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RFA: Rent Free Accommodation

by | May 4, 2024 | Income Tax | 0 comments

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Important Keyword: Income from salary, Income Tax, Rent Free Accommodation.

What is Rent Free Accommodation?

Perquisites are indeed crucial components of Income from Salary, with Rent-free Accommodation (RFA) being one of them. RFA refers to lodging provided by an employer to an employee, either entirely free of cost or at a reduced rate. The scope of accommodation encompasses various forms, including:

  • Apartments
  • Farmhouses (whole or part)
  • Hotels
  • Guesthouses
  • Service apartments
  • Caravans
  • Mobile homes
  • Ships or other floating structures

When computing tax liabilities, employees fall into two main categories:

  1. Central and State Government Employees: This group includes individuals employed by government entities at the central or state level.
  2. Private Sector Employees and Others: This category encompasses employees working in private companies as well as those in other sectors not covered under government employment.

Types of rent-free accommodation

  1. Furnished rent-free accommodation
  2. Unfurnished rent-free accommodation

Taxability of Rent Free Accommodation

Value of Furnished RFA
ParticularsAmount
Value of Unfurnished accommodationXXXX
Plus: 10% p.a of cost of furniture, if the furniture is owned by the employer or actual rent of furniture.XXXX
Amount TaxableXXXX

Value of Unfurnished RFA

1. Central and State Government employees

License fees of the House determined by the government will be taxable.

2. Private sector employees or other employees
  • If employer owns the property:
City population as per 2001 census% of Salary Taxable
Up to 10 lakhs7.5%
Exceeding 10 lakhs but up to 25 lakhs10%
Exceeding 25 lakhs15%
  • If taken on lease by employer:
ParticularsAmount
Actual lease rent paid by the employerXXXX
15% of SalaryXXXX
Whichever is less will be taxableXXXX

Taxability for Hotel Accommodation

For income tax purposes, the valuation of hotel accommodation provided to an employee—whether in the government or non-government sector—follows specific guidelines:

Accommodation is unfurnishedAccommodation is furnished
It is not taxable– The actual Charges paid/ payable to such hotel; or
– 24% of salaryWhichever is less will be taxable
Charges recovered from the employee shall be deducted.

Exemption

Certain exemptions apply to the taxation of accommodation provided by employers to employees:

  1. Transfer Accommodation: If an employee is transferred from one place to another, any accommodation provided in a hotel for a period not exceeding 15 days is exempt from taxation.
  2. Accommodation in Remote Areas: Accommodation provided by the employer to an employee in a remote area is considered a tax-free perquisite.
  3. Specific Designations: Certain individuals holding specific designations are entitled to tax-free accommodation:
    • High Court Judge
    • Supreme Court Judge
    • Union Minister
    • Leader of Opposition in Parliament
    • Official in Parliament
    • Serving Chairman and member of UPSC
  4. Transferred Employees: In case of employee transfer where housing facilities are provided at both the old and new locations, the accommodation at the new location will be taxable if occupied for up to 90 days immediately after the transfer. The employee can choose which accommodation to designate as tax-free during this period.

Definition of Salary

The definition of salary for the purpose of taxability of rent-free accommodation includes various components:

  1. Basic Pay: The core component of an employee’s salary.
  2. Dearness Allowance/Pay: If it forms part of superannuation or retirement benefits.
  3. Bonus: Additional payments made to employees based on performance or other criteria.
  4. Commission: Compensation paid based on sales or other performance-related metrics.
  5. Fees: Payments made for professional services rendered.
  6. All Taxable Allowances: Any allowances provided to the employee that are subject to taxation.
  7. All Monetary Payments Chargeable to Tax: This encompasses any other monetary payments received by the employee that are taxable, excluding perks.

Read More: File ITR-1 Sahaj Form online for Salaried Employee

Web Stories: File ITR-1 Sahaj Form online for Salaried Employee

Official Income Tax Return filing website: https://incometaxindia.gov.in/

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