5 Tax Tips Your Workforce Should Know

We don’t need a survey to gauge how many salaried individuals would like to earn more by saving on their taxes. A key issue expected during every annual budget proceeding in the parliament involves some leeway on the income tax levied (like the new slabs introduced in Budget 2020). 

As HR professionals, we’re entrusted with the role of ensuring optimal performance of employees and resolving emotional-mental constraints that might inhibit performance and growth. Since the act of tax-saving remains a key psychological tussle faced by most employees, aid in that direction can work wonders for the organisation’s ecosystem. Here are 5 legally backed tax tips that should empower your workforce to save significantly more:

#1 House Rent Allowance [Section 10 (13A)]

A greater segment of individuals migrates to other cities in order to fulfil their job requirements. With rising real estate costs, renting is the only viable option for accommodation. 

For individuals living in rented abodes, the government of India offers tax exemption on full or partial house rent paid. Also, employers are directed to pay a house rent allowance to cover the rent charges. 

The minimum provision on tax exemption on house rents can cover any of the following cases based on salary structure:

1. Complete HRA provided by the employer
2. 40% of the income (basic salary + daily allowance) for non-metro cities or 50% of income(Basic+DA) for metro cities
3. The actual rent paid is less than 10% of the income (Basic+DA)

It is mandatory to inform your workforce that misusing this provision by house owners by coming in a rental agreement with their spouse will be considered fraudulent activity. The guilty will be subjected to the case of tax evasion.

#2 Leave Travel Allowance [Section 10(5)]

Breaks or holidays are a critical part of that elusive work-life balance we all chase. It’s probably why the Government of India grants tax exemptions on leave travel allowances provided by the employer. Your workforce should know that if their LTA is part of their CTC, employees can cover costs borne on transportation like economic airfare, first-class AC railway travel or other means of public transport. 

Do remember that tax exemptions only come into play for trips within India. A critical point that needs to be noted is that this allowance on travel expenses is only valid for immediate family or other dependent family members. 

#3 Conveyance Allowance [Section 10(14) (2)]

The cost of transportation endured due to the commute from home to the workplace is an unavoidable expenditure. The tax laws hold a provision to an exempt tax levied on the conveyance allowance provided by the employer. 

Travel allowances of upto ₹.19,200 per annum or ₹1,600 per month are exempted from any tax cuts. Your employee does not need to show any documentation in the form of receipt of expenditure in order to avail the allowance and tax benefits.

#4 Medical Expenses [Section 17 (2)]

Medical expenditures can be simultaneously unavoidable and heavy on the wallet. Apart from a medical cover or insurance policy your employees might have, the government allows tax exemption on the medical expenses provided by employers. Up to ₹15,000 can be reimbursed by the employer in order to cover any medical expenditure. This sum is exempted from any tax cut under the tax laws. 

Another critical point to consider is that since the amount is a part of a ‘reimbursement’, the exemption is permitted up to the actual expenditure incurred. The employee and the salary department should be made aware of this crucial segment. 

#5 Cover for Miscellaneous Expenses and Sharing Tax Plan with Organisation

Employees also stand to benefit from tax deductions on work-related expenses they may be incurring. This can include research, phone bills, local travel and more. This also covers expenditure incurred on clients, skill enhancement, newspapers, books, etc. As long as the expenses deal with your primary business, employees stand to gain.

It’s a good policy to encourage awareness of the various outlays that they can cover right from their organisation. Being an HR professional, the task falls on your shoulders to ensure a proper allowance allotment structure in your organisation. You could explore organising in-house sessions to help with awareness of the ongoing tax regime, best practices, an explanation of the jargon, upcoming deadlines and more.

You can also educate your employees about the tax benefits in the short-term from instruments that can help them earn returns in the long-run. Your employees may have multiple income sources that may attract taxes. Section 80C, 80D and 80G of the Income Tax Act can provide them with an exhaustive list of ways to save on taxes. 

Employees may also be encouraged to share their tax plans and saving strategies. With a few tweaks from the organisation. This should ensure lowered deductions resulting in more in-hand-cash for the teams. 

Tax season can be one of the daunting times to endure in the office circuits (often one that also requires some tax myths busted). As an HR professional, it’s important to stay updated and help employees minimise their tax burden and make them smart at tax savings. By sharing tax tips with your employees and helping them file their taxes, you can hope to establish a healthy and fun office structure.

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