Mukesh Patel.in
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TAX EXEMPT REIMBURSEMENTS!

Salaried employees should plan to enjoy conveyance, telephone, entertainment & medical reimbursements!

Under Section 17(2) of the Income-tax Act read with Rule 3 of the Income-tax Rules, any reimbursement granted by an employer to his employee for telephone expenses (including a mobile phone), actually incurred by an employee is treated as an exempt perquisite (perk). It is pertinent to note that there is no monetary ceiling prescribed in regard to this reimbursement.

 TAX FREE MEDICAL REIMBURSEMENTS

            Under Section 17(2) of the Income-tax Act, reimbursement made by an employer of upto Rs.15,000 of medical expenses in a year, actually incurred by an employee on his medical treatment or the treatment of any member of his family, is treated as an exempt perk. 

                    Similarly, reimbursement by the employer of expenditure incurred by the employee on his own medical treatment or the treatment of any member of his family in any hospital, clinic or nursing home maintained by the Government, Local Authority or any other hospital approved by the Chief Commissioner of Income-tax is also treated as an exempt perk. There is no monetary limit prescribed for such amount of reimbursement treated as tax free. Mediclaim insurance premium paid by the employer for his employees or reimbursement of such premium to the employees is also tax free.

            Any expenditure incurred by the employer or reimbursement of such expenditure incurred by the employee, for the medical treatment of the employee or any member of his family outside India, is also treated as tax free, subject to the amount of foreign exchange allowed as per Reserve Bank of India regulations. Moreover in the case of an employee, whose total income does not exceed Rs.2,00,000 even the cost of travel and stay abroad of the employee, as well as one attendant is treated as exempt, if the same has been met by the employer.

          REIMBURSEMENT OF CONVEYANCE & ENTERTAINMENT

            In its landmark decision in the case of ‘CIT v/s. Kiran Shelat’ 235 ITR 635 (Guj.), the Gujarat High Court has laid down that “reimbursement by an employer of actual expenditure incurred by an employee for purposes of traveling, conveyance or entertainment while discharging his official duties do not result in any profit or gain to the employee and the same cannot be treated as a salary or perquisite u/s. 15 or 17 of the Income-tax Act.

            A similar view was also taken earlier by the Gujarat High Court in the case of ‘S. G. Pgnatale v/s. CIT’ 124 ITR 391 (Guj.), wherein it was held that although money goes into the pocket of an employee, but if it actually represents reimbursement of a necessary disbursement, the same would not amount to a taxable perquisite in his hands.

TRAVEL ACCESSORIES ALLOWANCE NOT TAXABLE

In the case of ‘CIT vs. Wipro Systems’ 325 ITR 234 (Kar.), the Karnataka High Court had occasion to consider the question, as to where the employer company had provided its employees Travel Accessories Allowance, whether it was a perquisite from which the company was liable to deduct tax at source. The Court held that so far as the expenses incurred by the company for providing travel accessories or communication and other accessories were concerned, such expenses were required to be incurred by the officers for the business promotion and for the benefit of the company. If the officers had spent money and if the same was reimbursed by the company, such expenses were for the benefit of the employer and not for the benefit of its employees. Therefore, the said category did not fall under section 17(2)(iv) to be treated as a perquisite in the hands of the company’s officers.

             In view of the above legislative provisions and the binding ratio of well settled judicial pronouncements, reimbursements to employees for medical and telephone expenses even though incurred for personal purposes, and reimbursements for conveyance, traveling and entertainment for discharge of official duties should receive close and focused attention in the case of salaried employees, who are keen to save tax.

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