Ask Mint Money | Relocation allowance is tax-free to the extent of actual expenses

I am 25 years old and my annual income is Rs5 lakh. My employer deducts tax from my salary and issues Form 16. Do I still have to file income-tax return?

—Gautam Appa Rao

As per the notification dated 17 February 2012 issued by the Central Board of Direct Taxes, salaried individuals whose total income for FY12 does not exceed Rs5 lakh are exempted from filing their income-tax return for FY12. This is subject to the prescribed conditions listed below:

• The total income should only consist of “salary income” and “interest from savings bank account”. Further, the interest from savings bank account should not exceed Rs10,000 per fiscal.

• The individual should report interest from savings account to his employer and entire taxes on the same should be deducted and paid by the employer.

• The individual should quote his PAN to the employer.

• The individual should receive the Form 16 from his employer depicting details of salary and savings bank interest income and taxes deducted.

• There is no tax refund due and salary is received from only one employer during the fiscal.

In case you satisfy these conditions for FY12, you could avail an exemption from filing income-tax return for FY12. Otherwise, it would be mandatory for you to file income-tax return for FY12 by 31 July 2012. While calculating the total income, you should factor the exemptions/deductions available under the domestic tax laws.

I work for a software firm. I am getting transferred and I will get Rs5 lakh as relocation expense. Will I have to pay income-tax on this amount? If yes, how can I save tax on this?

—Harshad

As per section 10(14) of the Income-tax Act, 1961, read with rule 2BB of the Income-tax Rules, any allowance granted by the employer to meet either the cost of travel or the ordinary expenses (which includes packing and transportation charges) incurred during the period of journey in connection with the transfer could be claimed exempt from tax.

Accordingly, you could claim the relocation allowance as exempt from tax to the extent of actual expenses incurred. The difference, if any, between the amounts reimbursed by the employer and the actual specified expenses incurred by you shall be taxable as salary income in your hands. You should maintain necessary documents as proof of expenses incurred. Further, the same should be submitted to the employer so that the employer could factor the expense receipts/documents while granting an exemption against the relocation allowance and accordingly could compute the tax, if any, to be deducted from the relocation allowance.

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