How to Calculate the Perquisite Value of Residential Accommodation Provided by an Employer

Free or concessional residential accommodation provided by an employer is generally a taxable salary perquisite. Its value depends on the employer, ownership of the property, city population, furniture, hotel accommodation and amounts paid by the employee.

Meaning of accommodation perquisite

A perquisite is a benefit or amenity received because of employment in addition to ordinary monetary salary. Employer-provided residential accommodation may include a house, flat, service apartment, guest house or qualifying hotel accommodation. When the prescribed value exceeds the rent payable or recovered from the employee, the difference is ordinarily included in taxable salary. Rule 15 prescribes the valuation method for the 2026 law.

1. Unfurnished accommodation owned by a non-government employer

For accommodation owned by an employer other than the Central or State Government in the specified governmental employment capacity, the value is calculated using the salary attributable to the period of occupation and the city's population under the 2011 Census.

Taxable accommodation value = prescribed percentage of salary for the occupation period minus rent actually paid by the employee. The taxable value cannot be negative.

2. Accommodation leased or rented by the employer

Where a non-government employer takes the accommodation on lease or rent, the value of unfurnished accommodation is the lower of actual lease rent paid or payable by the employer and 10% of salary for the relevant period, reduced by rent actually paid by the employee.

For example, if relevant salary is Rs. 12,00,000, annual employer rent is Rs. 2,40,000 and the employee pays Rs. 24,000, the taxable unfurnished accommodation value is Rs. 96,000: lower of Rs. 2,40,000 and Rs. 1,20,000, less Rs. 24,000.

3. Accommodation provided to Central or State Government employees

For employees holding an office or post in connection with the affairs of the Union or a State, the unfurnished accommodation value is the licence fee determined under the relevant government accommodation rules, less the rent actually paid by the employee. This specific treatment does not automatically extend to every public-sector undertaking or employee on deputation.

4. Furnished accommodation and furniture valuation

For furnished accommodation, first determine the accommodation value under the applicable category. Add the furniture component as prescribed by Rule 15(2)(e):

• For furniture owned by the employer, generally add 10% per annum of its original cost, proportionately for the relevant period.
• For furniture hired from another party, add the actual hire charges paid or payable for the relevant period instead.
• Reduce the resulting amount by applicable rent and furniture charges actually paid or payable by the employee, avoiding double deduction.

Furniture includes items such as televisions, refrigerators, household appliances and air-conditioning equipment. Where the accommodation is government-provided, the prescribed licence-fee method remains the starting point.

5. Accommodation provided in a hotel

For hotel accommodation provided by an employer, the general valuation is the lower of 24% of salary for the relevant period and actual hotel charges paid or payable, reduced by any amount paid or payable by the employee. The special exclusion for hotel accommodation provided for an aggregate period not exceeding 15 days on transfer should be considered where its conditions are met.

6. What does salary include for this calculation?

The definition of salary for accommodation valuation is rule-specific. Broadly, it covers basic pay, qualifying dearness allowance, bonus, commission, taxable allowances and other taxable monetary payments. It generally excludes the value of perquisites, employer provident fund contributions and specified retirement benefits. Use the exact definition and inclusions in Rule 15 for the relevant tax year; calculate salary only for the period during which accommodation is provided.

7. Special situations and relief

Accommodation retained after a transfer

If an employee receives accommodation at a new posting while retaining accommodation at the former posting, the rule generally allows valuation by reference to the accommodation with the lower value for up to 90 days. After that period, both accommodations are valued under the prescribed provisions.

Temporary or remote-site accommodation

Accommodation at specified mining, onshore oil exploration, project execution, dam, power generation or offshore sites may qualify for exclusion where the statutory conditions are satisfied. These include certain temporary units of up to 800 square feet situated at least eight kilometres from municipal or cantonment limits, or accommodation in a qualifying remote area. The precise definitions and conditions in Rule 15 must be checked.

Continued occupation over multiple tax years

Special rules limit valuation where the same accommodation continues to be provided over multiple years, with reference to the initial valuation and the prescribed Cost Inflation Index adjustment. Review Rule 15(2) before applying the ordinary annual calculation without adjustment.

Specific constitutional and statutory offices

Special exemptions may apply to official residences provided to certain holders of constitutional or statutory offices, including eligible judges and specified public officeholders. Eligibility depends on the applicable statutory provision and office held, not merely government employment.

Deputation

Where a government employee serves on deputation with another body or undertaking, special deeming provisions can require valuation as accommodation provided by that body rather than under the ordinary government licence-fee method.

8. Worked examples

Employer-owned, unfurnished flat

An employee occupies employer-owned accommodation for the full tax year in a city with a 2011 Census population exceeding 40 lakh. Relevant salary is Rs. 10,00,000 and employee rent is Rs. 30,000. The perquisite value is Rs. 70,000 (10% of Rs. 10,00,000 less Rs. 30,000).

Furnished flat

Assume the same facts, with employer-owned furniture costing Rs. 2,00,000, used for the full year, and no separate furniture recovery. Add Rs. 20,000 (10% of furniture cost), producing a total taxable accommodation perquisite of Rs. 90,000.

9. Official legislation and guidance

• Income-tax Rules, 2026: official notified rules, including Rule 15 (PDF)
• Income Tax Department: scope and commencement of the Income-tax Act, 2025
• CBDT announcement on revised accommodation valuation rates (2023)
• Section 17 of the Income-tax Act, 1961 (historical years)
• Rule 3 of the earlier Income-tax Rules (historical years)
• Income Tax Department official e-filing portal

This article is general information, not individual tax advice. Confirm the applicable rule text, amendments, employment facts and tax year before finalising payroll or a return.