Exploring the Updated Housing Perquisite for Rent-Free Accommodation

Do you want to understand the revised valuation of ‘rent-free accommodation’ perquisite? Read our complete article!


Employees drawing substantial salaries and enjoying rent-free accommodation provided by their employers are in for a pleasant surprise! The Central Board of Direct Taxes (CBDT) has recently revised the valuation norms for housing perquisites. As a result, employees can now look forward to a higher take-home salary and increased savings. In this article, we delve into the intricacies of rent-free accommodation taxability and its implications.


  • CBDT amends housing perquisite rules
  • New rules apply from September 1, 2023
  • Perquisite rates and city categorisation changed

The CBDT amendments to housing perquisite rules are likely to have a positive impact on employees' take-home salary and savings. The updated rules apply from September 1, 2023 and you should continue using old rates till then.

How does rent-free accommodation work?

Rent-free accommodation is a residential arrangement provided by an employer to an employee without any rent or at a minimal cost. Although employees don’t pay rent for such accommodation, it is considered a taxable perquisite.

Amendments are discussed below.

Revised perquisite valuation rates and city categorisation

The amendment changes the categorisation and limits of cities and populations (based on the 2011 census). The perquisite value will be the actual rent paid by the employer or 10% of salary, whichever is lower. The old and new rates and categorisation are presented below.

Revised perquisite valuation rates and city categorisation

*Salary is defined as basic salary plus all taxable allowances, excluding perquisites.

Use of Cost Inflation Index for perquisite valuation

  • When an employee continues to occupy the same accommodation provided by the employer for more than one year, the perquisite valuation for subsequent years is capped by the Cost Inflation Index (CII).
  • The value of the perquisite for the first year of accommodation is calculated as the lower of the rent paid or 15% of the salary for April to August, plus 10% of the salary for September to March.
  • For the following years, the perquisite value is calculated as the lower of 10% of the salary, the rent paid, or the perquisite value of the previous year multiplied by the CII of the current year divided by the CII of the previous year.

Change in definition of remote area and plinth area

Temporary, rent-free accommodation for certain employees is not taxable if:

  • Space under 1,000 sq. ft
  • At least 8 km away from a municipality/ cantonment board
  • Remote area defined as beyond 30 km from a municipality or cantonment board with a population of one lakh, as per 2011 census

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