Rent-free accommodation provided by the employer, under the head Salaries (as set, 1961 Act, AY 2019-20)

Rent-free accommodation is a perquisite

The value of rent-free accommodation provided by the employer is a perquisite and part of salary (section 17(2)(i)), for every employee, whatever his salary. Accommodation given at a rent below its value is also a perquisite: the concession in the matter of rent (section 17(2)(ii)). The values are fixed by rule 3(1) of the Income-tax Rules, 1962, on the bases set out in Explanations 1 to 4 to section 17(2)(ii) (Income-tax Rules, 1962, rule 3(1), Table I, as substituted by the Income-tax (13th Amendment) Rules, 2009, in force from assessment year 2010-11; the figures below are the same in that Table and in the Explanations).

Value of the accommodation

1. Government employees (Central or State): the licence fee the Government fixes for the accommodation under its rules, less any rent the employee pays.
2. Other employees, unfurnished accommodation owned by the employer: a specified rate of salary for the period the employee occupies it, less any rent he pays (Explanation 1(a)(i) and Explanation 4 to section 17(2)(ii)). The rate depends on the population of the city by the 2001 census: 15% of salary where it exceeds 25 lakh, 10% where it exceeds 10 lakh but not 25 lakh, and 7.5% elsewhere.
3. Other employees, unfurnished accommodation taken on lease or rent by the employer: the lease rent the employer pays or 15% of salary, whichever is lower, less any rent the employee pays (Explanation 1(a)(ii)).

Furnished accommodation and hotel accommodation

• Furniture: the value above is increased by 10% a year of the cost of the furniture, fixtures and appliances (television, refrigerator, air-conditioner and the like), or by their hire charges where the employer hires them, less what the employee pays for them (Explanation 1(c) and Explanation 2).
• Hotel: where the employer provides accommodation in a hotel, the value is 24% of salary or the actual hotel charges, whichever is lower, less any rent the employee pays. Hotel accommodation for not more than 15 days in all on transfer from one place to another is not counted (Explanation 1(d)).

Salary for this purpose

Salary means pay, allowances, bonus, commission and other cash payments from one or more employers, but not (Explanation 3 to section 17(2)(ii)):

• dearness allowance or pay unless it counts for retirement benefits;
• the employer's contribution to the employee's provident fund;
• allowances that are exempt; and
• the value of any perquisites.

Example (our own figures)

An employee of a private company in a city with a population above 25 lakh by the 2001 census gets basic salary of ₹6,00,000, dearness allowance of ₹1,20,000 (half of it counts for retirement benefits) and a taxable bonus of ₹40,000 in 2018-19. The company gives him a flat it owns, furnished with items costing ₹1,50,000, and recovers ₹2,000 a month from him. Salary for the valuation is ₹6,00,000 + ₹60,000 + ₹40,000 = ₹7,00,000. Value: 15% of ₹7,00,000 = ₹1,05,000, plus furniture at 10% of ₹1,50,000 = ₹15,000, that is ₹1,20,000, less the ₹24,000 he pays: a taxable perquisite of ₹96,000.