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HRA, Rent Free Accommodation and Hotel

Taxability or Exemption on HRA, Rent Free Accommodation and Accommodation Provided in Hotel

House rent allowance

Least of the following is exempt:

a) Actual HRA Received

b) 40% of Salary (50%, if house situated in Mumbai, Calcutta, Delhi or Chennai)

c) Rent paid minus 10% of salary

* Salary = Basic + DA (if part of retirement benefit) + Turnover based Commission

Note:

i. Fully taxable, if HRA is received by an employee who is living in his own house or if he does not pay any rent

ii. It is mandatory for employee to report PAN of the landlord to the employer if rent paid is more than Rs. 1,00,000 [Circular No. 08 /2013 dated 10-10-2013].

Rent free accommodation

To Central and State Government employees

Rent free unfurnished accommodation

License fees determined in accordance with rules framed by Government for allotment of houses shall be deemed to be the taxable value.

Rent free furnished accommodation

Taxable value  shall be:

a) Taxable value of perquisite assuming accommodation is unfurnished

b) Add: 10% of original cost of furniture and fixtures (if these are owned by the employer) or actual hier charges paid or payable (if these are taken on rent by the employer).

c) Less: amount of rent, if any, recovered from the employee

To employees other than Central and State Government employees

Rent free unfurnished accommodation

Taxable value shall be

i. If house property is owned by the employer, the taxable value shall be:

A. 15% of salary, if population of city where accommodation is provided exceeds 25 lakhs

B. 10% of salary, if population of city where accommodation is provided exceeds 10 lakhs but does not exceed 25 lakhs

C. 7.5% of salary, if accommodation is provided in any other city

ii. If house property is taken on lease or rent by the employer, the taxable value shall be:

i. Lease rent paid or payable by the employer or 15% of the salary, whichever is lower

*Salary includes:

a) Basic Pay

b) Dearness Allowance (only to the extent it forms part of retirement benefit salary)

c) Bonus

d) Commission

e) All other allowances (taxable portion of other allowance)

f) Any monetary payment which is chargeable to tax

But does not include

i. Value of any perquisite

ii. Employer’s contribution to PF

iii. Benefits received at the time of retirement like gratuity, pension etc.

Note:

 1) Rent free accommodation is not chargeable to tax if provided in remote area.

 2) Rent free accommodation provided to High Court or Supreme Court Judges, Union Ministers, Leader of Opposition in Parliament, an official in Parliament and Serving Chairman and members of UPSC is tax free perquisite.

 3) The value so determined shall be reduced by the amount of rent, if any,  recovered from the employee.

 4) If employee is transferred and retain property at both the places, the taxable value of perquisites for initial period of 90 days shall be determined with reference to only one accommodation (at the option of the assessee). The other one will be tax free. However after 90 days, taxable value of perquisites shall be charged with reference to both the accommodations.

Rent free furnished accommodation

Taxable value  shall be:

a) Taxable value of perquisite assuming accommodation is unfurnished

b) Add: 10% of original cost of furniture and fixtures (if these are owned by the employer) or actual hier charges paid or payable (if these are taken on rent by the employer).

c) Less: amount of rent, if any, recovered from the employee

Accommodation provided in a hotel

Hotel accommodation will not be chargeable to tax if :

a) It is provided for a total period not exceeding in aggregate 15 days in the financial year; and

b) Such accommodation in hotel is provided on employee’s transfer from one place to another place.

Taxable value of perquisite shall be lower of following:

a)  Actual charges paid or payable by the employer to such hotel; or

b)  24% of salary

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