Would you like to opt for the WFH permanently? Your salary structure, your tax expenditures may change
Would you like to opt for the WFH permanently? Your salary structure, your tax expenditures may change.
- In a telecommuting condition, employees have to bear certain infrastructure costs such as electricity and WiFi and these must be part of the compensation structure.
- From an employer’s perspective, an employee’s lower cost of living due to a move to their hometown should be reflected in the compensation package.
- The government is considering all options and something concrete should happen soon.
New Delhi: If you want to opt for working from home (WFH) permanently, your salary structure may undergo some changes in the coming days. The Department of Labor may soon allow employers to change the wage structure of existing employees who opt to work from home permanently, The economic period reported.
This could lead to a reduction in the housing allowance (HRA) component of employees and an increase in reimbursement costs under the infrastructure component.
The financial daily, quoting a senior government official, mentioned that the Ministry of Labor could issue standing orders to redefine the conditions of service.
It is necessary to redefine the terms of service to ensure that compensation for employees is structured taking into account the expenses incurred due to working from home, the official said. HEY.
In a telecommuting condition, employees have to bear certain infrastructure costs such as electricity and WiFi and these must be part of the compensation structure. From an employer’s perspective, the lower cost of living for an employee due to a move to their hometown, in some cases Tier 2 and Tier 3 cities, should be reflected in the compensation package.
“The government is considering all options and something concrete should happen soon,” the publication quoted the unnamed official as saying.
Prashant Singh, Director and Vice President, Teamlease Compliance & Payroll Outsourcing Business, said employees opting to work from home permanently will see their salary status change, such as in the HRA and business tax components.
The workers’ welfare fund is another issue, besides the applicability of state labor laws in such situations that need to be clarified.
BC Prabhakar, president and lawyer of BCP Associates and an expert in labor law, believes the legislation should be avoided as working from home is an evolving concept in India.
“Let the market determine the wage structure based on the demand and supply of labor in the Indian market,” Prabhakar was quoted as saying by the publication. He added that management and the employee should be allowed to negotiate terms of service, as any government intervention would defeat the very purpose of working from home.
Tax impact on HRA
The largest tax impact could be on the HRA component if a worker moves to their hometown as part of telecommuting.
Under the current rules, the tax refund for the HRA is the lesser of three: 1) the actual HRA received from the employer, 2) 50% of base salary + dearness allowance for those living in metropolitan cities and 40% for those living in non-metropolitan cities, and 3) effective rent paid less 10% of base salary + DA.
If the HRA component is reduced and not replaced with something for which a tax refund is available, the employee’s tax liability may increase.
“Any employee who moves from a metropolitan city to a non-metro city will see their take-home pay reduced if the HRA goes down,” Teamlease’s Singh said. “The HRA change will directly impact the employee’s income tax payment.”
While the reduction of the HRA will result in an increase in tax expenditures as well as additional provident fund contributions if the reduced HRA is added to the base salary, the addition of an infrastructure element on the reimbursement portion will reduce the burden employee tax.