1. If the accommodation is owned by the employer under Income Tax Act:
   • The value of the perquisite is the license fee that the employer would have charged if the accommodation had been let out to a third party.
   • The license fee is calculated as follows
   • Find the annual letting value of the accommodation. This is the rent that the accommodation could reasonably be expected to fetch if it were let out on the open market.
     • Deduct from the annual letting value any rent that the employee actually pays.
     • The balance is the license fee.

2. If the accommodation is not owned by the employer, but is taken on lease or rent under Income Tax Act:
   • The value of the perquisite is the lower of the following:
   • The actual amount of lease rent paid/payable by the employer. 10% of the employee’s salary.

In both of the above cases, the value of the perquisite would be reduced by the rent, if any, actually paid by the employee.

EXAMPLES

If an employer provides a furnished house to an employee at a monthly rent of Rs. 5,000, and the annual letting value of the house is Rs. 1, 20,000, then the value of the perquisite would be:

• License fee = Rs. (1, 20,000 – 5,000) = Rs. 1, 15,000.
• Value of perquisite = Rs. (1,15,000 – 5,000) = Rs. 1,10,000

• Unfurnished accommodation in a metropolitan city: The value of unfurnished accommodation in a metropolitan city is 15% of the employee’s salary. For example, if an employee’s salary is Rs. 10 lakhs, the value of the unfurnished accommodation provided to him/her at concessional rent would be Rs. 1.5 lakhs.
• Unfurnished accommodation in a non-metropolitan city: The value of unfurnished accommodation in a non-metropolitan city is 10% of the employee’s salary. For example, if an employee’s salary is Rs. 10 lakhs, the value of the unfurnished accommodation provided to him/her at concessional rent would be Rs. 1 lakh.
• Furnished accommodation in a metropolitan city: The value of furnished accommodation in a metropolitan city is 20% of the employee’s salary. For example, if an employee’s salary is Rs. 10 lakhs, the value of the furnished accommodation provided to him/her at concessional rent would be Rs. 2 lakhs.
• Furnished accommodation in a non-metropolitan city: The value of furnished accommodation in a non-metropolitan city is 15% of the employee’s salary. For example, if an employee’s salary is Rs. 10 lakhs, the value of the furnished accommodation provided to him/her at concessional rent would be Rs. 1.5 lakhs.

FAQ QUESTIONS

• What is the meaning of “concessional rent” under Income Tax Act?

Concessional rent is rent that is lower than the fair rent of the accommodation. The fair rent is the rent that would be paid by a tenant on the open market for similar accommodation in the same locality.

• How is the value of a perquisite in respect of concessional rent determined under Income Tax Act?

The value of a perquisite in respect of concessional rent is determined as follows:

1. Find the fair rent of the accommodation.
2. If the accommodation is owned by the employer, the value of the perquisite is 15% of the employee’s salary, or the fair rent of the accommodation, whichever is lower.
3. If the accommodation is not owned by the employer, but is taken on lease or rent by the employer, the value of the perquisite is the actual amount of lease rent paid/payable by the employer or 15% of the employee’s salary, whichever is lower.
4. From the value so arrived at, deduct the rent charged by the employer from the employee. The balance amount (if it is positive) is the taxable value of the perquisite in respect of concession in rent.

• What are the factors that are considered in determining the fair rent of an accommodation under Income Tax Act?

The factors that are considered in determining the fair rent of an accommodation include under Income Tax Act:

• The location of the accommodation
• The size of the accommodation
• The amenities that are available in the accommodation
• The prevailing market rent for similar accommodation in the same locality
• What are the exceptions to the valuation of accommodation provided at concessional rent under Income Tax Act?

There are a few exceptions to the valuation of accommodation provided at concessional rent. These exceptions include under Income Tax Act:

• Accommodation that is provided to an employee on transfer from another place of duty
• Accommodation that is provided to an employee for a limited period of time, such as during the construction of his/her own house
• Accommodation that is provided to an employee at a nominal rent