Use your Relocation Allowance to claim IT Exemption: Here is How
May 24, 2017 Legal Guidance
Due to growing work opportunity, rapid changing trends, there has been the tremendous need for the talented workforce at different places. And to overcome this problem people move from one place to another. Also, people are ready to relocate themselves in expectation of getting good quality work, remuneration and to enjoy a better standard of living.
Relocation decisions seem to affect people both physically and emotionally. For anyone to settle down at a completely new place is quite a difficult task. It also proves to be financially challenging as it incurs high costs for moving things from one place to another. However, most of the time all the relocation expenses are borne by the employer. But this relocation allowance can also be used to claim IT exemption.
Let’s further see the taxable and non-taxable relocation expenses:
Taxable expenses
Any relocation allowance is taxed under salary income of an employee.
Transportation of employee’s personal goods is taxable in nature as they are employee’s personal goods and it’s not the business property.
Brokerage paid for hunting of the new accommodation is taxable in nature though its employee’s personal obligation but the expense is borne by the employer and it’s taxed under salary income head.
Any additional benefit like fees of children’s school is taxable in nature which has to be borne by an employee which falls under salary income head.
Non-taxable expenses
Expenses made on the movers and packers for transfer from one place to another are completely exempted from the tax.
All the expenses related to transfer in terms of toll tax, petrol/diesel, and driver charges etc. are completely exempt from tax as these expenses are not the employee’s personal expenses.
Transportation done through air/train or any such means, charges paid on shifting of family members from the old location to the new location is completely exempted from tax.
Accommodation provided in the hotel for the first 15 days during the time of relocation is completely tax-free and thereafter it’s charged with the regular tax rate. These expenses include boarding and lodging including meals which is the part of these expenses.
Additional points to remember:
It is advised to the employee to file and maintain such documents like bills, proof of payments or any such agreement made between him and the employer. It’s a good idea to keep these handy so that it’s easy to handover at the time of income tax filing. Also if the employer asks for these document to claim these expenses in his books of accounts as business expenditure it is easy to hand over to him at that time.
If more employees receive more relocation allowances than anything pertaining over and above the actual expenses incurred so such difference would be taxable by the employee under the business expenditure head.
It is the duty of an employer to plan the relocation of an employee and reimburse the expenses on the basis of tax benefits. The employer can have a mutual consideration with the employees and show such expenses under the business expenditure.
Hence, it is necessary for the person who is soon going to be relocated to be aware of all the taxable and non-taxable expenses under income tax act 1961.
Relocation decisions seem to affect people both physically and emotionally. For anyone to settle down at a completely new place is quite a difficult task. It also proves to be financially challenging as it incurs high costs for moving things from one place to another. However, most of the time all the relocation expenses are borne by the employer. But this relocation allowance can also be used to claim IT exemption.
Let’s further see the taxable and non-taxable relocation expenses:
Taxable expenses
Any relocation allowance is taxed under salary income of an employee.
Transportation of employee’s personal goods is taxable in nature as they are employee’s personal goods and it’s not the business property.
Brokerage paid for hunting of the new accommodation is taxable in nature though its employee’s personal obligation but the expense is borne by the employer and it’s taxed under salary income head.
Any additional benefit like fees of children’s school is taxable in nature which has to be borne by an employee which falls under salary income head.
Non-taxable expenses
Expenses made on the movers and packers for transfer from one place to another are completely exempted from the tax.
All the expenses related to transfer in terms of toll tax, petrol/diesel, and driver charges etc. are completely exempt from tax as these expenses are not the employee’s personal expenses.
Transportation done through air/train or any such means, charges paid on shifting of family members from the old location to the new location is completely exempted from tax.
Accommodation provided in the hotel for the first 15 days during the time of relocation is completely tax-free and thereafter it’s charged with the regular tax rate. These expenses include boarding and lodging including meals which is the part of these expenses.
Additional points to remember:
It is advised to the employee to file and maintain such documents like bills, proof of payments or any such agreement made between him and the employer. It’s a good idea to keep these handy so that it’s easy to handover at the time of income tax filing. Also if the employer asks for these document to claim these expenses in his books of accounts as business expenditure it is easy to hand over to him at that time.
If more employees receive more relocation allowances than anything pertaining over and above the actual expenses incurred so such difference would be taxable by the employee under the business expenditure head.
It is the duty of an employer to plan the relocation of an employee and reimburse the expenses on the basis of tax benefits. The employer can have a mutual consideration with the employees and show such expenses under the business expenditure.
Hence, it is necessary for the person who is soon going to be relocated to be aware of all the taxable and non-taxable expenses under income tax act 1961.
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