by Mr. T E Gautham, CEO, Hinote Systems, Chennai
Calculation of tax exemption gets complex when an employee travels to
multiple places as part of leave travel.
In addition, employees may use multiple modes of transport to complete
their leave travel. This makes calculation even more difficult.
If an employee travels to more than one destination, the basis of
calculating tax exemption shall be as follows:
Where
the journey is performed in a circuitous route, the exemption is limited to
what is
admissible by
the shortest route. Likewise, where the journey is performed in a circular
form touching
different places, the exemption is limited to what is admissible for the
journey from
the place of origin to the farthest point reached in India, by the shortest
route.
Since the law provides for calculation of tax exemption on travel
expenses between only two places, the employer should determine the farthest
place (travelled to by the employee) from the place of origin and specify the
same as the travel destination.
Further, the employer should determine the shortest route from the place
of origin to the place of destination. For the shortest route, the employer
should apply the rule related to mode of travel (as stated in Table ) and
determine the tax exemption.
|
Serial Number
|
Journey Performed by
|
Exemption
Limit
|
|
(1)
|
Air
|
Economy
Air fare of the national carrier (Air India) by the shortest route to the
place of destination.
|
|
(2)
|
Any
mode (Bus, Train, Ship, Taxi etc.) other than air to places which are
connected by Rail.
|
First
Class Air conditioned (A/C) Rail fare by the shortest route to the place of
destination.
|
|
(3)
|
Any
mode (Bus, Train, Ship, Taxi etc.,,) other than air to places which are not
connected by Rail.
|
a) Where public transport system exists,
first class or / deluxe class fare on such transport by the shortest route to
the place of destination.
b)
Where no public transport system exists, first class A / C Rail fare, for the
distance of the journey by the shortest route, as if the journey has been
performed by Rail.
|
 |
| T.E. Gautham, CEO, Hinote Systems, Chennai |
Illustration
An employee travels from Chennai to Hyderabad via Bangalore by Third A /C
compartment (Train) and spent money on ticket fare as follows.
“To” journey..
Chennai – Bangalore: Rs. 900
Bangalore – Hyderabad: Rs. 1,200
“Fro” journey..
Hyderabad – Bangalore: Rs. 1,200
Bangalore – Chennai: Rs. 900
All told, the employee spent Rs.
4,200 on leave travel.
Leave travel to multiple destinations by multiple modes of transport
This is when the calculation of tax exemption gets really difficult. When
an employee travels to many places, the employer needs to determine the
farthest place (from the place of origin) and calculate the shortest distance.
This is the easy part.
However, the law is not clear as to which mode of transport should be
considered for the purpose of calculating tax exemption when an employee uses
more than one mode of transport. Given that air fare (economy class) and train
fare (First A/C) are prescribed as the benchmark by tax law, if an employee
travels by both air and train during leave travel, which benchmark (air or
train fare) should be considered for the purpose of calculating tax exemption?
There are only 2 benchmark modes of transport (air fare if the travel is
by air and train fare if the travel is by any other mode) prescribed by the
income tax department for the purpose of exemption calculation. We are of the
view that if an employee uses both air and train, employers should use the train
fare as the benchmark for calculating tax exemption since this case would fall
under “other mode” of transport. Unless an employee travels by air to all
destinations during his leave travel, air fare should not be considered as the
benchmark.
What is the tax exemption?
Answer:
Step One:
Since the employee travelled to multiple destinations (Bangalore &
Hyderabad), the employer needs to determine the farthest place from Chennai
(place of origin). The farthest place from Chennai is Hyderabad.
Step Two:
Since the mode of travel is train & travel by the shortest route from
Chennai to Hyderabad would involve taking a direct train from Chennai to
Hyderabad, the employer needs to calculate the First A / C fare from Chennai to
Hyderabad & back.
First A / C train fare: Chennai to Hyderabad and back: Rs. 4,500.
Since the total train fare expense incurred by the employee is less than
the first A / C train fare of Rs. 4,500, the tax exemption is Rs. 4,200.
Leave travel to multiple destinations by multiple modes of transport
This is when the calculation of tax exemption gets really difficult. When
an employee travels to many places, the employer needs to determine the
farthest place (from the place of origin) & calculate the shortest
distance. This is the easy part.
However, the law is not clear as to which mode of transport should be
considered for the purpose of calculating tax exemption when an employee uses
more than one mode of transport.
Given that air fare (economy class) and train fare (First A / C) are
prescribed as the benchmark by tax law, if an employee travels by both air and
train during leave travel, which benchmark (air or / train fare) should be
considered for the purpose of calculating tax exemption?
There are only two benchmark modes of transport (air fare if the travel
is by air & train fare if the travel is by any other mode) prescribed by
the income tax department for the purpose of exemption calculation.
We are of the view that if an employee uses both air and train, employers
should use the train fare as the benchmark for calculating tax exemption since
this case would fall under “other mode” of transport.
Unless an employee travels by air to all destinations during his leave
travel, air fare should not be considered as the benchmark.
Illustration
An employee’s leave travel is as follows:
First leg..
Chennai to Mumbai – Air travel
Second leg..
Mumbai to Delhi – Train travel
Final leg..
Delhi to Chennai – Taxi travel
How should the tax exemption be calculated?
Answer:
Step One:
Determine the farthest place and label it as the destination.
Since Delhi is the farthest place from Chennai, Delhi shall be the
destination.
Step Two
Determine the mode of travel. While the employee travelled by air from
Chennai to Mumbai, he / she travelled by train & taxi to other places.
Hence, train shall be considered as the mode of transport for the purpose
of tax exemption calculation. It may be noted that all the places the employee
travelled to are connected by train in this example.
Step Three
Calculate the tax exemption.
Since Chennai (origin) & Delhi
(destination) are connected by train, consider the First A / C train fare of
the train which takes the shortest route from Chennai & Delhi. Compare the
train fare with the actual travel expense incurred by the employee. The amount
which is lesser of the 2 shall be the
exemption amount.
About Hinote Systems..
Hinote offers payroll services and software to organizations in India.
The firm currently manage payroll for thousands of employees across customer
organizations all over India.
Customer organizations are from sectors such as manufacturing and
services including Information Technology (IT), Business Process Outsourcing
and the social sector. We have significant expertise in payroll and information
technology.
Email: info@hinote.in, Web Site: www.hinote.in/blog
1, Venkatarathinam Nagar Extn,
Second Street, Adyar,
Chennai- 600 020
Phone: +9144 4330 7244
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