Valuation of rent-free accommodation provided by the employer (as set, 1961 Act, AY 2018-19)

Where the rules are found

Rent-free accommodation provided by the employer is a perquisite (section 17(2)(i)), and accommodation at a concession in rent is one too (section 17(2)(ii)). Explanations 1 to 4 to section 17(2)(ii) say how its value is worked out; the same rules apply to rent-free accommodation, with nil as the rent recovered.

Government employees

Where the Central or a State Government provides the accommodation, its value is the licence fee that the Government fixes under its own rules for that accommodation (Explanation 1(b) to section 17(2)(ii)), less any rent the employee pays.

Other employees: unfurnished accommodation

For any other employer (Explanation 1(a)):

• Owned by the employer: the value is a specified rate of the employee's salary for the period of occupation (Explanation 4): 15% of salary in a city with a population above 25 lakh by the 2001 census, 10% in a city above 10 lakh but not above 25 lakh, and 7.5% anywhere else.
• Taken on lease or rent by the employer: the value is the lower of the lease rent the employer pays and 15% of salary.

From the value so found, deduct any rent the employee pays or that is recoverable from him.

Furnished accommodation

Where the accommodation is furnished, add to the value above the value of the furniture and fixtures (Explanation 1(c) and Explanation 2): 10% a year of the cost of furniture owned by the employer (television, refrigerator, air-conditioner and other appliances included), or the actual hire charges where the employer hires it, less anything the employee pays for the furniture.

Hotel accommodation

Accommodation in a hotel is valued at 24% of the salary for the year or the actual hotel charges, whichever is lower, less rent recovered (Explanation 1(d)). It is not a perquisite at all where it is provided for not more than 15 days in all on transfer from one place to another.

Meaning of salary

Salary for this purpose (Explanation 3) includes pay, allowances, bonus or commission and any monetary payment from one or more employers for the period of occupation. It excludes dearness allowance that does not enter into retirement benefits, the employer's contribution to the provident fund, allowances exempt from tax, and the value of perquisites.

Example (our own figures)

An employee of a private company in Delhi (population above 25 lakh) draws basic pay of ₹50,000 a month, taxable allowances of ₹10,000 a month and dearness allowance of ₹5,000 a month that does not count for retirement benefits. The company gives him a flat it owns, furnished with articles costing ₹1,20,000, and recovers ₹2,000 a month.

• Salary: (₹50,000 + ₹10,000) × 12 = ₹7,20,000 (the dearness allowance is left out).
• 15% of ₹7,20,000 = ₹1,08,000; add 10% of ₹1,20,000 = ₹12,000; total ₹1,20,000.
• Less rent recovered ₹24,000: taxable perquisite ₹96,000.