Living away from home allowance tax (LAHFA)explained

An employee who has to relocate or stay for a certain period away form his usual dwelling place for work related activities can avail the living away from home allowance tax. This is a special type of tax provided to compensate an employee living at a distant location for temporary basis. It comes under the fringe benefit tax and is not treated as an income.

Many people today have to relocate to new and distant places to perform their office duties. Thus they have to undertake various expenses along with extra expenses out of their own pocket. They may also experience certain disadvantages as a newcomer compared to employees who reside there. This is the main reason that such employees are entitled to receive living away from home allowance tax.

The main components of living away from home allowance tax are food and accommodation. As both these expenses are taxed, they come under fringe benefits tax. The employee may incur expenditure on food due to alternate working location. They are thus also entitled to avail living expenses from their company. In short they get whole living expenditure which otherwise they would have incurred from their own pocket. Thus they get a chance to increase their savings.

However there are certain norms that have to be fulfilled before availing for the living away from home allowance tax. Also there is no fixed time period for which living away from home allowance can be availed. Before approving the living away from home allowance tax, the company takes into consideration various factors like the employees family members, alternate living costs, food costs at alternate location and the compared living and food expenses in usual living place.

The employees first have to establish that they are living outside a certain perimeter that defines their usual dwelling place. Besides the accommodation costs and food expenses filed should be reasonable and defendable. The compensation provided may vary according to the position that the employee holds in the company. Also the employees are expected to be truthful in providing information pertaining to the availing of this tax.

An important advantage that the employees enjoy when availing the living away from home allowance tax is that it rids them of paying taxes. Thus they enjoy double or added advantage of not paying taxes and at the same time get everyday living expenses. Thus they are saved from suffering disadvantages of staying away from home and at the same time not incur any financial losses.

This tax is not recognized automatically by the company and the employee has to first declare the same. Failing to do so may result in the entire allowance being taxed. Before availing the living away from home allowance tax the employees have to submit relevant documents justifying their claims. They are expected to be honest in their claims and not make any false claims or submit wrong information. If found cheating, submitting false or wrong claims the company may take strict action against the employee or may even suspend them.