Tax on Company Leased Accomodation – CLA Perquisite Value

By Anil Gupta, 0  Finance

Calculate Company Leased Accommodation tax. Complex CLA rules for income tax in easy terms. HRA vs CLA decision should be made to get maximum tax benefits.


You have recently got an amazing salary package offer from a company and you find that it has got a component called Company Leased Accommodation (CLA) and wondering about what it is? Several questions arise in your mind like Is it a taxable component? or you will get the full amount monthly in your hand? Here are the answers:

Will I get the amount in my hand as part of my salary?

The answer is NO. The amount shown as a company leased accommodation is generally the amount that your company will spend on the house that they will provide you. As this is an expense which your company is making on you, they show it as part of your CTC (Cost To Company). But as you are getting a rent free accommodation, you don’t need to pay rent and hence is a kind of virtual addition to your monthly take home pay which never reaches your hands!

What is the difference between HRA (House Rent Allowance) and CLA (Company Leased Accommodation)?

HRA is a component of salary package which the company issues you monthly whereas CLA is not part of your monthly take home. Normally, a company gives you a choice to decide which way you want to go.

If you opt for HRA, you need to take care of your accommodation, rent and other things. If you opt for CLA, the company provides you the rent free accommodation and you need not worry about it.

But the major factor that differentiates the two is the income tax that is charged on these options. Please read on to find out.

Perquisite value of company leased accomodation

Perquisite value of company leased accommodation – How much income tax you need to pay?

How is HRA and CLA different as far as income tax is concerned?

HRA is an allowance which is added to your salary and is tax exempt to a certain extent (as per IT rules) whereas CLA is treated as a perquisite (a benefit which is given by company to employee) and is taxable in the hands of the employee. i.e. you as an employee are liable to pay income tax on the perquisite value of the house.

How does the perquisite value of the house taxed?

Perquisite value of the house is simply added to your net income and is taxed as per the applicable slabs.

Perquisite Value Of CLA

Perquisite Value Of CLA

How to calculate the perquisite value of the house under CLA?

There are various factors that come into play to calculate the perquisite value. Here is what needs to be done:

  1. Calculate Your Total Salary for the year.
    Salary here includes following:

    1. Basic salary
    2. Dearness Allowance (DA) (Forming part of Superannuation benefits). If nothing is mentioned, then add full DA.
    3. All Allowances to the extent they are taxable including conveyance allowance.
    4. Any Commission
    5. Any Other Fees
    6. Any Other payments like bonus or en-cash of leaves.

    What should NOT be added to salary above:

    1. Employer’s contribution to PF (provident fund).
    2. Allowances which are exempted from tax.
    3. The value of perquisites like any electricity bills or phone bills paid by employer.
    4. Payments made for medical benefits/health insurance premium.
  2. Find out if the house is owned by your company or is it leased/rented.
    1. If the house is owned, 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 (Subtract) The portion of the rent actually paid by you (Employee)
    2. 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 (subtract) The portion of the rent actually paid by you
  3. Find out if the house is furnished or not?
    It is Furnished house if it has one or more of the following provided to you by company:

    1. Television (TV)
    2. Refrigerator
    3. Air Conditioner (AC)
    4. Other household appliances and furniture.
    1. For a company owned 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)
    2. For a Rented 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.

Once you are done with the above values, follow this example to calculate your perquisite value:

Example Calculation

Lets assume that you have the following components in your salary:

Basic Salary per annum1,80,000
Dearness Allowance (DA) per annum72,000
Conveyance Allowance per annum20,000
Entertainment Allowance per annum30,000
Performance bonus per annum40,000

Now, we will calculate the perquisite value of the house under following cases:

  1. House is owned by company/employer and furniture cost is Rs. 20,000
    1. Population of City is 30 lakhs
    2. Population of City is 24 lakhs
  2. House is NOT owned by company i.e. it is rented or leased and pays Rs. 45,000 per annum as rent. Also, house is furnished and company is paying Rs 45,000 per annum for furniture.

NOTE: The company also charges a nominal rent from the employee @ Rs. 2000 per month.

  1. Calculate total yearly salary:

    Basic (1,80,000)
    DA (72,000)
    Conveyance Allowance: Since 800 per month is tax exempt, only 20,000 – 9600 (800*12 months) = 10,400 needs to be added.
    Entertainment allowance (30,000)
    Performance bonus (40,000)
    TOTAL = Rs. 3,32,400

  2. Perquisite Value of House

     

    Case 1(1)Case 1(2)Case 2
    Validation Rule15% Salary10% of SalaryLower of 15% of Salary or Actual rent paid by Company
    Portion of Salary49,86033,24045,000
    – Actual Rent paid by employee (if any)24,00024,00024,000
    Furniture Rule10% of Cost10% of CostRent paid for furniture
    Furniture Value2,0002,00024,000
    Perquisite Value27,86011,24045,000

Hence, the perquisite value as calculated above would be added to your taxable income and taxed according to your tax slab.

Exceptions to above rules:

    1. Living/Occupying in the house does not matter
      The company provided accommodation is taxable as a perquisite even if you do not actually live in it. Thus, you need to take out the CLA (if any) from your package if you do not live in the house, else it would be considered as your perk, and you would need to pay income tax on it.
    2. Hotel accommodation is also considered a perk
      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 (subtract) The rent actually paid by you
    3. 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.
    4. Remote area locations
      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.