Work news for employees working from home: Know when tax is levied on WFH allowance and reimbursement and how to avoid it

Since the Corona pandemic, work from home (WFH) and hybrid working model (Hybrid Work Culture) have become an integral part of the culture in the Indian corporate world. Even today, many IT, fintech and private companies of the country are providing their employees the facility to work from home. During this period, companies are providing internet, Wi-Fi broadband, mobile phone, laptop, office chair and other necessary equipment to the employees. Reimbursement Or even give allowances.

However, many employees are under the illusion that every payment related to work from home is tax-free. According to Income Tax rules, this is not at all the case. Tax experts say whether the reimbursement will be taxed or not depends on the form in which the payment is made and on the basis of which document. Let us understand its complete rules from the perspective of a tax and personal finance reporter.

1. These reimbursements are completely tax-free (conditions apply)

According to the rules of the Income Tax Act, if the company compensates the employee for actual expenses related to official work, then it is not taxable:

• Internet and Mobile Bill Reimbursement: If the bill for Wi-Fi broadband and mobile connection used for office work is in the name of the employee and is paid by the company, then this amount is completely tax-free.

• Laptops, Software and Accessories: There is no tax on the amount received from the company on depositing the bills for headphones, keyboard, mouse or laptop purchased for work.

• Condition: The employee will have to submit the original bills (Valid Invoices) and proof of payment of all these expenses to the HR or Finance Department of his company.

2. Full income tax will be charged on these payments

If the company gives you money in lump sum or without asking for bill of expenses, it will be considered as part of your salary and tax will be deducted on it:

1. Fixed WFH Allowance (Cash Allowance): If the company pays a fixed amount every month in the name of internet or electricity (say ₹ 2,000 or ₹ 5,000 per month) without any bill, then it will be considered as ‘Taxable Salary’.

2. Furniture and AC Allowance: If the cash given to buy an office chair, study table or air conditioner (AC) has not been billed or is proved to be for personal use, then it will also come under the ambit of tax.

3 important tips to avoid tax disputes while filing ITR

• Keep bills and receipts: Keep digital copies of all bills and bank statements for internet, mobile and electronics accessories safe. These are used as evidence during tax assessment or company audit.

• Understand the company’s reimbursement policy: In case of changing jobs or working in more than one company, make it clear which amount is shown as ‘Allowance’ (Taxable) and which as ‘Reimbursement’ (Tax-Free) in your salary slip.

• Correct claim in ITR filing: While filing your Income Tax Return (ITR), show only those reimbursements as tax exemption for which valid bills are available with you, so that you do not get any notice from the Income Tax Department later.