New Delhi: As the Covid-19 pandemic has hit the entire world, work-from-home has become the new normal across countries. But salaried taxpayers who have already taken a pay cut amid the pandemic are now seeing their tax liability going up because of work-from-home.
Many allowances that are a part of the pay package for salaried employees such as reimbursement of fuel or conveyance expenses have become taxable due to the travel restrictions imposed by local authorities in many parts of the country.
Worth mentioning here is that tax benefits on allowances are allowed based on actual expenses. If you have not made those expenses then the allowance becomes taxable, say, tax experts.
This is going to hit those taxpayers the most whose taxable income is below the threshold limit of Rs 5 lakh and due to no actual expense on fuel or conveyance their taxable income increases beyond the threshold limit of Rs 5 lakh.
Similarly, LTA is a tax-free perk. But the rules pertaining to LTA are very stringent. LTA can be claimed twice in a block of four years. The current block is from 2018 to 2021. Now, with the pandemic, you have limited time to claim this benefit. Although as per rules, LTA can be carried forward to the next block, it must be utilised in the first year of the next block. So salaried taxpayers have a very small window to claim LTA benefits.
How salaried employees can reduce their tax liability
While travel expenses have come down due to work-from-home, many other expenses have gone up for salaried taxpayers as in the past three months the average middle-class urban household has spent on computers, furniture and on high-speed internet connectivity. Tax experts say employees should talk to their employers to rejig their pay structure to take cognizance of these expenses. “Expenses on computers and internet connectivity have shot up. Due cognizance should be given to these changes and salary structures should be rejigged accordingly,” ET Wealth quoted Shubham Agrawal, Senior Taxation Advisor at TaxFile as saying.
Tax experts say companies should allow employees to purchase moveable assets, which can be treated as perks. The ET Wealth magazine quoted as saying Gupta of Cleartax, “Many IT companies have been offering this to employees for years. Now others should also consider this.” In this case, the employee purchases items in the name of the company and is reimbursed the amount. Items can include computers, laptops, white and brown goods and even furniture. Since the items are purchased in the name of the company, it is able to claim depreciation of these assets. In about five years, the book value of the item depreciates to nearly zero and the company sells it to the employee for a nominal sum.
This will be useful in the current situation as many households have been forced to purchase laptops, computers and other accessories to facilitate online classes for children. However, these purchases are not completely tax free, though the tax is not very high. Under Section 17(2), the employee is taxed for 10% of the value of the asset. So, if you bought an air conditioner worth Rs 30,000, you will be taxed for Rs 3,000. The good news is that computers and laptops are exempt from this tax, the report mentioned.
Worth mentioning here is that if you decide to leave the company, you have to return the depreciated value of the item to the company as the asset belongs to the company.