Understanding Tax Exemptions on CTC Allowances: Can You Help Clarify These Doubts?

Hi,

I have the following doubts regarding CTC:

1. Telephone reimbursement:
- If this component is a part of the CTC, can an employee get tax exemption for the entire amount as per the bill?
- Assuming the employer pays a percentage, say 75% of the bill, can the employee still claim tax exemption for the full amount?

2. Dress/Uniform Allowance/reimbursement:
- Can this be applicable to all employees?
- Is there any limit for the maximum amount that can be exempted on production of bills, or can we avail the exemption for any amount?

3. Car Allowance/reimbursement:
- Can the employee claim tax exemption for the reimbursement of fuel, maintenance, and driver's salary, even if the car is not in his/her name but is in the name of his/her family member?
- What is the limit for this exemption?

I request all of you to let me know this quickly as I need to design the CTC structure for a company based on this.

Regards,
Deepthi
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Hi Deepthi,

The term REIMBURSEMENT itself means you need to substantiate with evidence, i.e., the bills for the amount spent. If the amount is less than the entitlement, you will have to pay tax on the balance.

With respect to Dress/uniform Allowance, this can be applicable to all employees. Yes, there is an upper limit on the amount.

Car allowance can be extended from a specific band or level in the organization. It is mandatory that the car should be registered in the employee's name. Also, please keep in mind that no other allowance in the salary structure should exceed Basic. The limit on Car Allowance can be decided by the Management or the person designing the comp & ben structure. It can be a fixed amount for all levels above a Manager.

Can anyone tell me about the tax treatment of advances/loans given by the company to its employees for housing purposes?

Dear Deepti,

Please note, all these expenses are now subject to Fringe Benefit Tax (FBT). Kindly check with your company's Chartered Accountants for the applicable rate or contact the finance department. Consequently, these expenses are taxable to the company, and most companies pass these overheads on to the employees. Therefore, please verify this information.

Thank you.

Dear Mr. Arun Prasad,

I am working in a proprietorship firm. My CTC is around 8 Lac. We have a Flexi salary structure. The Basic is 33K, HRA is 13K, and medical reimbursement is 1.25K. Could you please suggest what components I should add so that my tax outgo will come down? Also, please inform me about u/s 10(14) of the Income Tax Act.

Uniform Maintenance Allowance

What is the limit of Uniform Maintenance Allowance, and is any proof required to get the income tax exemption? Can I claim this even if a uniform is not mandatory in the office?

Regards,
Arun