Wednesday, December 6, 2017

Understanding employee benefit allowances

employee benefit allowances

Allowances are a financial benefit given by an employer to the employee. They may be taxable, non-taxable or partially taxable. Here are some allowances that are tax free up to a certain limit. If the allowance amount exceeds the specified limit, it becomes a tax liability. These include:

1) House Rent Allowance (HRA)

House Rent Allowance or HRA is part of an employee’s salary. It can be fully or partially claimed by an employee living in a rented accommodation. For employees who do not live in a rented accommodation, HRA is fully taxable. Your HRA exemption under section 10 (13A) will be the least of the following:

·         Actual HRA received by company
·         50% of basic salary in Metros (Delhi, Mumbai, Kolkata, Chennai) OR 40% of basic salary in non-metros
·         Actual rent paid less 10% of salary

2) Medical Allowance

Medical allowance is a fixed allowance that a company pays its employees every month. This amount is taxable but an employee can avail tax exemption of up to Rs.15,000 in a year if he/she submits the medical bills for the relevant financial year. This amount of Rs.15,000 is the medical reimbursement amount and comes under Section 80D of the Income Tax Law.

3) Meal Allowance

Many companies give their employees food coupons or meal vouchers/cards. Ticket Restaurant Meal Cards and vouchers, for example, are given by many companies for meal allowance. These cards/vouchers are tax exempt up to Rs.50 per meal and should not exceed 2 meals per day.

As per the latest RBI mandate, companies cannot issue prepaid meal instruments in paper voucher form after 31st December 2017. While the meal allowance amount remains the same, the instruments will go digital. Hence, companies are fast switching to meal cards.

4) Special Allowance

Special allowances are paid on a monthly basis by an employer to his employees. Special allowances can be further divided into personal and official allowances.

Transport Allowance and Child Education Allowance are two main personal allowances. Transport allowance is exempt up to Rs.1600 per month. This limit is increased to up to Rs.3200 per month for handicapped employees. Child Education allowance is exempt for up to Rs.100 per month per child for two children. Travelling Allowance, Daily Allowance and Conveyance Allowance are the popular official allowances that a company gives its employees when they are travelling on official duty.

These are some of the common allowances that are part of employees’ salary. However, the list is not limited to this. It is advisable to talk to your company HR for complete details on all the allowances that are part of your salary component and understand their tax exemptions and liabilities well. 

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