What is Rent Free Accommodation (RFA) and its Taxability?


What is Rent Free Accommodation (RFA)?

RFA means house provided to you by your employer for residential purpose. Some employees get the facility of accommodation from their employer without any charge but in some cases it chargeable to some extent. Hence, in a simple way, RFA is a part of perquisites that are considered as additional benefits getting from your employer received in kind and it is taxable as per the provisions of Income Tax Act.

What is the Taxability of RFA?

Taxability of RFA is described in the following flow chart- Taxability of RFA

Valuation of Rent Free Accommodation-

The value of residential accommodation  provided by the employer directly or indirectly to the assessee or to any other member of his household by reason of his employment, shall be determined in the following manner:

1. When accommodation is provided by the government to its employees holding office/post in connection with government affairs

In Case Accommodation is unfurnished In case Accommodation is furnished
License  Fee determined by the government has reduced by the rent actually paid by the employee The value calculated will be increased by- 10% p.a. of the cost of furniture if owned by employer or actual hire charges table in case the furniture is taken on hire. Any charges recovered from the employee shall be deducted.

2- (a) When the accommodation is provided by any other employer and such accommodation is owned by the employer

In case Accommodation is unfurnished
  1. In case Accommodation is furnished
In cities having a population- 1. exceeding 25 lakh as per 2001 census: 15% of salary 2. exceeding 10 lacs but not exceeding 25 lakhs: 10% of salary 3. Not exceeding 10 lacs population: 7.5% of salary Any charges recovered from the employee shall be deducted. The value calculated will be increased by- 10% p.a.Of the cost of furniture if owned by employer or actual hire charges payable in case the furniture is taken on hire. Any charges recovered from the employee shall be deducted.

(b) Such accommodation is taken on lease or rent by the employer

In case Accommodation is unfurnished In case Accommodation is furnished
Lower of-
  1. Actual rent paid by the employer; or
  2. 15% of salary;
Any charges recovered from the employee shall be deducted.
Value calculated will be increased by- 10% p.a. of the cost of furniture if owned by the employer or Actual hire charges payable in case the furniture is taken on hire. Any charges recovered from the employee shall be deducted.

3. When the accommodation is provided by the above employers in a hotel-

In case Accommodation is unfurnished  In case Accommodation is furnished
Not applicable Lower of-
  1. the actual Charges paid/ payable to such hotel; or
  2. 24% of salary
Any charges recovered from the employee shall be deducted.
Prerequisite value shall be exempt if Accommodation provided in a Hotel:-
  • – Such accommodation is provided for a period not exceeding 15 days, and
  • – It has been provided on the transfer of the employee from one place to another.
Note- Salary includes = Basic pay+ Dearness Allowance/pay( if forms part of superannuation or retirement benefits)+ Bonus + Commission + Fees+ All taxable allowances + All monetary payments chargeable to tax, from one or more employers. Rent Free Accommodation(RFA) and its Taxability

What is the Difference between RFA & HRA?

House Rent Allowance is a kind of Allowance that an employee gets from his or her employer for fulfilling the rental expenses of their house. RFA is accommodation which covers house or property provided by the employer for the residential purpose of the employee. To know the complete differentiation in detail click here

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Team Tax2Win