Rent free accommodation / House Rent Allowance (HRA) under Tax Planning Considerations in Respect of Salary Income :

An employee should analyse the tax incidence of a perquisite and an allowance, whenever he is given an option, in order to choose the one which is more beneficial to him. In the case of Rent Free Accommodation vs. HRA, it must be noted that the perquisite of rent free accommodation is taxed as per Rule 3(1) of the Income-tax Rules, 1962 and HRA is exempt to the extent mentioned in section 10(13A) read with Rule 2A. The employee should therefore work out his tax liability under both the options and then decide on whether to receive HRA or choose a rent free accommodation.