This is another major tool for tax reduction, especially for senior executives. The taxable perquisite value of a rent-free house
is calculated as 10 per cent of your salary - basic, allowances, bonus and commission, excluding DA, employer`s Provident Fund (PF)
contributions, perquisites and tax-exempt allowances - plus the fair rental value of the house in excess of 60 per cent of your
salary (for Calcutta, Chennai, Delhi and Mumbai), or in excess of 50 per cent of your salary for other places.
us assume that you reside in a metro, in a house provided by your employer, who pays rent and incurs a monthly expenditure of
Rs.30,000 on it. And say, your monthly salary excluding perquisites, is Rs.50,000. Since the fair rental value of the house
(Rs.30,000) amounts to 60 per cent of your salary, the taxable perquisite value of the rent-free house would be just 10 per cent
of your salary, or Rs.5,000 per month. The effective reduction in your monthly taxable income: Rs.25,000.
allowance. Instead of providing a rent-free house, most companies prefer to pay house rent allowance (HRA) to employees. Your
HRA is exempt to the extent of the least of the following:
1. Excess of rent paid over 10
per cent of salary.
2. 50 per cent of salary (if you reside in any of the four metros).
3. 40 per cent of salary (for
places other than the four metros).
4. Actual allowance paid.
Effectively, HRA of up to 10 per cent of your salary is
taxable. You can avail of an exemption only when the rent paid by you exceeds 10 per cent of your salary.