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Perquisite (perk) value of a company provided house

Many companies provide accommodation to their employees, which is either rent free or has subsidized rent.

Such accommodation is considered a perquisite (commonly known as perk), and is taxed in the hands of the employee.

So, what is the value of this perk? What is the income tax on it? How is the tax calculated? Read on…

[This article has been inspired by queries from readers Ravi and Partha]



In order to make the employees’ lives easier, many companies provide rent-free houses for their stay. Some companies pay the rent partially, while you as an employee pay the balance.

The house can be owned by the company, or the company can rent / lease it from someone and provide it to you for your stay.

Although getting a rent free house (or a concession in house rent) from your company can be a really good, it has implications on your income tax.

Such accommodation is treated as a perquisite (or perk), and is taxed in the hands of the employee – that is, you as an employee are liable to pay income tax on the perquisite value of the house.


What is the logic behind this? Why should you pay tax on this house?

Well, the company does incur a cost on this free / subsidised home, and the cost is directly attributable to you. That is, the company bears the cost directly and only for you when it provides a house to you.

Thus, we can say that instead of paying you in cash, the company is indirectly paying this amount to you through a rent free or subsidized house.

Thus, in a way, it is your income and you should be paying income tax on it. See – it is not that illogical, after all!

Note: Most private companies also include the value of this accommodation in your Cost-To-Company (CTC) pay. So, for all practical purposes, an employer provided house is indeed a part of your salary!

How much is the perquisite value of the house?

This depends on various factors:

  • Whether the house is owned by the company or rented / leased by it
  • Your salary
  • Lease amount / rent paid by the company, if applicable
  • Rent paid by you, if applicable
  • Whether the house is furnished or not

Let’s understand the calculation of the perquisite value of a house better.

Meaning of Salary

For calculating the perquisite value of a house, salary would mean:

  • Basic
  • Dearness Allowance (DA)
  • Any Bonus
  • Any Commission
  • Any Other Fees
  • Any Other taxable allowances and payments


Meaning of Furnished House

The perk value of a house increases if it is furnished. By furnished, it means that it has one or more of the following:

  • Television (TV)
  • Refrigerator
  • Air Conditioner (AC)
  • Other household appliances

Case I: House Owned by the Company

If your employer provides you accommodation that is owned by it, the perquisite value of the house would be:

15% of salary (in cities that have a population exceeding 25 Lakhs as per the 2001 census)
OR
10% of salary (in cities that have a population between 10 Lakhs and 25 Lakhs as per the 2001 census)
OR
7.5% of salary (in all other places)

Less

The portion of the rent actually paid by you

For a furnished house, add to the above calculated value:

- 10% of the original cost of the furniture (if the furnishings are owned by the employer)
OR
- The actual hire / lease charges paid by the employer (if the furnishings are hired by the employer)

Example

Let’s assume that your basic is Rs. 8,000 per month, and DA is Rs. 4,000. You get a bonus of Rs. 25,000 every year.

You stay in a company provided quarters in Mumbai (population > 25 Lakhs), which is furnished. The furnishings were bought by the company for Rs. 40,000.

You are paying a rent of Rs. 2,000 every month. What would be the perquisite value of the house in this case?

Here, your monthly salary is Rs. 8,000 + Rs. 4,000 = Rs. 12,000 per month.

Yearly salary = Rs. 12,000 * 12 plus bonus of Rs. 25,000 = Rs. 1,69,000.

The rent paid by you over the year = Rs. 2,000 * 12 = Rs. 24,000.

Thus, perk value = 15% of Rs. 1,69,000 – Rs. 24,000 = Rs. 25,350 – Rs. 24,000 = Rs. 1,350.

Since the house is furnished, you would need to add 10% of the value of the furniture.

Thus, total perquisite value of the house = Rs. 1,350 + 10% of Rs. 40,000 = Rs. 5,350.

Case II: House Leased by the Company

If your employer provides you accommodation that is in turn rented / leased by it, the perquisite value of the house would be:

The lower of: The actual amount of lease or rent paid by the employer OR 15% of salary

Less

The portion of the rent actually paid by you

Also, for a furnished house, add to the above calculated value:

- 10% of the original cost of the furniture (if the furnishings are owned by the employer)

OR

- The actual hire / lease charges paid by the employer (if the furnishings are hired by the employer)

Please note that when the house is rented by the employer, the city in which it is located would not matter in the calculation of its perquisite value.

Example

Let’s again assume that your basic is Rs. 8,000 per month, and DA is Rs. 4,000. You get a bonus of Rs. 25,000 every year.

You stay in a company provided house, which is furnished. The company has taken the house on rent for Rs. 5,000 per month, and the furnishings are leased by the company for Rs. 1,000 per month.

You are paying a rent of Rs. 2,000 every month. What would be the perquisite value of the house in this case?

Here, your monthly salary is Rs. 8,000 + Rs. 4,000 = Rs. 12,000 per month.

Yearly salary = Rs. 12,000 * 12 plus bonus of Rs. 25,000 = Rs. 1,69,000.

The rent paid by you over the year = Rs. 2,000 * 12 = Rs. 24,000.

The rent paid by the company over the year = Rs. 5,000 * 12 = Rs. 60,000.

Thus, perk value = Lower of (Rs. 60,000 or 15% of Rs. 1,69,000) less Rs. 24,000 (rent paid).

That is, lower of Rs. 60,000 and Rs. 25,350, less Rs. 24,000.

Thus, perquisite value = Rs. 25,350 – 24,000 = Rs. 1,350.

Since the house is furnished, you would need to add the rent paid for the furniture as well.

Thus, total perquisite value of the house = Rs. 1,350 + (Rs. 1,000 * 12) = Rs. 13,350.


How is the perquisite value of house taxed?

The perquisite value of house arrived at using the above calculations is added to your income under the head “Income from Salaries”, and is taxed as per the prevailing income tax slabs.

(To find out the current IT slabs, please read “Income Tax (IT) Slabs / Brackets and Rates”)

Points to note

Living in the house does not matter

The company provided accommodation is taxable as a perquisite even if you do not actually occupy it. Thus, even if you do not live in the house allotted to you, it would be considered as your perk, and you would need to pay income tax on it.

Hotel accommodation is included

Even if the accommodation is provided in a hotel, it would be considered as a perk. However, if the hotel accommodation is provided for 15 days or less at the time of transfer from one place to another, it would not be considered a perquisite.

For hotels, perquisite value would be:

Lower of: 24% of the salary OR the actual amount paid to the hotel

Less

The rent actually paid by you

Government employees

If you are a government employee, the perquisite value of the house would be the license fee charged for such accommodation, less any rent actually paid by you.

Exceptions to this rule

Certain accommodations, if provided in a “remote area”, are not considered as perquisites. These include mining sites, dam sites, power generation sites, oil exploration sites, project execution sites, etc.

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