The work-from-home mode has made many employers offer newer allowances, but has rendered certain existing ones redundant. Find out how these allowances will be taxed
Working from home during COVID-19 times may have shielded us from the virus to a large extent. But it has also strained our resources. Our telephone and internet bills have shot up. Many employers have begun reimbursing some of these costs to their employees.
The newer allowances
For example, many companies have now begun to give COVID and Internet allowances to their employees. “Some companies categorise an additional allowance as COVID allowance, which enables employees to procure work desks, ergonomic chairs and other work from home (WFH) equipment to help them stay healthy and perform better,” says Neeti Sharma, Senior Vice-president, TeamLease Services.
WFH has also resulted in employees having to make modifications to their houses, resulting in substantial outgo – a fact that employers seem to have recognised. Some employers have labelled these as furniture or technological support allowance.
“Employees may not have the necessary facilities like a work-station, constituting a desk and chair. The employer may allow a one-time allowance to the employee for such basic office set-up. For instance, Google and Razorpay have provided such allowances to their employees,” says Suresh Surana, Founder, RSM India. If the employer organises such facilities directly, the cost will not be taxable in your hands.
Then, there is reimbursement of expenses incurred on internet usage, which is simply indispensable in the WFH set-up. Internet is required for most of our office work, conference calls over Zoom, Google Meet and so on mean using our bandwidth more. If your employer offers such an allowance, your monthly Internet usage expenses will be reimbursed – without attracting any tax – provided you submit the bills to claim the reimbursement.
Online training costs reimbursed
The pandemic-induced lockdown has seen an explosion of webinars and training sessions across the world. Some companies are encouraging employees to attend such sessions even at a cost. “Companies are either sponsoring or incentivising employees to attend upskilling sessions and conferences to keep them motivated and engaged,” adds Sharma. If you pay the fees, you can produce the receipt to claim the reimbursement. If your employer takes on the task of arranging such webinars for you, there will be no tax implications.
Such allowances are entitled for tax concessions under section 10(14) of the Income Tax Act (IT Act) read with rule 2BB. “Any such special allowance or benefit, other than perquisites, specifically granted to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of an office or employment of profit (is exempt from tax) to the extent to which such expenses are actually incurred for that purpose,” explains Surana. In simple words, reimbursement of expenses incurred for official purposes will not attract tax. Allowances, however, unless specifically exempt under the section, will be taxed.
The older allowance
Of late, the most-about-talked about allowance that has turned redundant due to the lockdown is the leave travel allowance (LTA). This is thanks to the finance minister’s announcement on exempting it from tax provided employees three times their LTA. “The curbs on travel and social distancing measures brought vacationing to a standstill. An employee cannot claim the benefit of tax-exemption on LTA component of their salaries,” says Archit Gupta, Founder and CEO, Cleartax. Likewise, the role of conveyance allowance has diminished as well for employees who work from home. “This is (now) fully taxable. The lockdown and travel restrictions brought down the conveyance reimbursement claims from employees,” says Gupta.
If you had to move back to your hometown due the WFH, your tax outgo is likely to go up, in case your salary includes the house rent allowance (HRA) component. “Since employees are working from home, the house rent allowance may become redundant in certain cases where the employees have vacated the rented residential property and shifted back to their permanent homes,” says Surana. Typically, HRA constitutes 50 percent of your basic pay. The exemption will be the lower of the actual HRA received, 50 percent of your basic salary and dearness allowance (DA) if you stay in a metropolitan city (else, it is 40 percent), or actual rent paid minus 10 per cent of your salary (basic and DA). However, if you moved back to your parents’ place, you can still claim a deduction by paying rent to them.
Know the tax impactYour reimbursements will be tax-exempt to the extent of actual amount spent by you. You will have to produce or preserve bills to secure these exemptions. “For example, if an employee is entitled to Rs 2,000 per month towards telephone and internet expenses, they can claim a tax-exempt reimbursement up to Rs 2,000. In case the employee claims a lesser amount of, say, Rs 1,000 only per month, the extra allowance gets paid after deducting tax,” explains Gupta. This is especially pertinent in the case of conveyance reimbursement. If it is part of your cost-to-company and you are unable to claim any or the entire amount, the unutilised portion will become taxable as part of your total income.