How is rent-free accommodation treated as deemed income?

When an employer provides rent-free accommodation to an employee, the value of that accommodation is considered as a taxable perquisite and is treated as deemed income in the hands of the employee. The value is determined based on the prescribed rules under the Income Tax Act. This deemed income is added to the employee’s salary income and taxed accordingly. The rationale is that the employee has derived a benefit by not having to pay rent.