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Mobile exp - Tax emempt

Grishma (Asst. Manager - Finance) (38 Points)

05 January 2010

What is the amount that can be allowed as mobile exp to the employee in his salary such that it is exempted ?

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11 Replies

Amir (Learner) (4016 Points)
Replied 05 January 2010

Dear Grishma,

If u are providing a fixed amount every month without keeping track of actual expenses then TOTAL AMOUNT WILL BE TAXABLE..

BUT IF U PROVIDING AGAINST BILLS AS REIMBUSEMENTS FOR OFFICIALPURPOSES THEN ENTIRE AMOUNT WILL BE EXEMPT IN THE HANDS OF EMPLOYEES..

FATEMA (CHARTERED ACCOUNTANT) (719 Points)
Replied 05 January 2010

Dear Grishma,

The words "Official purpose" in Amir's answer are very important.If the use of mobile is for personal purposes, it becomes an obligatory payment and will be fully taxable even if the employee produces bills.

Grishma (Asst. Manager - Finance) (38 Points)
Replied 05 January 2010

How about if I pay fix amount which is provided for the official use and if the bills exceed that fixed amount then the excess is considered personal use. My intension is reduce the tax burden by considering it for official purpose and at the same time I should be able to include it in the CTC of the employee.

Amir (Learner) (4016 Points)
Replied 05 January 2010

Dear Grishma,

Reimbursements can also be fixed if BOTH FOLLOWING CONDITIONS ARE FULFILLED:-

1) EMPLOYER IMPOSES A CEILING LIMIT ON REIMBURSEMENTS..(SAY MOBILE EXPENSES FOR OFFICIAL PURPOSES SHALL BE REIMBURSED UPTO A MAXIMUM OF RS. 500/ month)

and

2) EVERY MONTH EMPLOYEES BILL OR EXPENSES ON OFFICIAL PURPOSES IS EQUAL TO OR EXCEEDS THE ABOVE CEILING...(THIS THING EMPLOYER HAVE TO ENSURE BY COLLECTING COPIES OF BILLS EVERY MONTH)

In this case Rs. 500/ month will be exempt in the hands of Employees and if Employer reimburse any amount in excess to Rs. 500 then the EXCESS SHALL BE TAXABLE..

I DIDN'T GET U "BY INCLUDING IN CTC" WHAT DO U MEAN..PLZ CLARIFY..

ALTERNATIVE

THERE IS ONE MORE THING THAT IF EMPLOYER PROVIDES TELEPHONE CONNECTION /SIM CARD THEN IT WILL NOT BE TAXABLE IN THE HANDS OF EMPLOYEES..FURTHER NO NEED FOR SEGERRATION BETWEEN OFFICIAL & PERSONAL PURPOSES IN THIS CASE..(BUT REMEMBER BILL SHOULD BE IN THE NAME OF EMPLOYER).

Grishma (Asst. Manager - Finance) (38 Points)
Replied 05 January 2010

Thanks Amir for your reply.

By including in the CTC: I mean to say that

Suppose Rs. 750 is mobile reimbursement that forms a part of the CTC. Every month I collect the bills from the employee (here the bill will be in the name of the employee). If the bill amount is Rs. 900, then Employer pays Rs. 750 against the Mobile reimbursement to the employee. But the bill of Rs. 900 is paid by employee to the service provider.

In this case can the employee claim Rs. 750 as tax free? Can the employer show is as business exp?

Amir (Learner) (4016 Points)
Replied 05 January 2010

Dear Grishma,

Now whether Rs. 750 is a Business Expense or not is a question of Fact which obviously law cannot decide..

If Rs. 750 is not a incurred for official purposes then I would suggest u to follow the alternatrive mentioned above i:e providing telephone connection to employees, so that bill comes in the name of the employer and for those months where bill amount exceeds Rs. 750 THEN THE EXCESS SHOULD BE RECOVERED FROM EMPLOYEES THROUGH THEIR MONTHLY PAYROLL.. In this case as an Employer ur Expenditure gets fixed to Rs. 750/ month & the amount is not even taxable in the hans of employees..

Grishma (Asst. Manager - Finance) (38 Points)
Replied 05 January 2010

Rs. 750 was an example.

I dont want the bills in the name of the employer.

Is there a way where I collect the bills from the employee (connection is in the name of the employee), keep it in company records, Decide a cap of say Rs. 500 to be reimbursed to employee assuming that it is official use. I intend to limit the liability of the employer to the extent of Rs. 500 only on the mobile and the employee will get a benefit of Rs. 500 as tax exempt.

Is this possible under IT rules?

Amir (Learner) (4016 Points)
Replied 05 January 2010

Dear Grishma,

By question of Fact I meant, as u mentioned that "can u assume it to be for official purposes"

whether an expense is for official purpose or not is something which cannot be assumed, it would be a fact...

Grishma (Asst. Manager - Finance) (38 Points)
Replied 05 January 2010

Thank you very much. This information was very helpful

Bharat Khurana (Student) (153 Points)
Replied 05 January 2010

If it is reimbursement of telephone expenses then it will exempt in the hand of employee but invoices should be in the name of the employer. But if you pay a fix amount for telephone charges that will be taxable

AMAR (ASSISTANT MANAGER) (41 Points)
Replied 10 October 2010

what about the prepaid mobile phone. where employee attached the recharge coupn or some times even they are not submitting the coupn . bcoz of easy recharge.

if reimbursment for prepaid than what are the treatments. pls suggest some exmples.