Relocating to a new place for a new job can be exciting but also stressful. It comes with the physical and emotional upheaval associated with a move along with some financial implications such as house hunting, finding a good neighbourhood, hiring a house shifting service, etc. This is where relocation allowance plays a vital role. But does this fall under your taxable income? In this article, you will learn about the several tax implications and income tax exemptions related to relocation in India.
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What is Relocation and Relocation Allowance?
Simply put, relocation is a process of moving from one place to another. It could be for education, personal reasons, such as moving to a new city for a better quality of life, or professional reasons, such as a job transfer. The most common reason for relocation in India is job change or job transfer. In fact about 79% of the population is willing to relocate if they find a suitable job.
So, when an employee is transferred by their employer to a new location, the employer may provide a relocation allowance to cover the cost of the move. This allowance may include expenses such as packing, transportation, and temporary accommodation. Moreover, there are several income tax exemptions associated with it. Let’s find out how.
Income Tax Exemptions on Relocation in India
Any allowance given to cover the cost of travel during a transfer, including packing and transportation of personal belongings, or for daily expenses incurred during the journey, can be claimed as exempt from tax under Section 10(14) of the Income-Tax Act, 1961, read with Rule 2BB of the Income-Tax Rules, 1962.
If you wish to claim income tax exemptions while relocating, you must keep documents, evidence of payments, and any agreements with your employer regarding claims and payments made during the transfer. Furthermore, the employer must report these costs as business expenses in its books of account. To maintain compliance with tax requirements, it is critical to retain adequate documentation and follow these guidelines.
If the employer pays more relocation allowance to the employee than the actual expenses incurred, then the difference would become taxable as salary income for the employee.
Tax Exemptions and Taxable Expenses for Employee Relocation in India
There are certain tax exemptions on relocation allowance that you must know. Check them out below:
Income Tax Exemptions:
- Packing, moving and other house shifting services: Packing and moving costs, including those if you hire a house shifting service, are exempted as they are directly related to the transfer.
- Initial accommodation cost: Accommodation costs for the first 15 days of relocation are exempted.
- Flight or train fare costs: Transportation expenses incurred during the shift from the previous residence to the new location are exempt.
- Car registration cost: Registration of the car used for travel during relocation is also exempted as it falls under packing and moving costs.
Expenses that are Taxable:
- School admission fees: School admission fees are taxable as they are considered a monetary benefit to the employee.
- New residential cost: If your employer pays allowances for the new residence, you will have to show them as taxable income as they are salary income for the employee.
- House rent brokerage: Brokerage fees for finding a new residence are the personal obligation of the employee. These are taxable as the employee’s salary income if paid by the employer.
- Accommodation post initial phase: Accommodation provided after the initial 15 days is taxable.
Also, if your employer pays for expenses that are your obligation, it will be taxable. These may also include storage fees for your belongings during the relocation process.
Therefore, you should keep in mind the tax exemptions and taxable expenses related to relocation while negotiating with your employers. They should ensure that the expenses incurred during the transfer are directly related to the relocation and should obtain the necessary bills and receipts to claim the tax exemptions.
Relocating can be a stressful process, but understanding the tax implications can make it easier. As we have seen, there are some income tax exemptions available on relocation allowances paid by employers. However, it is important to ensure that the conditions for these exemptions are met. If you are relocating for work, ensure a seamless shifting experience with Porter Packers & Movers without worrying about relocating costs.
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