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Taxability of allowances and reimbursements

Posted @ March 8, 2017, 5:40 am under (Payroll Outsourcing & Taxation)

Taxability of various allowances and reimbursements.

1.Conveyance​

Conveyance/Transport Allowance up to Rs 1600 per month is tax free while this limit is Rs 3,200 per month for orthopedic person. Even if your employer pays more than 1600 per month, employee can only claim tax exemption up to Rs 1600 without submitting any proofs. Employees are currently getting the benefit.

2. Conveyance Reimbursement for performance of official duty:

​If the job requires lot of local travelling, an employer can reimburse actual expense incurred by the employee in performance of official duties. Amount received is exempted from income tax. Condition attached is that Employee should maintain log book with respect to each travelling and corresponding expense. Exemption is available only against ​actual bills, reimbursement without bills is taxable. Conveyance expenses should be incurred only for performance of official duty.​

3.Fuel Charges​

​T​here is no blanket tax benefit on fuel expense reimbursement. In fact, there is no direct reference to petrol/fuel expense reimbursement in the income tax law. Rule 3 of the Income Tax Rules, which pertains to valuation of perquisites, provides guidelines on how to tax amounts paid to employees for the purpose of meeting “running and maintenance charges” of motor car and other vehicles. The term running and maintenance charges include expenses incurred on petrol/diesel.

In case the car is owned by employee and used for both official and personal purposes, the monthly perquisite value for the purpose of taxation is as follows. The employer should ascertain that an employee owns the vehicle (by way of checking documents such as the RC book) prior to providing the reimbursement.

 

Running expenses

Car engine cubic capacity does not exceed 1.6 litres

Car engine cubic capacity exceeds 1.6 litres

The expenses for maintenance and running are fully met or reimbursed by the employer.

Actual amount incurred by the employer minus Rs 1,800 (plus Rs 900, if chauffeur is also provided to run the motor car), per month.

Actual amount incurred by the employer minus Rs 2,400 (plus Rs 900, if chauffeur is also provided to run the motor car), per month.

 

4. Uniform Allowance​

It is exempted from income tax on actual. Employee has to produce bills to claim the same. This allowance is given to meet the expenditure on the purchase and maintenance of office uniform for wear while performing office duties. ​According to dress code of the office, an employee can claim uniform reimbursement for formal clothes purchased for office wear. Roughly amount up to Rs 24,000 per annum can be claimed tax free, but this cannot be given for normal clothes. 

5.Books & Periodicals/ Newspaper Journal​

​Some jobs demand an employee to keep abreast with latest happenings relating to business. Such employees can purchase newspapers, books; periodicals etc and submit actual bills for reimbursement. Roughly amount up to Rs 12,000 per annum can be claimed tax free against submission of bills. 

6. ​Medical Allowance

Medical allowance is taxable. However medical reimbursements upto Rs. 1250/- monthly or Rs. 15000 in a year are exempt from tax. Need to obtain bills from employees before reimbursement of amount.

7. Meal Allowance

Meal Allowance is taxable but Meal Coupons like Sodexo or Ticket are tax free subject to Rs 50 per meal. Assuming 22 days working month and 2 meals a day, meal coupon up to Rs 2,200 per month are tax free. Annually this amount comes to Rs 26,400.

8.HRA

Benefit given to the employees on the basis of rent declared by them and slabs specified under the Income Tax Act as below.​ ​HRA exemption is limited to the lower of:


(a) rent paid less 10% of basic salary or

(b) 50% of basic salary where the house is situated in any of the four cities of Delhi, Mumbai, Kolkata or Chennai, and 40% of basic salary in other cities or

(c) actual HRA received.

If rent is more than Rs 1 Lakh, there is need to give PAN Card number of landlord to the employer. 


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