Accommodation, either rent-free, or with a minimal amount of rent, is one of the important perquisites given to employees. There are differences in computation of income tax according to the category of accommodation.
Employees are provided with certain additional benefits or facilities by their employer, which form a part of the individual’s income he or she earns through salary. These benefits are knows as perquisites and are taxable as per the provisions stated in the Income Tax Act.
Perquisites are usually provided by the employee in kind rather than in monetary form. One of the main components of perquisites given to employees is accommodation. This could be in the form of ‘rent-free accommodation’ or accommodation wherein a minimal amount of rent is paid by the employee.
For the purpose of computation of tax, accommodation provided to an employee by an employer is separated into two different categories. These are:
This accommodation can be further categorised into the following:
Any type of accommodation provided to those individuals employed by the Central Government or State Government is liable to be taxed in the following manner:
With regards to unfurnished accommodation provided by the Central Government or State Government, the income tax levied on the valuation of this particular kind of perquisite is calculated by deducting the rent that the employee pays for the accommodation, from the license fee that has been charged or determined by the Central or State Government.
With regards to unfurnished accommodation provided by the Central Government or State Government, the income tax levied on the valuation of this particular kind of perquisite is calculated by deducting the rent that the employee pays for the accommodation, from the combined total of the license fee that has been charged or determined by the Central or State Government, and either of the following:
Accommodation that is provided to individuals not employed with the Central or State Government may either be ‘rent-free’, wherein the employee need not pay rent to his or her employer, or ‘concessional’, wherein the employee only needs to pay a nominal or minimal amount as rent to his or her employer. Income tax levied on this type of accommodation is calculated in the following manner, as per the categorisation mentioned previously:
Unfurnished Accommodation:
Calculation of income tax chargeable with regards to unfurnished accommodation is further divided into two categories:
Furnished Accommodation:
Calculation of income tax chargeable with regards to furnished accommodation is also further divided into two categories:
If accommodation is given to an employee by an employer in a hotel then the income tax chargeable on this particular perquisite is calculated by deducting the rent that the employee pays to his or her employer from 24% of the employee’s income or salary or the actual lease amount paid to the hotel, depending on which amount is lower.
If the employee in question is given accommodation for a duration of no more than a total of 15 days following his or her transfer from one location to another, then no tax will be charged since the accommodation provided will not be deemed as a perquisite.
Should an employee be transferred from one location to another, and if the employee is provided accommodation at the new location, while still retaining accommodation at the previous location, then the tax levied on accommodation of this sort is as follows:
Accommodation in this sense could be any of the following:
If an employee earns income or salary from multiple employers, and accommodation is provided for only by one of the employers, then the total income that the employee receives from all his or her employers will be taken into consideration when calculating tax on rent free accommodation.
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