Save expense receipts from work trips abroad to claim tax exemption

Be sure to save your expense and travel receipts from work trips abroad, warned the Indian tax authorities.

salaried employees who get travel allowance for official visits, either domestic or foreign, must keep the relevant receipts on hand if they do not want them to be charged to income tax
Salaried employees who get travel allowance for official visits, either domestic or foreign, must keep the relevant receipts on hand if they do not want them to be charged to income tax. Photo courtesy: ITO

In this year’s Budget, Indian Finance Minister Arun Jaitley announced a standard deduction of INR40,000 for salaried taxpayers in lieu of the existing transport allowance and medical expense reimbursement. This means that legitimate business expenses can be deducted from the taxpayer’s income.

In a recent High Court ruling in Hyderabad, salaried employees who get travel allowance for official visits, either domestic or foreign, must keep the relevant receipts on hand if they do not want them to be charged to income tax. Also, on such allowances, the employer will have the liability to deduct TDS.

A recent case involving a private limited company based out of Hyderabad, Sun Outsourcing Solutions, with a branch office in London highlighted the issue. The company had sent some Indian employees on deputation to the UK and also employed NRIs in London.

The employees at the firm were on the payrolls of Sun India and received their salary in India, while other boarding allowances were paid in the UK. The company continued to apply for withholding taxes on the salary payments made in India but not in case of allowances in the UK to employees as well as on salary payments made to NRIs employed there.

In this regard, the High Court upheld that any amount paid as allowance for meeting personal expenses of the assessee at the place where the duties of his office are ordinarily performed is not exempt under the Income Tax Act. And if at all the allowance is tax exempt, it should have been granted in particular wholly in respect to discharge of duties.

Typically, for international assignments, if the executive continues to get his salary in an Indian bank account and also gets travel expenses abroad, as per the conventional application of the Tax Act, both salary and savings from the daily reimbursement are fully taxable. One exception is if his assignment lasts long enough to qualify him as an NRI, which means he has spent more than 182 days in a financial year outside India. In this case, his salary would be tax-free domestically.

In a related case, the Income-Tax Appellate Tribunal (ITAT) Mumbai Bench, which adjudicates tax disputes, has held that the travelling expenses incurred by an NRI to manage property in India is not deductible from total income.

An I-T official said that deductions under the head “income from house property” is specific. For instance, if a taxpayer lets out his property on rent, the rental value minus municipal taxes gives the figure of “net annual value”. A standard deduction equal to 30% of the net annual value is allowed as a further deduction (to cover all kinds of expenses). A deduction is also available for the interest on housing loans, if any. Income tax is levied on the net figure arrived at, after such deductions.

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CtoI News Desk
CtoI News Desk – CtoI

Singapore-headquartered online media company targeting Indian Diaspora across Singapore, US, UK and Dubai. Connected to India covers developments around Indians abroad, informing, engaging and entertaining its audiences.

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