Allowances are not included. personal income tax This is a crucial issue that all accountants and employees need to understand in order to optimize their tax obligations. According to regulations... Circular 111/2013/TT-BTC, Not all income from salaries is subject to tax. Accurately classifying exempted allowances helps businesses establish legally compliant compensation policies and protect employee rights.
In practice, audits show that errors in determining tax-exempt allowances often lead to significant risks of tax arrears and late payment penalties. With the constant changes in the General Department of Taxation's regulations, updating knowledge is essential to ensure compliance. This article will analyze each tax-exempt allowance in detail based on legal grounds, providing you with the most accurate understanding.
Legal basis for allowances not subject to personal income tax.
Before delving into the details, we need to establish a solid legal framework for allowances that are not subject to personal income tax. Currently, this regulation is primarily based on the Personal Income Tax Law., Decree 65/2013/ND-CP and especially Circular 111/2013/TT-BTC.
These documents clearly stipulate the principle that income intended to compensate for expenses or provide specific support as prescribed by the State will not be included in taxable income. This facilitates businesses in supporting employees working in difficult or hazardous conditions.
Below is a summary of the most important legal documents governing this matter:
| STT | Legal documents | The main content relates to personal income tax. |
| 1 | Circular 111/2013/TT-BTC | Guidelines for implementing the Personal Income Tax Law and Decree 65/2013/ND-CP. |
| 2 | Circular 92/2015/TT-BTC | Amendments and additions to regulations on Value Added Tax (VAT) and Personal Income Tax (PIT). |
| 3 | Personal Income Tax Law No. 04/2007/QH12 | The original document specifies the subjects and income subject to taxation. |
| 4 | Official Document 1381/TCT-DNNCN | Guidelines on personal income tax policy for allowances and subsidies. |
List of the most common allowances that are not subject to personal income tax.
In the process of calculating personal income tax, not all income is subject to tax. Current law allows for the exclusion of certain allowances that compensate for working conditions, location, or industry specifics. Understanding the list of allowances that are not subject to personal income tax helps businesses properly account for these allowances, reduce risks during tax settlement, and ensure the legal rights of employees. Below are the most common tax-exempt allowance categories that accountants and businesses should pay special attention to.
Hazardous and dangerous work allowance for specific occupations
Within the system of tax-exempt allowances, the hazardous work allowance plays a crucial role in the manufacturing sector. This allowance aims to compensate workers who work in hazardous environments or are exposed to chemicals as listed by the Ministry of Labor, Invalids and Social Affairs.
The allowance is determined based on the salary scale and company regulations, but must comply with state regulations. When settling taxes, accountants need to keep records of the working environment to prove the reasonableness of this allowance.
Attraction allowance and regional allowance
For projects in remote areas, allowances such as talent attraction allowances are not subject to personal income tax, helping businesses retain talent. Personal income tax is not levied on regional allowances as stipulated by law regarding social insurance and civil servant salaries.
Applying this exemption requires the actual workplace to be located in an area eligible for preferential treatment. Accountants need to carefully check the area code to apply the correct allowance, avoiding errors that could lead to legal risks later.
Special allowances for specific occupations as prescribed by law.
There are allowances that are exempt from personal income tax, specifically for groups such as the armed forces, healthcare workers, or teachers. These allowances are usually stipulated in specialized decrees and approved by the Ministry of Finance for exclusion when calculating taxable income.
Businesses need to clearly define the specific job titles and responsibilities of employees before applying for tax exemptions. If an allowance is considered part of regular salary but is given a specific name, the tax authorities have the right to reject it and require taxation.
Welfare benefits are not subject to personal income tax.
Besides salaries, many welfare benefits are legally exempt from personal income tax if paid in accordance with regulations. Clearly distinguishing between tax-exempt benefits helps businesses mitigate risks during audits and tax settlements, and ensures the legitimate rights of employees. Below are some common welfare benefits that are not subject to personal income tax, which accountants and human resources departments should pay special attention to when making payments and declaring them.
Severance pay and unemployment benefits under the Labor Law.
Severance pay is one of the significant tax-exempt allowances received upon termination of an employment contract. According to regulations, the portion of the severance pay that meets the standards set by the Labor Code is completely exempt from personal income tax.
However, if a business incurs additional expenses beyond the stipulated limits, the excess amount will still be subject to personal income tax according to the progressive tax rate schedule. This is a point that experts at MAN frequently emphasize to clients when reviewing personnel records and settling taxes.
Compensation for work-related accidents and occupational diseases.
Tax-exempt allowances arising from workplace risks, such as accident compensation, are always given priority for protection. These payments are typically disbursed from the Social Insurance fund or by the employer as part of their legally mandated compensation obligations.
The supporting documentation includes injury assessment reports and valid payment decisions. With complete documentation, the business can completely exclude this amount from the taxable income of the beneficiary.
A one-time allowance for childbirth or adoption.
To support maternity leave, tax-exempt allowances, including maternity benefits from social insurance, are provided. This is a humane form of income that helps employees maintain a stable life during their maternity leave.
The benefit amount is calculated based on the employee's base salary and social insurance contributions. Accountants need to clearly separate the cash flow from the social insurance agency and the additional support from the business to ensure the most accurate personal income tax declaration.
Regulations and conditions for applying tax-exempt personal income tax allowances.
The applicable rates and conditions are key factors in determining whether allowances are tax-exempt from personal income tax. Only when payments are made correctly, in the right form, and with complete and valid regulations and documentation, can businesses exclude these allowances from employees' taxable income. Below are important regulations related to meal allowances, telephone allowances, clothing allowances, and travel expenses that accountants need to understand to avoid risks during tax settlement.
Regulations regarding meal allowances during shifts and lunch breaks.
Meal allowances are the most common non-taxable allowance in human resource management. According to Circular 111, if a company provides on-site meal services, the entire cost is not included in the taxable income of its employees.
In the case of cash payments, the current limit is 730,000 VND/person/month. Any amount exceeding this limit will be added to taxable income for personal income tax calculation according to the current progressive fee schedule.
| Delivery method | Exemption from personal income tax | Conditions apply. |
| Organize on-site meals. | Unlimited | There are valid input invoices and supporting documents. |
| Monthly cash payments | Maximum 730,000 VND/month | This is clearly stipulated in the employment contract. |
| Distribute meal vouchers. | According to the value of the voucher | This voucher is valid at participating establishments. |
Expenses for telephone and clothing allowances.
When establishing regulations on tax-exempt allowances, telephone and clothing expenses are always prioritized. For clothing allowances paid in cash, the maximum tax-exempt amount is VND 5,000,000 per person per year. There is no limit on expenses paid in kind.
Regarding telephone allowances, the amount spent must be commensurate with the nature of the work and specific regulations in the company's financial regulations. This expense is essentially to compensate for costs incurred in production and business operations, and therefore is deductible when calculating taxes.
Business trip allowance (Airfare, accommodation)
Tax-exempt allowances related to business travel expenses include airfare, accommodation, and pocket money (per diem). The per diem amount is tax-exempt if it complies with internal regulations and does not exceed the limits set by the State.
Transparent documentation such as airline ticket stubs, hotel receipts, and business trip authorizations is a prerequisite. Professional document management significantly reduces personal income tax costs for employees.
Important notes when declaring allowances that are not subject to personal income tax.
Determining tax-exempt allowances requires more than just reading the law; it also involves proper accounting techniques. A common mistake is failing to clearly specify the categories of allowances in the employment contract or financial regulations.
In the absence of internal legal basis, tax authorities have the right to include all these expenses in taxable income. Therefore, businesses need to regularly review internal documents to ensure that all expenses have specific "names" and "amounts".
Note that the proportion of tax-exempt allowances in total income should not be unreasonable. If the base salary is too low while allowances are too high, the business is more likely to be targeted for tax and insurance evasion inspections.
Conclude
Tax-exempt allowances play a crucial role in balancing the interests of businesses and employees. Misunderstanding or misapplying tax exemption regulations can directly harm employee income and organizational reputation. To optimize management, businesses need a well-structured compensation and benefits system strategy that adheres to the latest circulars and regulations.
MAN – Master Accountant Network proudly offers audit consulting solutions., tax accounting and conduct in-depth reviews of non-taxable allowances. With a team of experienced experts, we are committed to helping businesses establish standardized human resource management processes and optimize costs. If you need our services... tax consulting, tax settlement and tax reporting Contact MAN today to receive the most professional support.
Service contact information at MAN – Master Accountant Network
- Address: No. 19A, Street 43, Tan Thuan Ward, Ho Chi Minh City
- Mobile/Zalo: 0903 963 163 – 0903 428 622
- Email: man@man.net.vn
Content production by: Mr. Le Hoang Tuyen – Founder & CEO MAN – Master Accountant Network, Vietnamese CPA Auditor with over 30 years of experience in Accounting, Auditing and Financial Consulting.
Frequently Asked Questions about Allowances Not Subject to Personal Income Tax
If the travel allowance is paid according to regulations, it is tax-exempt. However, if the allowance is for travel from home to work, it is still subject to regular personal income tax.
Welfare expenses for funerals and weddings, if the total amount does not exceed one month's average actual salary for the year, are not included in the taxable personal income of the individual.
No. Seniority allowance is considered part of salary and wages and must be included in taxable personal income according to current laws.
Businesses need to complete the following documents: employment contracts, financial regulations, collective bargaining agreements, and payroll records with full signatures.
The portion of overtime pay that is higher than the regular hourly wage will be classified as an allowance that is not subject to personal income tax. Is fuel allowance included in the tax-exempt personal income tax allowances?
Are expenses incurred for funerals and weddings for employees subject to personal income tax?
Are seniority allowances tax-exempt?
What can businesses do to protect tax-exempt allowances?
How is overtime pay calculated for tax purposes?
