Employers pay Per Diem allowance based on the company policy and place of travel. For instance, if employees travel to Rajasthan, their Per Diem allowance will be different from those who are travelling to Mumbai. Likewise, if employees travel to the USA, their allowance will differ depending on the locations they travel to in the USA.
Per Diem allowance can be added to the salary for tax purposes if the received amount is higher than actually spent. As per the Income Tax rules in India, daily allowance will not be taxable if employees have entirely spent the received amount. However, Per Diem allowance will be taxable and come under the umbrella of salary structure if employees have saved some amount. In such cases, the taxation rule will follow as per the concerned person’s salary and applicable tax bracket.
There is no fixed amount in the Income Tax provisions for Per Diem allowance. Here, a company or employer can pay any amount as Per Diem Allowance.
Previously employees could claim Per Diem allowance without submitting any expense report for items including meals, transportation and other expenses. Employers used to pay this allowance as per the travelling location. However, this rule changed in 2018.
Now, employees have to prove (by submitting bills) the amount they have spent while staying outside/away from home; they can claim for exemption. Alternatively, if employees cannot prove (by submitting bills) they have spent, the income may fall under the section of additional income/undeclared income; hence, it will follow the regular taxation rule.
In such cases, employers are responsible for deducting tax. If they fail to do so, they will be liable for paying the outstanding tax along with interest. Here, the revenue authorities can also charge a penalty on employers.
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