Understanding Allowances

Certain types of allowances are exempted from taxes, such as Leave Travel Allowance, Medical Allowance, Hill Area Council Allowance, and Border Area allowances. However, the most common are Leave Travel Allowances and Medical Allowances. Global Payroll for India enables you to set up leave allowances and medical allowances with the payee's option of special claims processing or claim reimbursement.

These allowances are paid based on a defined frequency: monthly, quarterly, half yearly, or annually. This is a company policy and no statutory obligations exist as to the periodicity of the payment. Rules governing the taxation of these allowances are guided by the Finance Act. Employees can be paid these allowances by producing bills (medical/travel bills) and have the allowance exempted from tax. If the employee does not want to use this facility, then the allowance is paid off as a monthly allowance, with the full amount being taxable.

Companies might provide payees certain types of allowances. Global Payroll for India enables you to set up leave travel allowances and medical allowances with the payee's option of special claims processing or waiving of the claim reimbursement and receiving a flat taxable amount for the fiscal period.

Note: Global Payroll for India also delivers earning elements for other allowances including dearness allowance, house rent allowance, lunch allowance, conveyance allowance, shift allowance, and special allowance.

Global Payroll for India delivers the following allowances:

Term	Definition
Leave Travel Allowance	If the company provides leave travel allowance, you can pay a payee this allowance amount as part of his or her salary. If a payee is provided a leave travel allowance, he or she can waive having claims reimbursed or opt for nontaxable reimbursement of valid claims up to the Income Tax Act published limit each fiscal year. The payee submits the appropriate travel claim information, along with any required supporting documentation for the travel, and the claim is then processed during the normal payroll processing cycle. Leave travel allowance can be paid out monthly, quarterly, semiannually, or annually.
Medical Allowance	If the company provides medical allowance, you can pay a payee this allowance amount as part of his or her salary. If a payee is provided a medical allowance, he or she can waive having claims reimbursed or opt for nontaxable reimbursement of valid claims up to the Income Tax Act published limit each fiscal year. The payee submits the appropriate medical claim information, along with any required supporting documentation for the medical claim, and the claim is then processed during the normal payroll processing cycle. Medical allowance can be paid out monthly, quarterly, semiannually, or annually.

Term

Definition

Leave Travel Allowance

If the company provides leave travel allowance, you can pay a payee this allowance amount as part of his or her salary. If a payee is provided a leave travel allowance, he or she can waive having claims reimbursed or opt for nontaxable reimbursement of valid claims up to the Income Tax Act published limit each fiscal year. The payee submits the appropriate travel claim information, along with any required supporting documentation for the travel, and the claim is then processed during the normal payroll processing cycle. Leave travel allowance can be paid out monthly, quarterly, semiannually, or annually.

Medical Allowance

If the company provides medical allowance, you can pay a payee this allowance amount as part of his or her salary. If a payee is provided a medical allowance, he or she can waive having claims reimbursed or opt for nontaxable reimbursement of valid claims up to the Income Tax Act published limit each fiscal year. The payee submits the appropriate medical claim information, along with any required supporting documentation for the medical claim, and the claim is then processed during the normal payroll processing cycle. Medical allowance can be paid out monthly, quarterly, semiannually, or annually.

With Global Payroll for India, you can:

Define the leave travel allowance program, including who can be covered for reimbursements.
Capture the leave travel allowance amount, per payee, for the fiscal year.
Track claim details for payees' leave travel allowance and whether the minimum days of leave have been taken.
Track the balance of leave travel allowance that is available for each payee.
Define the medical allowance program, clearly defining the exemption amount that a payee can claim.
Track medical allowance claim details of payees while ensuring that the claims in excess of the exemption limit are added to the taxable earnings of the payee.
Track the medical allowance balance amount that is available to each payee.

Note: The PeopleSoft system delivers several queries that enable you to retrieve allowance information.