Mobile phone (treatment/perquisite value)

This query is : Resolved

Vipin yadav (Querist)
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08 February 2017 employees purchased mobile and the bill is name of employees and employer reimburse the expenses . can anyone help me in treating these mobile phone in books of accounts and taxability in the hands of employees ??

saurabh

saurabh (Expert)
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08 February 2017 Hi Vipin,
The cell phone bill reimbursement is given by the company as its being used by the employee to discharge his official duties.
Any such reimbursement of expense which an employee incurs in course of his services is exempt in hands of employee.

Vipin yadav

Vipin yadav (Querist)
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09 February 2017 the mobile phones are provided to all employees for promoting cashless transaction. as mobile phone is also used by employee for personal use(employees do cash less transaction only for his personal use employees don't do any cashless transaction on behalf of employer except the finance department) can it be taxable perquisite as it is clear it is used for personal purpose?

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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03 August 2024 When handling the reimbursement of mobile phone expenses and determining the taxability of such benefits, it is important to consider the following aspects:

### 1. **Accounting Treatment for Mobile Phones Purchased by Employees**

**In Books of Accounts:**

1. **Reimbursement to Employees:**
- When the employer reimburses the expense incurred by employees for purchasing mobile phones, record it as an expense in the company's books of accounts.
- Debit: **Employee Reimbursement Expenses** (or a similar expense account)
- Credit: **Cash/Bank** (or Accounts Payable if it's not yet paid)

**Example Entry:**
```
Debit: Employee Reimbursement Expenses ₹[Amount]
Credit: Cash/Bank ₹[Amount]
```

2. **No Direct Asset Recording:**
- Since the mobile phones are not purchased directly by the company and the reimbursement is being treated as an expense, there is no need to record the mobile phones as fixed assets in the company's books.

### 2. **Taxability as a Perquisite**

**Under Income Tax Act:**

1. **Perquisite Valuation:**
- The reimbursement of mobile phone expenses can be considered a perquisite if the mobile phone is used for personal purposes. The perquisite value should be computed based on the actual expenditure incurred or fair market value, as applicable.

2. **Tax Treatment for Employees:**
- **Taxable Perquisite:** If the mobile phone is used for personal purposes, the reimbursement amount should be treated as a taxable perquisite in the hands of the employee. The perquisite value is added to the employee’s salary income and taxed according to their applicable income tax slab.
- **Value of Perquisite:** In practice, for mobile phones, the value of the perquisite is often the cost of the phone or the reimbursement amount.

3. **Documentation and Reporting:**
- Ensure that proper documentation is maintained, including the purchase bills and proof of reimbursement.
- Report the taxable perquisite amount in the employee’s Form 16 or during income tax filing.

**Example Calculation:**
- If an employee purchased a mobile phone for ₹20,000 and the employer reimbursed this amount, ₹20,000 would be considered as a perquisite and taxable in the hands of the employee.

### 3. **Employee Benefit Policy**

**Company Policies:**

1. **Cashless Transactions:**
- If the mobile phone is provided or reimbursed to employees with the primary purpose of facilitating cashless transactions, clearly document this in the company’s policy.

2. **Personal Use:**
- Clearly state that mobile phones are also used for personal purposes and ensure employees are aware that the reimbursement will be considered a perquisite if used personally.

### 4. **Tax Compliance**

1. **Income Tax Returns:**
- Employees should include the reimbursed amount as a perquisite in their income tax returns to ensure compliance with tax regulations.

2. **Form 16:**
- Employers should include the perquisite value in Form 16 provided to employees for tax filing purposes.

### Summary

- **In Books of Accounts:** Record the reimbursement as an expense. No asset recording required.
- **Taxability:** Reimbursement for personal use of mobile phones is considered a taxable perquisite and should be reported as such.
- **Documentation:** Maintain all records related to the purchase and reimbursement.
- **Employee Reporting:** Employees need to declare the reimbursement as taxable income.

If there are any complex scenarios or uncertainties, consulting with a tax professional or accountant can provide tailored advice based on specific circumstances and regulatory requirements.