Taxable, Non-Taxable & WFH allowances

[Nisha]

Hi Community-

Recently, getting to read more about Taxable, Non-Taxable and Partially Taxable Allowances . Now, with more and more companies have started providing newer allowances as well.

From WFH allowances for like furniture, Internet hardware, food, household and care, technology etc. While earlier provided entertainment or transport allowances cannot be used or claimed.

Employees are curious and have started to think on how to minimize the tax. Some questions come to mind-

1. Will employee’s tax liability go up due to no claim on reimbursements?
2. How will the new allowances be treated for tax purposes?
3. Will the Taxable, Non-Taxable and Partially Taxable Allowances get a major shuffle?

Please share your views.

Regards
Nisha

[Jeevan]

@Nisha -

It is a good relevant discussion, wont have concrete answers but multiple scenarios can be talked about.

It looks like tax liability go up . Many organisations allow its employees to take a part of some allowances – like conveyance allowance, entertainment allowance, telephone allowance etc as reimbursement on submitting proof of the amounts spent, to help employees reduce their tax liabilities.

For the employees, who are not involved in providing essential services but receive the allowances as reimbursement, it would be a problem, as all the means of transport, entertainment etc are closed or minimal and wont be able of any declaration and/or supporting documents or bills.

currently unsure on how the other 2 questions will be exactly addressed. The community can share their opinions…

[Ankit]

Reimbursements were any ways not 100% genuine reimbursements but more of Fixed Salary Allowances converted to Reimbursements to SAVE Taxes. Thus, Allowance converted to Reimbursement as Tax Saving Component is a debatable topic whether it is Right or Wrong.

But Yes, Employee’s Tax liability is bound to increase because of New Normal WFH.

For e.g. XYZ Employee used to get 20000 as Travel Reimbursement and 5000 as Entertainment Reimbursement. So total 25000 per month i.e. 3 Lakh per year.

WFH Reimbursements like Furniture (15000), Internet Hardware (max 5000) are 1 time cost. Your monthly internet and mobile will not cost more than 3000 to 5000. Thus if you total this up = 15000 + 5000 + 60000 = 80000.

So you won’t be able to match the Reimbursement Claims pre Covid and reimbursement claims post covid.

[Dinesh]

Thanks for sharing your thoughts @Ankit