Many organizations have flexi-benefit components as part of their compensation package to enable employees to save tax.
I also wanted to implement this, but I have been challenged by my peer, who is a Plant HR Head while I am an R&D HR Head. He asks me to show the exact clause in the Income Tax Act with the precise amount of flexi-benefit permitted by the IT!
Does anyone know the relevant sections of the IT Act?
Does anyone here know which sections of the IT Act allow these to be allocated as exemptions, along with the specified amounts or any upper limits?
Examples of Flexi-Benefit Components
Fuel Maintenance for Car - 21,600 PA for CC of engine within 1.6 / 28,800 PA for CC of engine exceeding 1.6
Driver's Salary - 10,800
Telephone reimbursement - 24,000 PA
Books and Periodicals - 12,000 PA
Professional Development
From India, Madras
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I also wanted to implement this, but I have been challenged by my peer, who is a Plant HR Head while I am an R&D HR Head. He asks me to show the exact clause in the Income Tax Act with the precise amount of flexi-benefit permitted by the IT!
Does anyone know the relevant sections of the IT Act?
Does anyone here know which sections of the IT Act allow these to be allocated as exemptions, along with the specified amounts or any upper limits?
Examples of Flexi-Benefit Components
Fuel Maintenance for Car - 21,600 PA for CC of engine within 1.6 / 28,800 PA for CC of engine exceeding 1.6
Driver's Salary - 10,800
Telephone reimbursement - 24,000 PA
Books and Periodicals - 12,000 PA
Professional Development
From India, Madras
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Dear Raji, you have a wrong notion or misconception that flexi salary helps to save income tax. Many companies in India have adopted the Flexible Benefits Plan (FBP) in the salary structure to facilitate employees, allowing them to modify components of CTC (Cost to Company).
Understanding Income Tax and Flexible Benefits
However, income tax applies to the entire income above the standard deduction, considering a percentage of investment in EPF, National Securities, FD, LIC premium, and certain expenditures made by an employee on education loans or house building loans.
To better understand this, it would be advisable to consult a Chartered Accountant.
Thank you.
From India, Mumbai
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731Understanding Income Tax and Flexible Benefits
However, income tax applies to the entire income above the standard deduction, considering a percentage of investment in EPF, National Securities, FD, LIC premium, and certain expenditures made by an employee on education loans or house building loans.
To better understand this, it would be advisable to consult a Chartered Accountant.
Thank you.
From India, Mumbai
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Thank you for your response, sir. In my previous organization, this practice was advised by KPMG. As per their guidance, we provided these flexible benefits to employees. They were able to claim these benefits and receive tax exemptions by submitting bills for reimbursement. This practice is still being followed.
As you mentioned, following these deductions and rebates helps to reduce the tax burden on us.
From India, Madras
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As you mentioned, following these deductions and rebates helps to reduce the tax burden on us.
From India, Madras
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I have a feeling that you misunderstood the concept of Flexi-pay.
The CTC remains the same, which is why the company believes it is 'fair' to all employees. But it gives the employees the freedom to adjust their pay structure based on what is best for them with reference to tax and other matters. Some companies also allow them to move part of the payment to a bullet/lumped payment.
Tax Implications of Flexi-pay
From the tax point of view, the components do make a difference. For example, some people want HRA because they claim it as a deduction from taxable salary. For others, it is meaningless as HRA is tax-free only if you are actually paying rent. If you can't produce a proper rent receipt with the PAN number of the landlord, it's taxable. So there are some who don't care for it. Also, for those opting for the new Tax Regime, there are no deductions.
Reimbursements vs. Allowances
Secondly, they can claim reimbursements. For example, Mobile Bills, Petrol Bills, and Food bills for entertainment. If these are 'reimbursements' rather than allowances, they are not taxed in Income tax.
The same holds true for professional development, reimbursement of the driver's salary, etc. However, please remember that if this is an allowance, it is still taxable. The second point is whether the company will take the trouble of tracking these expenses separately because they cannot be paid with salary, and the amount obviously cannot be standard and fixed every month.
From India, Mumbai
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The CTC remains the same, which is why the company believes it is 'fair' to all employees. But it gives the employees the freedom to adjust their pay structure based on what is best for them with reference to tax and other matters. Some companies also allow them to move part of the payment to a bullet/lumped payment.
Tax Implications of Flexi-pay
From the tax point of view, the components do make a difference. For example, some people want HRA because they claim it as a deduction from taxable salary. For others, it is meaningless as HRA is tax-free only if you are actually paying rent. If you can't produce a proper rent receipt with the PAN number of the landlord, it's taxable. So there are some who don't care for it. Also, for those opting for the new Tax Regime, there are no deductions.
Reimbursements vs. Allowances
Secondly, they can claim reimbursements. For example, Mobile Bills, Petrol Bills, and Food bills for entertainment. If these are 'reimbursements' rather than allowances, they are not taxed in Income tax.
The same holds true for professional development, reimbursement of the driver's salary, etc. However, please remember that if this is an allowance, it is still taxable. The second point is whether the company will take the trouble of tracking these expenses separately because they cannot be paid with salary, and the amount obviously cannot be standard and fixed every month.
From India, Mumbai
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Thank you for the valuable advice. I am also aware that tax is calculated on the entire CTC, but the above flexi components are tax-saving opportunities if allocated. So, was my query. Under Sec 10 and Sec 17 of the IT Act, these are mentioned. Except for the car, there is no maximum threshold mentioned anywhere. For example, what can be the maximum cap for books and periodicals or telephone reimbursement, etc.
Regards,
Raji
From India, Madras
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Regards,
Raji
From India, Madras
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Circular No 1-2018 Processing of income-tax returns under section 143(1) of the Income-tax Act .pdf