Congratulations on the new job opportunity! But are you feeling clueless about moving to a new city for the job? As you start packing your things for the move, you should know about the relocation allowance. A relocation allowance offers financial support that your employers provide to take care of the cost of an employee moving to another place for the job. As the name suggests, the purpose of relocation allowance is to ease the financial burden during the shift. So, when you are moving, the employer can cover the expenses of temporary housing, travel costs, and shifting your personal belongings.
This not only covers your relocation costs, but it also helps you with income tax. If you are moving out for your job, you should know about relocation benefits and how the allowance can help you with tax exemptions. Here, we will tell you about different types of relocation benefits, eligibility criteria, and how to calculate tax.
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What is Relocation Allowance?
Imagine getting a call from work– you need to relocate to another city. It is an exciting move, but your next thought would be packing your home, finding a place to stay, and managing the expenses incurred for the shift. This is where relocation allowance comes to the rescue!
Relocation allowance is the amount your employer provides to cover the cost of moving for work. Instead of paying out of your pocket, you will receive financial assistance to manage the moving charges, including shifting household items, travel, temporary accommodation, or setting up your new home.
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Types of Relocation Benefits Provided by the Employer
Usually, employers follow four types of relocation reimbursements. However, you should know that relocation allowance and relocation bonus are two different things. Below, we mention different types of moving allowances:
1. Lump Sum Allowance: This one offers a large amount that you can spend on transfer expenses. You can use it whenever it’s convenient for you, but the amount is highly unlikely to cover all the expenses incurred.
2. Direct Payment: Here, the employer directly pays for the vendors, travel companies, or hotels. This saves you paying from your pocket; however, you will have less flexibility over the stay and transport.
3. Hybrid Allowance: It is a blend of lump sum and direct payment. Generally, the employer covers house relocation allowance or travel expenses in this way. So, you can choose your flight or hotel and have little control over the shift.
4. Reimbursement Model: Here, the employee pays for the relocation. Then the employer reimburses the actual expenses incurred.
Relocation Allowance vs Relocation Benefits:
| Basis | Relocation Allowance | Relocation Benefits |
| Meaning | You receive a fixed amount of money from your employer to manage relocation expenses on your own. | You receive direct services or reimbursements arranged or approved by the employer. |
| Payment Type | Paid as a lump sum or in parts along with salary. | Provided as services, reimbursements, or company-paid arrangements. |
| Flexibility | You can decide how to spend the amount based on your needs. | You must use the services or options offered by the company. |
| Coverage | You cover packing, moving, travel, and stay within the given amount. | Includes packers and movers, travel bookings, temporary stay, and other support. |
| Expense Control | You manage costs and save extra money if expenses are lower. | Costs are managed by the company or its service partners. |
| Documentation | Limited or no bills may be required, depending on company policy. | Bills and approvals are usually required for reimbursement. |
| Best For | Employees who prefer control and flexibility. | Employees who want a guided and hassle-free relocation. |
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Eligibility Criteria and How to Claim the Relocation Allowance
It is important to understand how you can be eligible for the moving allowance. Once you know the ins and outs of getting reimbursed for the employee relocation expenses, you can experience a smooth transition. Let’s take a look below!
Employee Eligibility Criteria
Your designation at work is the first thing that matters. If you are a high-level employee or someone with a critical role, you are likely to get reimbursed for relocation expenses. Besides your position, eligibility criteria also depend on why you are transferring– it might be a promotion or accepting a new position within the company. Plus, some companies require employees to work for a certain tenure to get the benefits of a relocation package. Meanwhile, you need to keep the distance in mind while applying for moving allowances.
Documents Required for Relocation Packages
For the relocation process and its reimbursement, you need to submit a few basic documents. You need to submit the receipts and invoices along with the estimates for travelling and accommodation. Once your employer reviews the submitted documents, you need to make sure they comply with the company policy and allowance criteria.
Based on the policy, the employee receives the relocation expense. Sometimes, a direct payment is made before the move. Or you might receive it after submitting your invoices. If tax exemptions are allowed, employees need to furnish tax-related documents for the relocation packages.
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How to Calculate Tax on Relocation Allowance in India
Understanding the tax implications of relocation allowance helps you dodge nasty surprises while filing your income tax returns. In India, your relocation-related costs are taxed depending on how your employer justifies them with proof. Here’s what you should keep in mind.
1. Check the Type of Relocation Payment
First, you need to check with your employer whether you will get a relocation lump-sum or expense-based reimbursement. The lump-sum allowance comes from a part of the salary, which means it falls under tax implications. If you pay for your relocation, there is no relocation allowance exemption for tax in this case.
2. Make a List of Relocation Expenses
If your employer covers moving expenses, some costs can be exempt from tax. Let’s take a look at the possible expenses that may be eligible for tax exemption:
- Packing, loading, and unloading charges
- Shifting household items
- Travel expenses for train, flight, or bus
3. Know when Expenses are Taxable
For employees, some relocation expenses are taxable even after the reimbursement.
- Daily living expenses
- Rent at the new location
- Temporary housing or hotel stays
- House rent
These amounts are added to your salary, and they may be considered as taxable income as per your slab.
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4. To Calculate the Taxable Amount
To understand your tax liability, use this simple formula:
Taxable Relocation Amount =
Total relocation allowance received – Exempt reimbursements (with proof)
5. Apply for Income Tax Slab
The final taxable amount is added to your annual salary and taxed according to your applicable income tax slab rate.
Once you have a clear understanding of the tax implications, you can plan your relocation better. All you need to do is submit the essential documents and keep the unnecessary outgo in check.
When Planning Your Relocation Budget
As you have a good understanding of relocation allowance now, you should make a comprehensive moving budget
1. Cost Breakdown: Find out all the expenses that are related to your move, such as accommodation, storage, and transport.
2. GST: When you make a budget, you should remember that the GST on packers and movers can impact the entire relocation expense.
To keep the overall cost down, you can work on decluttering. If you have fewer items to shift, the relocation services will charge you less.
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Choosing Mojo Mover, the Best Packers and Movers, Can Help You
When you are choosing the right packing and moving partner, you can save a lot. And this is where Mojo Mover comes! Operational in Bangalore, Mumbai, Pune, Hyderabad, Delhi, and Noida, Mojo Mover packers and movers can be the investment for your relocation allowance. We carefully pack furniture, home appliances, and valuables and load them onto the truck. We also use premium-grade packing materials to ensure your items remain safe during transit. Then our team of professional packers and movers will unpack your items at your new place. We also give you a transparent quote and diligently execute the move.
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Frequently Asked Questions
1. How to ask the HR for relocation allowance?
You can ask HR for a moving allowance by clearly explaining your transfer or joining location and the expected moving expenses. You should highlight costs, such as shifting household items, travel, and stay.
2. What is the average relocation allowance?
The average relocation allowance in India usually ranges between ₹25,000 and ₹2,00,000. The amount depends on your job role, seniority, company policy, and the distance of relocation.
3. Is relocation allowance one-time?
Relocation allowance is generally a one-time payment provided for a specific job transfer or new joining.
4. What is the 5000 relocation bonus?
A ₹5,000 relocation bonus is a small fixed amount that some companies offer to cover basic moving or travel expenses.
5. How is relocation allowance paid?
Relocation allowance is usually paid as a lump sum along with your salary or as reimbursements against submitted bills.
6. How to negotiate for relocation allowance?
You can negotiate relocation allowance by sharing realistic moving costs and comparing them with company policy or market standards.
