By Dezan Shira & Associates, Delhi Office
Apr. 30 – Payroll , or employee compensation management, is a multifaceted process. As part of payroll, businesses generally compute and withhold government taxes like social security and individual income taxes from an employee’s salary. Many companies also have benefit plans like health insurance, which include deductions of premiums from its employees’ salaries according to employee customization, adding another layer of activity for payroll processing.
To help shed some light on this complicated process, in this article we discuss allowances (including housing and leave travel assistance) and the benefits of outsourcing payroll.
Allowances
Allowances are categories of expenditures in India that are not taxable, provided they match certain specifications and do not exceed a certain amount.
Allowances in India include those for:
- House rent;
- Transport;
- Medical;
- Meals;
- Leave travel;
- Education; and
- Special allowance.
House Rent
If a company chooses to provide House Rent Allowance (HRA) to its employees, the amount of this allowance that is exempt from taxes is the lowest of the following three options:
1. 50 percent of salary in metropolitan areas (40 percent in non-metropolitan);
2. Total rent paid over 10 percent of salary; or
3. HRA received.
Transport
Transport payments of up to INR800 (US$14.22) per month for an employee commuting between their residence and place of work are exempt from taxes.
In the case of blind or orthopedically handicapped employees, INR1,600 (US$28.61) per month is exempt from taxes.
Medical
An exemption for medical expenses is allowed for:
- Reimbursement up to INR15,000 (US$266.66) for medical treatment of the employee and family members;
- Reimbursement of expenses sustained by an employee and family members in approved hospitals;
- Premiums paid by the employer towards medical insurance forthe health of an employee;
- Reimbursement by the employer of premiums paid by the employee towards insurance for his/her health or of that of his/her family;
- Expenditures incurred by the employer on medical treatment of the employee whose family is outside of India;
- Travel and housing abroad for the employee or his family (including one attendant accompanying the patient for medical treatment); and
- Group medical insurance for an employee and family members or reimbursement of premiums paid by an employee for medical insurance.
