Company-Leased Accommodation Tax: Lower-of Formula
For non-government leased accommodation, the unfurnished perquisite is the lower of actual lease rent paid/payable by the employer or 10% of Rule 3…
For broader context, see the Income-tax Act, 2025 — Full Chapter-by-Chapter Study Guide Hub.
For non-government leased accommodation, the unfurnished perquisite is the lower of actual lease rent paid/payable by the employer or 10% of Rule 3 salary, minus rent recovered from the employee.
Legal or Computational Framework
Governing rule
Furnished accommodation adds 10% per year of furniture cost or actual hire charges. Salary is computed for the occupancy period under the perquisite definition.
Correct calculation method
The "lower of" test only works if the salary figure on the right-hand side is correct - using full-year salary instead of the actual occupancy period is the single most common way this calculation goes wrong. Employee rent recovery reduces the taxable perquisite directly (not the salary base), furniture is a separate addable component with its own 10%-of-cost-or-hire-charge rule, and a dual-accommodation situation on transfer needs its own comparison rather than simply adding both properties together.
Step-by-step workflow
- Calculate occupancy-period salary.
- compare actual lease rent with 10% salary.
- subtract employee rent.
- add furniture.
- account for dual accommodation on transfer.
Worked example
Employer rent ₹6 lakh, Rule 3 salary ₹48 lakh, employee recovery ₹1.2 lakh. Lower of ₹6 lakh and ₹4.8 lakh is ₹4.8 lakh; taxable unfurnished perquisite is ₹3.6 lakh.
The example is an illustration, not a substitute for the taxpayer's facts. A change in status, period, payment mode, document, city, asset, relationship or scheme can change the result.
Why generic pages get this wrong
Search pages often state a rate or limit without identifying the governing base. The calculation must distinguish gross receipt from taxable profit, tax from TDS, a deduction from an exemption, salary from business income, and an accounting entry from the tax treatment.
Decision matrix
| Decision point | Required treatment |
|---|---|
| Legal year | Use the Act, rules and notification effective for the income or transaction period |
| Taxpayer category | Confirm residence, age, entity, employee/business status and regime |
| Calculation base | Use the statutory definition rather than CTC, net bank receipt or accounting label |
| Ceiling or rate | Apply actual-amount, percentage, shared, lifetime and gross-income limits in sequence |
| Documentation | Link every input to an invoice, statement, contract, certificate or official record |
| Final output | Show tax, surcharge, cess, interest and TDS/TCS credits separately |
Entity and topical coverage
This page is written around the entities and concepts search engines expect for the topic: Rule 3, perquisite, rent-free accommodation, company car, salary. They are used only where relevant and are connected to the live calculator and knowledge hub rather than repeated mechanically.
Use the ITR Form Selector — AY 2026–27 to work through the related inputs before acting.
What Generic Pages Miss
- Using annual salary instead of occupancy-period salary.
- Using obsolete perquisite rates.
- Ignoring employee recovery.
- Omitting furniture.
- Calling reimbursement exempt without evidence.
Practical Documentation Checklist
- Employment/lease agreement
- Salary definition working
- Occupancy dates
- Employee rent recovery
- Furniture cost/hire record
- Form 12BA
For the complete rules on this topic, see the core guide: Perquisites Taxation: Rent-Free Accommodation, Company Car & Other Benefits.
See the broader Income Tax & Salary knowledge hub for related rules and calculators on this topic.
Finin2min Summary
For non-government leased accommodation, the unfurnished perquisite is the lower of actual lease rent paid/payable by the employer or 10% of Rule 3 salary, minus rent recovered from the employee.
Finin2min rule: establish eligibility, calculate transparently, and preserve an audit trail.
Frequently Asked Questions
Source and review trail
Use the current official instrument, portal or regulator publication before acting. This panel separates the category authority from page-specific references.
- Primary category
- Income Tax
- Official starting point
- www.incometax.gov.in
See “Official References” above for the Salary Guide, Rule 3, Perquisites overview and Income Tax Returns FAQs references used in this article.
Additional source links
Primary sources & related provisions
Statutory provisions referenced in this guide: