You Can Claim I-T Exemption On Relocation Allowance. Here's How
With the world turning into a global village, businesses are moving beyond one location and creating a multi-geographic presence. As a result, employees working for a company from one of their locations now have a plethora of opportunities to work and grow in different locations within the country without having to switch jobs.
Frequent transfers and relocations from one city to another lead to additional expenses, which includes shifting into a new house, moving household goods, finding a new school for kids, etc.
There are cases where these expenses are reimbursed by the company or paid directly by the employer.
MakaaniQ helps you understand the taxation of these allowances as you move to another city with your bag and baggage.
- The expenditure incurred on movers and packers by the employee is not taxable.
- Other household goods transportation, such as a car (which includes money spent on fuel and driver charges) is taxable because it is the employee's personal liability.
- The brokerage that the employee pays to the property dealer to take up the new house is a personal obligation of the employee. Therefore, if it is borne by the employer, then it's taxable under the salary income head.
- If the employer pays any relocation allowance, then it would be taxed as the salary income for the employee. By the same token, the school admission fee of kids, too, is treated as a monetary benefit of the employee, therefore, is taxable.
- Only train/air tickets fee for relocating family and hotel accommodation up to 15 days is exempted under the Income-Tax Act. This includes boarding and lodging expenses, including meals.
How to go about it
As per section 10 (14) of the Income-Tax Act, 1961, under the rule 2BB of the Income-Tax Rules, 1962, any allowance granted to meet the cost of travel on transfer (including packing and transportation of personal effect) or the ordinary daily charges incurred during the period of journey in connection with transfer can be claimed as exempt from tax.
If any employee wishes to avail of tax concessions while relocating to a new place, he/she should maintain the documents, proof of payments, any other agreement signed with the employer on claims and payments incurred on transfer. Apart from keeping it in the record, the employer would need to claim these expenses in its books of account under business expenditure head.
But, if the employer has paid more relocation allowance than the actual expenses incurred, the difference becomes taxable.