Tax Query: How are the flexi pay components in my salary taxed?

My annual CTC package includes specific flexi pay components, apart from the fixed monthly payments. How are the flexi components beneficial, and how are they taxed?

An employer provides various flexi components, which an employee can claim based on the actual expenditure incurred by them. Such components include: 

  1. Broadband and telephone
  2. Fuel expenses and driver allowance
  3. Books/periodicals/self-learning expenses
  4. Meal coupons
  5. Gifts

Employees should submit the bills or invoices to their employer. The employer then grants the tax-exemption based on the documentary proof provided by the employees.

In case any of the components or allowances remain unclaimed at the end of the financial year, the employer pays the balance after deducting tax (TDS).

Also Read: Tax Query: Can I claim capital gains exemption on investments in bonds?

I had a transfer in employment from Chennai to another office of my company located in Hyderabad. For relocation, my employer provided a relocation allowance of Rs 1 lakh. The reimbursement includes airfare and transport expenses for my belongings, amongst other costs on relocation. Is the relocation allowance taxable?

A relocation allowance provided by your employer is tax-exempt to the extent of expenses incurred by you. The expenses include:

  1. The cost of travel and any amount paid in connection with the transfer.
  2. Charges for packing and transport of personal effects such as household items and other items of personal use of the employee. 
  3. Ordinary daily expenses incurred by you during the journey or due to absence from the regular place of work.

You should maintain the documents, invoices and bills for the expenses and submit the same to your employer. The relocation allowance exceeding the costs is taxable as salary.

For any clarifications/feedback on the topic, please contact the writer at sweta.dugar@cleartax.in

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