allowances: These allowances will be taxable if bills are not submitted by you
If the bills are not submitted or if the expenses have not been made in discharge of official duty, then the amounts received will be taxable in the hands of an employee.
If such allowances received by an employee are taxable, then TDS will be applicable to them as well. The TDS rate that will be applicable on allowances will depend on the income tax regime chosen by the salaried employee. An individual can continue with the old tax regime and claim tax exemptions and tax deductions. Alternatively, he/she has the option to choose the new income tax regime and forego 70 tax exemptions and deductions.
Abhishek Soni, CEO, Tax2Win.in – an ITR filing website says, “Under the Income-tax laws, any allowance granted to the employees to meet the expenses wholly, necessarily, and exclusively towards the discharge of official duty are exempted from tax if such an expense is actually incurred by an employee. The tax-exemption is granted under section 10(14)i of the Income-tax Act, 1961.”
“To avail the tax-exemption on the allowances received for performing an official duty, there are two things that one must keep in mind. Firstly, an employee must ensure that bills related to conveyance, tour duty etc. are submitted to the employer. Secondly, the expenses must be made in lieu of performing official duties. If the expenses are made not in lieu of performing official duties, then the expenses will become taxable,” adds Soni.
Thus, to claim tax exemption, it is important for the employees to maintain the bills. Though an individual is not required to submit bills while filing income tax return, however, in case the income tax department sends you a tax notice then you might need to submit proof of claiming tax exemption.
Claiming tax exemption in ITR
Do note that an individual is required to mention the tax exemption claimed while filing ITR. The current ITR forms ask the taxpayers to provide the break-up of the allowances and other benefits provided by the employer.
Soni says, “If the allowances received by an employee are tax-exempt, such amount will be reported under the ‘Exempt Income’ head in the ITR form. An individual will be required to claim the exemption under section 10(14) of the Income-tax Act.”
To know the actual tax-exempt amount received by an employee, one can check his/her Part-B of Form 16.