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Mobile expenses reimbursement

Rinky Gupta (-) (117 Points)

14 February 2014

Existing Process: Maximum Rs. 340 paid to employees for monthly cell phone charges reimbursement against declaration along with original bill.

Proposal: The same amount will be paid to the employees along with monthly salary against documents and the same amount will be disclose in payslip Mobile Phone Charges Reimbursement"

Query:

1. Will there be any problem if paid through salary?

2. Declaration and Bill required?

3. Will there be tax implication on the employee if a Disclosure in Pay Slip is made ?

4. will it have any impact on TDS ?

please refer to sections/ Rules/ circulars or other necessary evidences.

thanks in anticipation

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8 Replies

CA Konfused (Chartered Accountant & CFA Level 1) (302 Points)
Replied 14 February 2014

If an organization reimburses telephone expenses to its employees, is the reimbursement non-taxable?

Yes, telephone reimbursement provided to employees is not taxable. This is as per Rule 3(7)(ix) (reproduced below) of the Income Tax Rules.

The value of any other benefit or amenity, service, right or privilege provided by the employer shall be determined on the basis of cost to the employer under an arm’s length transaction as reduced by the employee’s contribution, if any:

Provided that nothing contained in this clause shall apply to the expenses on telephones including a mobile phone actually incurred on behalf of the employee by the employer.

Rule 3(7)(ix) states that telephone reimbursement is non-taxable in the hands of the employee. However, the following conditions are to be considered in this regard.

1. Telephone connection includes both land line and mobile connections. While there is no explicit reference to data card connection in Rule 3(7)(ix), some experts opine that data card falls under the mobile phone category since a data card is just a SIM card.

2. There is no explicit reference to the maximum number of connections allowed, in the rule. Organizations typically allow one land line and one mobile connection under Telephone Reimbursement for each employee.

3. The connections have to be in the name of the employee.

4. Employees should submit telephone bills to their organization while seeking telephone reimbursement.

5. Expenses incurred towards both pre-paid and post-paid mobile connections are admissible for tax exemption.

I hope this solves your query.

Rinky Gupta (-) (117 Points)
Replied 14 February 2014

Thank You so much for an early yet helpful response.

Rinky Gupta (-) (117 Points)
Replied 14 February 2014

CA Konfused (Chartered Accountant & CFA Level 1) (302 Points)
Replied 14 February 2014

In that case it would become treated as an allownace like your HRA or Children's Education which is given for personal consumtion. In the earlier case of yours a presumtion was made that the mobile was used for office purposes, but if it is given for personal purpose in the form of allowance we would have to look for any deduction available for such a allowance like we have deduction for HRA and Children's education.There is no exemption allowed for telephone expenses for personal consumtion whether given as perquisite or in the form of allowance.

So in this case it would be taxable.

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Rinky Gupta (-) (117 Points)
Replied 14 February 2014

Sir,

If an arrangement is done for reimbursement of telephone expenses along with salary, and in the salary slip, it will be mentioned that Rs. 10000 (say) is the pay and Rs. 500 (say) is the allowance for telephone expenditure. will your answe be the same ?

CA Konfused (Chartered Accountant & CFA Level 1) (302 Points)
Replied 14 February 2014

Hi,

The question is not about whether it is paid alongwith salary or not. if it is used for personal purpose then taxable and used for the purpose of employer then not taxable even if it is paid alongwith the salary. in our organisation every expense incurred by employee for employment purpose including telephone bill is reimbursed alongwith salary and no TDS is dedcuted on such amount.

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