Changing business requirements may require employees of a company to relocate to another office in a different city. In such cases, employees are provided with an allowance to offset any relocation costs they might incur.
Is Relocation Allowance Different from HRA?
Yes, Relocation Allowance is different from HRA.
House Rent Allowance (HRA) is a major benefit to salaried taxpayers. Your employer provides you with an allowance that covers rent as part of your salary structure. A part of your HRA can be exempted from tax.
Comparatively, relocation demands larger expenses such as shifting houses, moving goods, finding new schools, etc. These expenses can either be reimbursed by the company or directly paid to the employee as a lump-sum amount known as Relocation Allowance. There are variations in taxability of different relocation expenses.
- Moving, Packing, and Transportation Costs: Moving and packing costs are tax exempted whether they are reimbursed by employees or paid for by employers directly. Car transportation costs form a considerable part of a relocation allowance. Gas fees and driver charges paid for car transportation are tax exempted because they are considered an employee’s personal effects.
- Brokerage Charges: If the employer reimburses the amount, the whole amount is taxable because it is considered part of an employee’s personal obligations. However, a hotel or temporary accommodation in the new city for the first 15 days can be claimed as a tax exemption. It includes boarding, lodging, meals, or any other living expenses that are covered in an allowance or reimbursement. Any expenses incurred beyond 15 days is taxable as a part of the employee’s salary income.
- School Admission Fees for Your Children: The reimbursement of school admissions fees are considered a monetary benefit for employees. Due to this, it is considered taxable and there is no tax exemption. The money you receive as reimbursement must be included in your taxable income.
- Airfare or Train Tickets for All Family Members: You and your family may need to spend a considerable amount on train tickets or airfare. Reimbursement for such expenses is tax exempted.
You will need to provide all the receipts, payment vouchers and agreements with your employer to claim tax concessions or benefits for Relocation Allowance.