Tier 1 policy guidance notes say the following points
Situation108. We will only include allowances (such as those for accommodation or schooling for an applicant's children) in the assessment of an applicant's previous earnings if they are part of an applicant's remuneration package and are not paid to reimburse the applicant for money he/she has previously spent.
109. We will only accept allowances as earnings if they are declared in the applicant's payslips and there is a contractual obligation on the employer's part to make these payments.
1. Many companies in India give flexibility to employees to claim their allowances (e.g. House Rent Allowance, Travel Allowance, Medical Allowance, etc.) in following two ways(this is for tax benefits):
A. They can get the allowances reimbursed after producing bills. (This gives tax benefits). If employee doesn't produce any bill, the allowance will be paid to him (after deducting taxes) at the end of financial year.
B. Another option is that allowances are paid to employee every month, without producing bills.
Summary: This means that employee can get allowances with or without giving bills. However in any of the above case, allowance WILL BE PAID, NO MATTER WHAT (even at the end of the year).
2. Note that above allowances are a component of annual remuneration of employee (present in offer letter). They are also declared in employee's Salary Slips, in both (1A and 1B), cases above.
Questions
Both questions relate to Option 1A above.
1. If Employee chooses option 1A above, can he include allowances (in his Previous Earnings) which was reimbursed to him after producing bills ? My argument is that allowances are components of Employee's annual salary, they are present on his payslips (even if he gets them reimbursed after producing bills), and as per point 109 above, it is contractual obligation on Employer to pay allowances to employee). Doubt here is that these allowances are reimbursed after producing the bills, if employee chooses option 1A above.
2. If Employee choose option 1A above, can he include allowances (in his Previous Earnings) which was paid to him at the end of Financial year (assuming that he DID NOT produce any bills)?
P.S. I am not facing this situation, but was aware of Indian companies which give above type of flexibility and was curious to know the consequences.