transfer of employee from one place to another then it will not be taxable.

What is Salary includes for purpose of Taxability of Rent free accommodation?

Salary includes all emoluments paid to an employee but excludes dearness allowance which is not included in the computation for retirement benefits, allowance which are exempt from tax, value of perquisites under section 17(2), employer’s contribution to PF and lump sum payments received on retirement.

Let me provide you with an illustration to explain this concept clearly –

Let us take the case of Mr. Narayan, an employee of X Pvt. Ltd, posted at Ajmer (population: 18 lakh), drawing Rs. 3,00,000/- as basic salary, Rs. 10,000/- as dearness allowance which forms part of salary for all retirement benefits and Rs. 5,000/- as commission. The company also provides him with a rent free unfurnished accommodation in Ajmer. The house is owned by the company. Fair rent of the accommodation is Rs. 55,000/- per annum.

In this case the value of the perquisite in respect of rent free accommodation owned by the employer depends upon the salary of the employee. Salary for this purpose of computation of the perquisite value works out to be Rs. 3,15,000/- i.e. Rs. 3,00,000 + Rs. 10,000 + Rs. 5,000. Fair rent of the accommodation is not taken into consideration. As the accommodation is situated in a city having a population exceeding 10 lakh but not exceeding 25 lakh, 10% of the salary i.e. Rs. 31,500 is the taxable value of the perquisite.