- Date : 07/10/2020
- Read: 3 mins
While employees are happy to save on commute time, the comfort of working from home has come with an added cost – increased tax outgo.
As a result of the work-from-home norm embraced by most employers in light of the nationwide lockdown, salaried taxpayers are seeing a surge in their tax liability. In the absence of rent and with travel restrictions in place, salary components such as house rent allowance, conveyance, and leave travel allowance that could otherwise be claimed as exemptions will now attract tax.
Let us see how working from home has resulted in an increased tax burden.
House rent allowance
With the intention of cutting down expenses, many employees have vacated their rented houses and moved in with their parents. According to Section 10 13(A) of the Income Tax Act, an employee receiving house rent allowance (HRA) can claim an exemption if they pay rent. The exempted amount is either (i) actual HRA received, (ii) 50% or 40% of salary in case of metro or non-metro cities, or (iii) excess of rent paid over 10% of basic salary, whichever of these is the least.
If the employee pays no rent, the HRA received will be taxable. However, if the employee pays rent to a family member or a relative, they can claim that as a deduction. The relative receiving the rent will have to include it as part of their taxable income. For example, consider a person receiving an HRA of Rs 12,000 per month who pays the same amount as rent. Now, if they don’t pay rent for 10 months during FY 2020–21, their taxable income will increase by Rs 1,20,000. Assuming they fall in the 20% tax bracket, their tax liability will shoot up by Rs 24,000.
Related: HRA: Everything you need to know about it
Leave travel allowance
The imposition of travel restrictions due to the global pandemic means employees can no longer take vacations and so they cannot claim leave travel allowance (LTA) for the current financial year. So, this component will also become taxable. However, LTA can be claimed twice in a block of four years.
Conveyance allowance
Another part of an employee’s pay package, conveyance allowance is offered as reimbursement for commuting to work. To claim it, employees need to produce proof of expense for their commute. However, as working from home has eliminated commutes, this is no longer possible and conveyance allowance is now taxable.
Work-from-home allowance
Working from home means incurring additional expenses to set up and maintain a workstation – laptop, UPS, broadband charges, office furniture, and an increased electricity bill. Keeping this in mind, some companies are offering their employees a fixed amount to meet such expenses without requiring bills as proof for the same. This work-from-home allowance will be added to the employee’s taxable income.
Related: Tax-saving components of your CTC
Last words
Given the absence of recreational activities such as travelling or eating out, you might be saving slightly more than usual during the lockdown. But you are also likely to be hit with an inflated taxable income. In a bid to minimise the impact of increased taxes caused by remote working, HR experts are doing their bit to help employees by restructuring their salaries. 5 Tax filing mistakes that can get you a tax notice
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or tax or legal advice. You should separately obtain independent advice when making decisions in these areas.
As a result of the work-from-home norm embraced by most employers in light of the nationwide lockdown, salaried taxpayers are seeing a surge in their tax liability. In the absence of rent and with travel restrictions in place, salary components such as house rent allowance, conveyance, and leave travel allowance that could otherwise be claimed as exemptions will now attract tax.
Let us see how working from home has resulted in an increased tax burden.
House rent allowance
With the intention of cutting down expenses, many employees have vacated their rented houses and moved in with their parents. According to Section 10 13(A) of the Income Tax Act, an employee receiving house rent allowance (HRA) can claim an exemption if they pay rent. The exempted amount is either (i) actual HRA received, (ii) 50% or 40% of salary in case of metro or non-metro cities, or (iii) excess of rent paid over 10% of basic salary, whichever of these is the least.
If the employee pays no rent, the HRA received will be taxable. However, if the employee pays rent to a family member or a relative, they can claim that as a deduction. The relative receiving the rent will have to include it as part of their taxable income. For example, consider a person receiving an HRA of Rs 12,000 per month who pays the same amount as rent. Now, if they don’t pay rent for 10 months during FY 2020–21, their taxable income will increase by Rs 1,20,000. Assuming they fall in the 20% tax bracket, their tax liability will shoot up by Rs 24,000.
Related: HRA: Everything you need to know about it
Leave travel allowance
The imposition of travel restrictions due to the global pandemic means employees can no longer take vacations and so they cannot claim leave travel allowance (LTA) for the current financial year. So, this component will also become taxable. However, LTA can be claimed twice in a block of four years.
Conveyance allowance
Another part of an employee’s pay package, conveyance allowance is offered as reimbursement for commuting to work. To claim it, employees need to produce proof of expense for their commute. However, as working from home has eliminated commutes, this is no longer possible and conveyance allowance is now taxable.
Work-from-home allowance
Working from home means incurring additional expenses to set up and maintain a workstation – laptop, UPS, broadband charges, office furniture, and an increased electricity bill. Keeping this in mind, some companies are offering their employees a fixed amount to meet such expenses without requiring bills as proof for the same. This work-from-home allowance will be added to the employee’s taxable income.
Related: Tax-saving components of your CTC
Last words
Given the absence of recreational activities such as travelling or eating out, you might be saving slightly more than usual during the lockdown. But you are also likely to be hit with an inflated taxable income. In a bid to minimise the impact of increased taxes caused by remote working, HR experts are doing their bit to help employees by restructuring their salaries. 5 Tax filing mistakes that can get you a tax notice
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or tax or legal advice. You should separately obtain independent advice when making decisions in these areas.
