You may have heard of relocation allowance and House Rent Allowance (HRA) when shifting for a job within India. Understanding the distinction between the two and how your taxes are affected, however, may be tricky.
While the HRA component of your salary is intended to provide for any rented accommodation, relocation allowance comes with shifting altogether. This article will explain what a relocation allowance is, how it varies from an HRA, and its impacts on your taxes.
What is Relocation Allowance?
A relocation allowance, also referred to as a transfer allowance, is a payment paid by an employer to an employee to assist in covering the costs of transferring for employment. Several charges, such as transportation fees, temporary housing, and any other expenses spent when relocating, can all be included in this category. This allowance is often paid in one lump sum or reimbursed against receipts submitted by the employee.
How is Relocation Allowance Different from HRA?
House Rent Allowance (HRA) is a payment paid to you by your employer to assist with the expense of renting a house. This allowance is often provided to an employee who lives in leased housing and is intended to help reduce the financial pressure of housing bills. HRA is basically a salary component that is subject to income tax deductions.
The main difference between relocation allowance and HRA is that your relocation allowance is a one-time payment made by the employer to help cover the cost of relocating for work. For instance, you are shifting from Delhi to Mumbai and intend to move your possessions through packers and movers in Delhi. This is an expensive task, but you can get reimbursed by your employer with proper bills and receipts.
On the other hand, HRA is a regular payment that comes within your salary to help cover the cost of renting a house. Moreover, while relocation allowance is tax-exempt, HRA is subject to income tax deductions.
How to Claim Your Relocation Allowance?
It is vital to keep records of all relevant documents, including agreements and receipts, that have been authorised by your employer in order to offer evidence of costs. These records serve as verification of expenditures incurred as well as validation of payments made. These may include transportation costs, temporary accommodation, and any other expenses incurred during the relocation.
You also need to provide an agreement or a contract with your employer that outlines the terms of the relocation allowance. The employer is going to record the expenses linked to the reimbursement of relocation allowance as business expenditures in the accounting files.
Remember that any difference between the actual amount incurred for relocation and the amount that is reimbursed will be taxed.
Tax Benefits of Relocation Allowance
As previously stated, relocation allowances are tax-free under Section 10(14) of the Income Tax Act. This implies that the money received as a relocation allowance is not tax deductible. However, any expenditures claimed as reimbursement for relocation must be substantiated by documentation and are tax deductible.
Furthermore, Rule 2BB of the Income-Tax Rules, 1962, offers some additional guidance on the conditions for claiming tax exemption. So, you and your employer must maintain accurate records and comply with these rules to avoid any tax liabilities.
Your employer will take into consideration the tax benefits while planning for relocation and reimbursement. This is to ensure that these expenses can be claimed as business expenditures.
In essence, relocation may come with several headaches, most of which is financial. Therefore, it is important that you understand the difference between relocation allowance and HRA is essential in order to prevent confusion on any tax implications. A relocation allowance is a one-time payment that comes with tax benefits and is designed to assist in covering relocation expenses. On the other hand, an HRA is a recurring payment made to an employee to help cover the cost of renting a property.
So, now you can make your choices when relocating to get that dream job and stop worrying about the huge expenses that come with shifting. One way to offload a part of the house shifting stress is to choose a packers and movers service like Porter Packers & Movers. With a variety of house shifting packages at budget-friendly rates, enjoy an end-to-end solution for hassle-free house shifting.