From LTA, food coupons to reimbursements, why government gives employees tax exemption on these things

Salaried individuals enjoy various benefits in addition to the fixed compensation that they receive every month. These benefits are in the form of allowances, reimbursements, insurance, coupons, and deductions. Benefits act as one of the motivating factors for a person to opt for a salaried job. Another great thing about being a salaried employee is that you also get income tax exemptions on certain allowances which helps reduce your overall tax liability.  

Allowances given to salaried employees

House Rent Allowance (HRA)

Employees receive HRA as part of their total salary. It can be claimed by employees to cover the cost of renting a house. HRA is fully taxable if the employee is living in his own house or if he is not required to pay any rent.   

Leave Travel Concession or Assistance (LTC/LTA)

LTA is another benefit that a salaried person enjoys. This allowance is paid to employees for travelling anywhere in India with or without their family. It can be claimed twice in a block of four years and is subject to income tax if it exceeds a certain limit. The income tax exemption is given on LTA under Section 10(5) of the Income Tax Act, 1961.

Food coupons

Employers also offer food coupons or vouchers to their employees that can be used to purchase food and non-alcoholic beverages. The tax exemption limit for food vouchers is up to Rs 50 per meal. The Income Tax Department states that “food in office premises or through non-transferable paid vouchers usable only at eating joints provided by an employer is not taxable, if cost to the employer is Rs. 50(or less) per meal”.

Free recreation or club facilities

If the employee uses facilities like health club and sports clubs given by his employer uniformly, then the expenses incurred for the purpose will not be taxable.  

Other benefits received by salaried employees are rent-free furnished accommodation, children education allowance, hostel expenditure allowance, transport allowance, conveyance allowance, uniform allowance, assistance allowance, and border area allowance among others.

Why does government provide tax exemption on allowances?

The government exempts certain allowances from income tax to boost the economy. When the employee travels, eats at restaurants, and stays at hotels during a trip, he pays taxes and helps contribute to the growth of the economy. Allowances not only benefit the employee but the government too.