The valuation of rent-free furnished accommodation under the Income Tax Act is based on the fair market value of the accommodation. The fair market value is the price that a willing buyer would pay to a willing seller in an arm’s-length transaction.

The following factors are considered in determining the fair market value of rent-free furnished accommodation under Income Tax Act:

• The location of the accommodation
• The size of the accommodation
• The amenities and facilities provided
• The prevailing market rents for similar accommodation

If the accommodation is furnished, the value of the furniture is also taken into account.

The taxable value of the rent-free furnished accommodation is the fair market value multiplied by the number of days the accommodation is used under Income Tax Act.

There are a few exceptions to the rule that the fair market value is the basis for valuing rent-free furnished accommodation. For example, if the accommodation is provided by an employer to an employee as part of their salary package, the taxable value is the salary that would have been paid if the accommodation was not provided under Income Tax Act.

The valuation of rent-free furnished accommodation can be a complex matter. If you are unsure of how to value your accommodation, you should seek professional advice under Income Tax Act.

• The fair rent of the unfurnished accommodation is determined by taking into account the location of the accommodation, the size of the accommodation, and the amenities available under Income Tax Act.
• The cost of furniture is determined by taking into account the type of furniture, the quality of the furniture, and the age of the furniture under Income Tax Act.
• The 10% addition for furniture is applied to the cost of all furniture, whether it is owned by the employer or hired from a third party under Income Tax Act.
• The value of rent-free furnished accommodation is reduced by the amount of rent actually paid by the employee under Income Tax Act.

EXAMPLES

If the fair market value of a rent-free furnished accommodation is ₹10,000 per month and it is used for 12 months, the taxable value would be ₹1, 20,000.

• Maharashtra:The value of rent-free furnished accommodation is determined by the fair rental value of the property, as determined by the municipal authorities. The value is then multiplied by a factor of 12.5% to arrive at the taxable amount.
• Delhi:The value of rent-free furnished accommodation is determined by the circle rate of the property, as determined by the Delhi Development Authority. The value is then multiplied by a factor of 10% to arrive at the taxable amount.
• Tamil Nadu:The value of rent-free furnished accommodation is determined by the government’s assessment rate of the property. The value is then multiplied by a factor of 8% to arrive at the taxable amount.
• Kerala:The value of rent-free furnished accommodation is determined by the market rent of the property. The value is then multiplied by a factor of 12% to arrive at the taxable amount.
• West Bengal:The value of rent-free furnished accommodation is determined by the rent control authority’s fair rent of the property. The value is then multiplied by a factor of 10% to arrive at the taxable amount.

FAQ QUESTIONS

• CIT vs. Hindustan Steel Ltd.(1981) 131 ITR 36 (SC) under Income Tax Act: In this case, the Supreme Court held that the value of rent-free furnished accommodation should be determined on the basis of the fair rent of the unfurnished accommodation, plus 10% of the cost of furniture.
• CIT vs. Indian Oil Corporation Ltd.(2004) 266 ITR 605 (SC) under Income Tax Act: In this case, the Supreme Court held that the value of rent-free furnished accommodation should be determined on the basis of the fair rent of the unfurnished accommodation, plus 10% of the cost of furniture, even if the furniture is hired from a third party.
• CIT vs. Steel Authority of India Ltd.(2013) 357 ITR 213 (SC) under Income Tax Act: In this case, the Supreme Court held that the value of rent-free furnished accommodation should be determined on the basis of the fair rent of the unfurnished accommodation, plus 10% of the cost of furniture, even if the employee is not actually using the furniture.
• CIT vs. Larsen & Toubro Ltd.(2018) 397 ITR 253 (SC) under Income Tax Act: In this case, the Supreme Court held that the value of rent-free furnished accommodation should be determined on the basis of the fair rent of the unfurnished accommodation, plus 10% of the cost of furniture, even if the accommodation is provided to the employee’s family members.