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What is Rent-Free Accommodation (RFA): Taxability and Computation

What is a Perquisite?

What is Rent-Free Accommodation?

What are the Types of Rent-Free Accommodation Offered?

What are the New Rules for Rent-Free Accommodation Taxability?

Unfurnished Accommodation

 

For Central or State Government Employees

Ownership New Rates (as per 2011 census) Previous Rates (as per 2001 census)
Owned by Employer
  • Population - Above 40 lakhs
  • Valuation - 10% of the salary is considered as the value of the house.
  • Population - Between 15 lakhs and 40 lakhs
  • Valuation - 7.5% of the salary is considered as the value of the house.
  • Population - Less than 15 lakhs
  • Valuation - 5% of the salary is considered as the value of the house.
  • Population - Above 25 lakhs
  • Valuation - 15% of the salary is considered as the value of the house.
  • Population - Between 10 lakhs and 25 lakhs
  • Valuation - 10% of the salary is considered as the value of the house.
  • Population - Less than 10 lakhs
  • Valuation - 7.5% of the salary is considered as the value of the house.
On Rent or Lease The perquisite value is based on the licence fee specified by the government. The perquisite value is based on the licence fee specified by the government.

Note: Any charges recovered from the employee shall be deducted.

For Non-Government Employees

Ownership New Rates (as per 2011 census) Previous Rates (as per 2001 census)
Owned by Employer
  • Population - 40 lakhs
  • Valuation - 10% of the salary is considered as the value of the house.
  • Population - Between 15 lakhs and 40 lakhs
  • Valuation - 7.5% of the salary is considered as the value of the house.
  • Population - Less than 15 lakhs
    Valuation - 5% of the salary is considered as the value of the house.
  • Population - 25 lakhs
  • Valuation - 15% of the salary is considered as the value of the house.
  • Population - Between 10 lakhs and 25 lakhs
  • Valuation - 10% of the salary is considered as the value of the house.
  • Population - Less than 10 lakhs
  • Valuation - 7.5% of the salary is considered as the value of the house.
On Rent or Lease

The perquisite value is lower of the following-

Actual lease rent paid by the employer; or

15% of the employee’s salary

The perquisite value is lower of the following-

Actual lease rent paid by the employer; or

10% of the employee’s salary

Note: Any charges recovered from the employee shall be deducted.

Furnished Accommodation

 

For Central or State Government Employees

Ownership Tax Rates
Owned by Employer
  • The value of perquisite is equal to the value of unfurnished accommodation as per the city, with an increase of 10% every year for the cost of furnishing owned by the employer.
  • If furnishing is hired from a third party, its actual charges are considered instead of 10%.
On Rent or Lease The perquisite value is calculated the same as for unfurnished accommodation, with an addition of 10% increase every year for cost of furniture and other appliances.

Note: Any charges recovered from the employee shall be deducted.

For Non-Government Employees

Ownership Tax Rates
Owned by Employer
  • The value of perquisite is equal to the value of unfurnished accommodation as per the city, with an increase of 10% yearly for the cost of furnishing owned by the employer.
  • If furnishing is hired from a third party, its actual charges are considered instead of 10%.
On Rent or Lease The perquisite value is calculated the same as for unfurnished accommodation, with an additional 10% increase every year for the cost of furniture and other appliances.

Note: Any charges recovered from the employee shall be deducted.

If Accommodation is Provided as a Hotel

How to Calculate Perquisite Tax on Accommodation Value?

How will Employees Benefit from the New Income Tax Rules?

When is Rent-Free Accommodation Not Taxable?

What is the Difference between RFA and HRA?

If you are confused between Rent-free Accommodation (RFA) and House-Rent Allowance (HRA), here is a comparison between the two:

Factors Rent-Free Accommodation House-Rent Allowance
Meaning It is a perquisite in which the employer provides accommodation to employees for residential purposes at discounted rent or no rent. It is an allowance added to the employee’s salary that covers the actual house rent expenditure.
Components of Salary
  • Basic Salary
  • DA
  • Bonus
  • Commission
  • Taxable part of allowances
  • Basis Salary
  • Dearness Allowance
  • Percentage bases commission
Taxability
  • RFA taxability depends on the type of accommodation, ownership of the accommodation and whether it is furnished or unfurnished.
  • The perquisite is calculated based on the population of the city the place is provided in, the employee’s actual salary, or the actual lease rent paid by the employer.
  • HRA is taxable as per the least of the following:
    HRA received is 50% of salary in metro city
  • 40% in non-metro city
    The actual rent paid is 10% of the salary

Therefore, it's essential to understand the rent-free accommodation taxability and computation if you receive this type of benefit from your employer. You must know when the value of the perquisite will be included as a part of your taxable income, which could increase your tax liability, and when it is tax-free.  

You can consult with a tax professional to leverage the benefit of RFA.

FAQs about Rent-Free Accommodation