Mobile phone purchase by a company
This query is : Resolved
14 March 2025
Here is the scenario. An employee broke his personal mobile and asked the owner of the proprietor ship firm to help him out in purchasing a personal mobile from a mobile dealer who has regular business with the firm. The vendor raised an invoice in the name of the firm (proprietorship firm ) and handed over the mobile to employee. When the payment was made by the firm to the mobile dealer when it recovered the entire cost of the mobile from the employee from his salary (paid in cash each month). The mobile phone dealer acknowledged that he has received the money from the employer. Now the employer has shown the mobile as his company asset in the books of accounts and claimed Rs 2899 of input tax credit in GST and depreciation as capital asset (office equipment). Can the employee sue the employer for the same?? What is the declaration employee has to take from the employer???
12 August 2025
Key issues and explanation:
1. Mobile is for personal use, not for business use:
Since the mobile is for the employee’s personal use, it should not be recorded as a fixed asset of the firm.
The firm should not claim ITC on this purchase because ITC is available only on goods/services used for business.
Claiming depreciation and ITC on a personal asset is incorrect and may invite tax scrutiny.
2. Vendor invoicing the firm:
Vendor invoiced the firm, so from the vendor’s and GST point of view, the firm is the buyer.
But since the firm is buying on behalf of the employee, this is a reimbursement or loan to the employee, not a capital asset of the firm.
3. How should the firm account for this?
The firm should record the payment to vendor as a loan or advance to employee, not as fixed asset.
When recovering the amount from employee’s salary, the loan/advance reduces accordingly.
No ITC or depreciation should be claimed on such purchases meant for personal use.
Can the employee sue?
Generally, if the employee is aware and consents to the arrangement, and the firm recovers the amount from salary, legal risk is minimal.
However, if the employee feels the firm has wrongly treated the mobile as its asset or claimed tax benefits incorrectly affecting employee rights, he may raise dispute or seek clarification.
Transparency and clear agreement help avoid conflicts.
What declaration should the employer take from employee?
To safeguard the firm, the employer should get a written declaration from the employee stating:
The mobile is for personal use only.
The firm is purchasing the mobile on behalf of the employee.
The firm will recover the full cost from the employee.
The employee understands that the mobile does not belong to the firm.
No claim of ITC or depreciation is applicable on this asset in the firm’s books.
1. Mobile is for personal use, not for business use:
Since the mobile is for the employee’s personal use, it should not be recorded as a fixed asset of the firm.
The firm should not claim ITC on this purchase because ITC is available only on goods/services used for business.
Claiming depreciation and ITC on a personal asset is incorrect and may invite tax scrutiny.
2. Vendor invoicing the firm:
Vendor invoiced the firm, so from the vendor’s and GST point of view, the firm is the buyer.
But since the firm is buying on behalf of the employee, this is a reimbursement or loan to the employee, not a capital asset of the firm.
3. How should the firm account for this?
The firm should record the payment to vendor as a loan or advance to employee, not as fixed asset.
When recovering the amount from employee’s salary, the loan/advance reduces accordingly.
No ITC or depreciation should be claimed on such purchases meant for personal use.
Can the employee sue?
Generally, if the employee is aware and consents to the arrangement, and the firm recovers the amount from salary, legal risk is minimal.
However, if the employee feels the firm has wrongly treated the mobile as its asset or claimed tax benefits incorrectly affecting employee rights, he may raise dispute or seek clarification.
Transparency and clear agreement help avoid conflicts.
What declaration should the employer take from employee?
To safeguard the firm, the employer should get a written declaration from the employee stating:
The mobile is for personal use only.
The firm is purchasing the mobile on behalf of the employee.
The firm will recover the full cost from the employee.
The employee understands that the mobile does not belong to the firm.
No claim of ITC or depreciation is applicable on this asset in the firm’s books.
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