Many Indian and Multinational companies provides various kinds of employee benefits , these benefits are over and above salaries which includes financial and non-financial perks such as rent free accommodation or company accommodation ,club membership ,loan perk and hotel perk etc. The current employment trend has expanded the span of job opportunities as the result of which employees often travel to new places in search of jobs. Nesting in a new place requires them to look for rental accommodations. Sometimes companies provide company leased apartments as a part of their compensation package. However, with tax regulations constantly changes, it is not clear whether these perks are tax exempted or not.
In this blog we will be explaining the Company Leased Accommodation (CLA) or RFA ,How to calculate CLA and difference between CLA and HRA.
Company-leased accommodation(CLA) or Rent Free Accommodation(RFA) is considered a perquisite in the hands of the employee, and its value is determined as per the income tax rules. In case of a company lease accommodation, the amount of rent paid by the employer is deducted from salary and hence the taxable income of the employee reduces to that extent. The employer enters into the lease agreement with the landlord, pays the rental deposit and pays the monthly rent directly to the landlord. The house may be a ‘ready to move in’ accommodation, per-identified by the company or it could be a house of the employee’s choice. Opting for company-leased accommodation helps the employee settle down faster in a new city and the company is also at an advantage because the employee can concentrate on the new job without the added stress of arranging accommodation. For tax purposes, the accommodation provided by the company is treated as a ‘perquisite’ in the hands of employee and is considered to be a part of taxable salary.
How to calculate CLA?
The perquisite value of such accommodation is added to in the taxable income of employee, Perquisite value is the lower of:
- 15% of taxable salary* excluding the value of perquisites;
- Actual rent paid by the company.
‘Salary’ here includes the total salary, but excludes the allowances exempted from tax, employer’s contribution to the provident fund, any medical benefits paid by the employer and value of other perquisites like electricity bills, and car or club expenses provided by the employer. If the rent paid by the employer is more than 15% of the salary, the employee stands to gain because a part of the rent paid by the employer goes tax free.
For example: The actual rent paid by the company is Rs. 10,000, and the gross salary is Rs. 2,00,000. Please consider below the calculation of CLA
Step-1 15% of Gross salary i.e. Rs. 2,00,000 which comes to Rs. 30,000
Step-2 Actual rent paid by company is Rs. 10,000.
Minimum of above two steps is CLA ,so the answer is Rs. 10,000
It is important to note that where the city population is less than 10 lakh then percentage for calculation will be 7% of gross salary, if the population is more than 10 lakh but less than 15 lakh then percentage for calculation will be 10% of gross salary and lastly if the population is more than 15 lakh then percentage for calculation will be 15% of gross salary.
What is difference between HRA & CLA?
HRA is an allowance which is added in 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. an employee are liable to pay income tax on the perquisite value of the house.
HRA is a component of salary package which the company issues on monthly basis whereas CLA is not part of employee’s monthly take home. Normally, a company gives the employee a choice to decide which way he wants to go.
If an employee opts for HRA, he needs to take care of his accommodation, rent and other things. In case of CLA, the company provides the accommodation and employee needs not to worry about it.
Thanks Cheshta Sharma