Work from home may increase tax liability this year

While salaried employees are happy that working-from-home(WFH) is saving a lot of cost for them amid the pandemic, they are probably not aware of the fact that their tax liability this year may go up due to WFH.

Tax experts say salary components like conveyance allowance, house rent allowance and Leave Travel Allowance (LTA) may become taxable for employees who have actually not spend any amount on these heads as they are working-from-home.

As employees are not commuting to their office on a daily basis, conveyance allowance can no-longer be tax-free. When conveyance allowance is offered as a reimbursement it becomes tax-free only if you actually incur the expense and produce proofs for the same. So, in the absence of any official commute, conveyance allowance may become taxable.

Also given the pandemic, you may not be able to take a vacation and claim LTA for the current financial year. So, LTA may also become taxable. Worth mentioning here is that LTA can be claimed twice in a block of four years.

Many employees have vacated their rented house and moved to their home town to save on rent due to the work-from-home. Since they are no longer paying any rent, HRA will be taxable, say, tax experts.

Further, many companies are giving their employees a fixed amount as work-from-home allowance to meet expenses like internet bill, electricity charges, cost of buying laptop and office furniture for creating an office set up at home and does not require you to produce bills for the same. In such a case, the amount will be taxable in the hands of employees.

According to a report in the Times of India, tax and HR experts are looking for ways to help employees minimise the impact by restructuring salaries.

“We have been receiving increased inquiries from HR departments of various companies seeking guidance on how they can help their employees reduce their tax burden,ClearTax founder and CEO Archit Gupta told the publication.

“The government can also look at some sort of relief to avoid salaried class facing large tax bills due to the new remote work mechanism.”

Randstad India chief people officer Anjali Raghuvanshi said that restructuring salary components may not help at this stage without a structural change in tax laws.

“For now, companies are sticking to providing separate WFH allowances in the nature of reimbursements,” she said.