Relocation Allowance: How You Can Maximise When You Relocate For Work

When employees relocate due to job requirements, they incur additional costs of shifting to a new city. To help with these extra expenses, companies provide a 'Relocation allowance'. Let's understand this allowance better and see if it is tax-exempt in India. 

What Is A Relocation Allowance?

A relocation allowance, also called a transfer allowance, is a monetary benefit given by employers to employees to cover additional expenses incurred due to relocation for work purposes. 

Such expenses may include transportation of household items, temporary accommodation, travel costs for the employee and family etc. The relocation allowance is meant to reimburse employees fairly for out-of-pocket expenses due to the mandated relocation.

Is A Relocation Allowance Taxable In India?

As per section 10(14) of the Indian Income Tax Act, a relocation allowance provided by the employer is partly tax-exempt. The exemption applies to the extent that the allowance meets the actual expenses of relocation. However, any amount received over and above the actual expenses will be considered as part of the salary income and taxed accordingly. 

What Expenses Qualify For Relocation Allowance Exemption In India?

The Income Tax Rules specify expenses that are eligible for tax exemption under the relocation allowance. This includes costs related to packing and moving household items, travel expenses for self and family, temporary accommodation for up to 15 days and vehicle registration charges for personal use during relocation. Supporting documents like receipts need to be submitted to claim tax exemption.

What Is Considered Taxable In The Relocation Allowance?

While most common relocation costs are tax-exempt, some benefits are taxable as benefits or salary. This includes rent or cost of a new residence, school admission fees, brokerage charges for property rental and accommodation beyond the initial 15-day period. Any amount received over and above actual expenses also comes under taxable salary.

Key Things To Note About Relocation Allowance Taxability In India

To summarise, the relocation allowance granted by employers is partly tax-exempt to the extent of actual and proven relocation expenses. Proper documentation is important to avail of this exemption. While common shifting charges are not taxed, some benefits like long-term housing become part of taxable salary as perquisites. Companies must specify taxable and non-taxable components to avoid disputes.

Conclusion

In conclusion, the relocation allowance is an important reimbursement for employees incurring work-related shifting costs. Indian tax laws provide reasonable exemption on this head to lessen the financial burden of relocating for employment. Both employers and employees must have a clear understanding of exempt versus taxable allowances. Proper documentation also ensures smooth tax compliance regarding this benefit.

To learn more about relocation allowance, you can visit the official website.