Tier 1 Previous Earnings, allowances

[CoolestGuyC]

Just thought of sharing this situation, which might be encountered by people earning in Indian companies.


Tier 1 policy guidance notes say the following points

108. 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.

Situation

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.

[geriatrix]

In simple words, the answer is YES.

Allowances such as House Rent allowance, Transport / travel / conveyance allowance, medical allowance, speacial allowance etc. etc., which are constituents of your remuneration package are considered part of your income irrespective of the method you choose for reimbursement (get reimbursed on submission of bills or get paid after tds at year end).

The key point to note is "if they are declared in the applicant's payslips and there is a contractual obligation on the employer's part to make these payments".

But "expenses" such as corporate meals, client entertainment, taxi or car rentals etc. etc. cannot be included as "allowances" because these are not part of the remuneration package and hence the employer is not under contractual obligation to make these payments as (part of) "salary" to the employee. these are just expenses, even if they get reflected in the payslips!

Hope this clarifies.

regards

regards

[geriatrix]

It is important to understand that the context of the statement - "there is a contractual obligation on the employer's part to make these payments" - is related to salary / remuneration of the employee, and not every other payment that the employer is obligated to make (e.g.- expense reimbursement).

Conversely, anything declared on the payslip doesn't automatically mean that it can be construed as an acceptable component of "previous earnings".


regards

[CoolestGuyC]

Reply from BHC Chennai:

Dear xxx,
Thank you for your e-mail.
Since HRA is a component declared on your salary slip, you may include the sum in your previous earnings. Please note that we calculate your earnings based on the amount in your salary slip and the reflecting credit in your bank account.
Trust the above clarifies.
Yours Sincerely,
xxx
Visa Support Officer
Casework Section
British Deputy High Commission,Chennai

[Tier1Aspirant1]

"there is a contractual obligation on the employer's part to make these payments"

Do we need to include any evidences to clarify that the allowances are part of pay. Like appointment letter etc..

[nevadawipes]

"there is a contractual obligation on the employer's part to make these payments"

Do we need to include any evidences to clarify that the allowances are part of pay. Like appointment letter etc..

Perhaps a letter from the employer explining will help.


Regards


Grant

[themagger]

Finally after a lot of search i found a thread related to my problem

Now as mentioned in the first post by coolestguyc, i fall under the category 1A. Now, the point is, though the reimbursement details are mentioned in the salary slip, but they do not form a part of GROSS Salary, they are mentioned separately in the payslip under the salary structure column, and NOT under the GROSS salary. But these are the reimbursements for which the employer is in under obligation to pay me, such as vehicle maintenance, meal coupons, etc.

Also, even if i claim points for this, how will i substantiate it with the bank statements, since the amount will be deposited to my account at the end of this fiscal year, i.e. in March-09

I wish to paste my salary slip here, but its not feasible. Please help.

[rely]

All put in salary slip and corroborated with bank statement will be considered.
rely

In simple words, the answer is YES.

Allowances such as House Rent allowance, Transport / travel / conveyance allowance, medical allowance, speacial allowance etc. etc., which are constituents of your remuneration package are considered part of your income irrespective of the method you choose for reimbursement (get reimbursed on submission of bills or get paid after tds at year end).

The key point to note is "if they are declared in the applicant's payslips and there is a contractual obligation on the employer's part to make these payments".

But "expenses" such as corporate meals, client entertainment, taxi or car rentals etc. etc. cannot be included as "allowances" because these are not part of the remuneration package and hence the employer is not under contractual obligation to make these payments as (part of) "salary" to the employee. these are just expenses, even if they get reflected in the payslips!

Hope this clarifies.

regards

regards

[Mohanfromblr]

Hi
Apart from above allowances, there is one more component called as "Leave Encashment" which will be paid at the end of the tenure of the Job with a Company (if you had accumulated some Casual Leaves which were never used). This will be no where mentioned in salary Structure but BHC still accepts them as "Previous earnings", of course with proper corroboration (Pay slip + Bank Statement). The Component should be visible as an item in the final pay slip from that company.
Sorry though, it deviates a bit from regular discusion.

My 2 Cents
Mohan