Bad news for salaried! Your daily travel allowance will be taxed now if you fail to submit actual bills
Are you a salaried person and get daily allowances from your company while on official tour either in India or abroad? Then better keep the evidence of actual expenses incurred, otherwise you will have to pay tax on it. The Andhra Pradesh High Court has recently ruled that allowance paid to employees for meeting personal expenses is taxable as perquisite, and the employer is liable to deduct taxes on it.
The Case
Sun Outsourcing Solutions Private Ltd (Sun India / applicant), a private limited company having its office in Hyderabad and branch office at London, UK, deputed employees from India to work in its branch office, besides employing non-resident Indians (NRIs) in the UK. The employees continued to be on the payroll of Sun India and received salary in India. Boarding and lodging allowances were paid as a lump-sum in the UK. The salary payments for the NRIs were paid in the UK. Sun India continued to operate withholding taxes on the salary paid in India. However, taxes were not withheld on allowances paid in the UK to employees and salary payments made to NRIs employed overseas.
According to a Deloitte note, the Assessing Officer (AO) charged taxes on the allowances and salary payments made in the UK besides levying interest thereon for assessment years 2000-01 to 2003-04. Aggrieved by the order of AO, Sun India filed appeals before the Commissioner of Income-Tax, Hyderabad [CIT (A)] where the CIT (A) set aside the demand to the extent such demand was in relation to the salary payments made to NRIs. The CIT (A) upheld the orders of the AO with regard to the boarding and lodging allowances paid to resident employees with a direction to consider the particulars furnished/ to be furnished and applying appropriate rate of tax as applicable to different employees.
The orders of the CIT(A) were challenged by Sun India before the Income-Tax Appellate Tribunal, Hyderabad, which dismissed the appeal. Aggrieved by the aforesaid decision of the Tribunal, the applicant filed petition(s) before the Andhra Pradesh High Court.
HC Ruling
The HC upheld the contention of tax authorities that any allowance paid to the assessee to meet his personal expenses at the place where the duties of his office are ordinarily performed is not exempt under the Income Tax Act. And, for an allowance to be exempt, it should have specifically been granted wholly in performance of duties.
It ruled that applicant is legally bound to deduct taxes in absence of any certificate obtained from employee so as to not to deduct tax or deduct tax at lower rate and exemption, if valid, can be claimed by the employee on submission of necessary evidence before the tax officer.