Keeping the devastating pandemic situation in mind, many employers have allowed the option of work from home to their employees. While this provision has undoubtedly helped many shield themselves from the virus, it has also taken a hit into their savings. From investing in creating a complete work setup at home to taking care of the internet and telephone bills, work from home came with its own set of challenges.
Considering these issues, employers have decided to reimburse some of these costs to their employees. However, along with these new allowances and reimbursements came the implications of taxation. So, now when the WFH culture has been expanded, given the current situation, let’s get to know how the reimbursements and the new allowances can be made tax-exempt.
Latest Allowances Offered by the Employers
To make the WFH option successful, an employer needs to have a proper work setup, including work desks, ergonomic seating, laptops or desktops, and access to a high-speed internet connection. Moreover, one would also consider the phone and electricity bills.
Many employers have extended their employee benefit policies to help the employees have an efficient and comfortable work environment. Some employers have introduced an allowance named COVID allowance, which allows the employees to make the necessary modifications in their home and create a workstation. Many employers have also named this allowance as technological support or furniture allowance.
A good internet connection forms the pillar of the WFH setup. Apart from the official work, it is required for meetings and conference calls. Many employers have decided to introduce an internet allowance or provide reimbursement for internet expenditures to make up for this expense. To claim the rebate for internet usage, the employee has to submit the original bills.
A New Addition: Online Training Costs
Many companies and organizations, both big and small, had organized webinars and training sessions to keep the employees engaged and motivated during the lockdown period. Most of these training sessions were held to upskill the employees, and such sessions were not free of cost.
The employees who have paid for these online training sessions and webinars can get the entire amount reimbursed for producing the receipts. Moreover, if your employer sponsors the webinar for you, you do not need to worry about any tax implications.
Allowances That are no Longer Relevant
While the employers have introduced many new allowances, some old ones have turned redundant in the WFH culture. Some benefits, such as free lunch, snacks, and beverages, shuttle service, club memberships, etc., may no longer be allowed by employers. Like these, many significant allowances that were relevant before have now turned redundant. Some of these includes:
- Conveyance Allowance: Owing to the lockdown and the government’s travel restrictions, the conveyance allowance will no longer be available for the employees as long as they are working from home. As the employees would not need conveyance, this allowance has become fully taxable.
- Leave Travel Allowance (LTA): One of the most discussed allowances that are no longer in function due to the travel restrictions is the Leave Travel Allowance. An employee can no more claim tax benefits on the LTA portion of their salaries. However, as per the Finance Minister’s latest announcement, employees can take the help of the government’s LTC scheme to claim tax-exemption. If the employees buy goods and services that are thrice their LTA component and attract GST of more than 12%, they can claim the exemption under the LTA ground.
- House Rent Allowance: The employees who have moved back to their hometown vacating the rented property will no longer be able to avail of tax exemption owing to HRA. However, even after moving back to their permanent address, the employees can claim tax benefits if they pay their parents’ rent for staying in their home.
Tax Implications on the Newer Allowances
While the organizations have introduced both the options of allowances and reimbursements for their business’s benefit, these can have tax implications on the employee’s part. Any allowance offered by the employer that does fall under the WFH requirement will be held taxable as per the Income Tax Laws.
In the case of reimbursements provided by the organizations for incurring necessary expenditures or purchasing furniture for the WFH setup, an employee can claim it as non-taxable, provided it can be demonstrated that he has purchased products that are necessary for creating a working environment at home.
To make sure that the employees are free from tax implications, they need to abide by the following criteria:
- An employee should always keep the original receipt of the expenditure made.
- The expenditure should only be made for work from home purposes. For example, you cannot buy a dining table and claim tax exemption in return.
- It is of utmost importance that the expenditure is made within the WFH period decided by the employer.
- The invoice should be made in the name of the employer to ensure proper care of the assets. If the invoice is in the employee’s name, he may have to return the amount reimbursed if he leaves the organization within a short period of availing of such perks and facilities.
- An employee should always try to purchase stuff from a reputed store that provides a proper GST invoice with a valid GST registration number and other necessary details.
Key Takeaway
With the sudden onset of the pandemic and the lockdown, working from home has become the “new normal.” While it has helped us stay safe in our homes, it has also increased our expenditures.
Therefore, it’s time we understand the new allowances and the reimbursement schemes in detail and make the most of our WFH experience. For any tax implications, you come across, contact FinGurus today!