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Reimbursement for employee under tax exemption

Soumya (Senior Accounts Executive) (235 Points)

20 June 2016

Dear All,

Can anyone suggest me on income tax exemption on providing reimbursement to employee under payroll structure.

Also suggest me that how much amount of expenses i.e.motor car expenses, driver expenses, mill expenses etc... that company can reimburse and will come under tax exmption for employee.

Also what is the limit on this.

Please reply.

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3 Replies

Shishir Nayak ((Expert)) (369 Points)
Replied 20 June 2016

There are many exemption a salaried person can claim on reimbursement, Below I am mentioning few including Motor Car. An allowance to the extent actually incurred to meet the cost of travel on tour or on transfer, expenses incurred on conveyance in the performance of official duties, expenditure on helper engaged in the performance of duties, daily charges on account of absence from normal place of duty on tour are exempt. • Reimbursement of health insurance premium by your employer for you and your family is exempt. • Actual expenditure incurred on your medical treatment or any of your dependents is exempt up to Rs 15,000 per annum as medical reimbursement subject to provision of bills. If you are paid a medical allowance instead of reimbursement, the same is fully taxable. • In case you are entitled to a free or concessional company-provided accommodation, the same would be valued based on stipulated conditions. • If the company provides you a car for personal and official purposes and reimburses the fuel, insurance, maintenance and driver’s salary, the taxable value shall be: in case the cubic capacity of the car is less than or equal to 1.6 litres – Rs 1,800 per month (plus Rs 900 for the driver) and in case the cubic capacity of the car is greater than 1.6 litres – Rs 2,400 per month (plus Rs 900 for the driver). • In case you use your own car for official and personal purposes and the company reimburses the running and maintenance cost, the taxable value shall be: in case, the cubic capacity of the car is less than or equal to 1.6 litres – actual amount met or reimbursed by the employer less Rs 1,800 per month (plus Rs 900 for the driver) and in case the cubic capacity of the car is greater than 1.6 litres – actual amount met or reimbursed by the employer less Rs 2,400 per month (plus Rs 900 for the driver). • The reimbursement of telephone expenses including a mobile phone actually incurred by you on behalf of your employer is not taxable in your hands. Telephone facility received by Employee at his residence provided by employer is also not taxable in hand of employee as against Telephone Allowance. • Dearness allowance to be added as a part of your retirement benefits as it will reduce your tax incidence with respect to HRA, provident fund, gratuity, etc. Free meals provided to you through paid vouchers, not transferable and usable only at eating joints to the extent of Rs 50 per meal are safe. Leave encashment while in service is taxable, but is exempt at retirement, subject to prescribed limits and conditions. If leave encashment is done on the termination of employment through superannuation, then it will be exempt from tax up to certain limits.

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Rammi_RP Rawat (Accountant ) (386 Points)
Replied 20 June 2016

Allowances Exempted Under Section 10 of Income Tax Act

1. House Rent Allowance (HRA)

You get a job and shift to another city. Because of your job, you live in a different place. You are forced to live in a rented accommodation. The rented flat is not by choice but because of the duty. Hence, the expense on rent is because of your job. You can’t avoid this, even if you wish. Therefore, government exempt the rent from income tax. However, your employer must pay the house rent allowance.

Exemption of HRA is a minimum of these three.

Actual HRA received.
Rent paid less 10% of salary.
40% of Salary (50% in case of Mumbai, Chennai, Kolkata, Delhi). In this case, salary is basic plus dearness allowance (basic+DA).

Leave Travel Allowance

LTC or LTA is exempted if the same is actually spent

Transport Allowance

You daily go to your office or workplace from you house. You also spend on the local transport. This expenditure is also forced upon you. Therefore, the government has exempted transport allowance from the income tax, provided your employer gives you the transport allowance.

You don’t need to give any receipt of this local travel. However, the tax exemption is Rs 1600/month.

Children Education Allowance

Children Education allowance in also exempted from income tax. Your employer must give this allowance for availing the tax exemptions. It is Rs. 100 per month per child up to a maximum of 2 children.

Hostel Subsidy

This is another tax exemption related to your child’s education. It is Rs. 300 per month per child up to a maximum of two children.

Other Allowance Eligible For Income Tax exemptions

Uniform Allowance, Special Compensatory Allowance, High Altitude Allowance, allowances applicable to North East, Compensatory Field Area Allowance, Counter Insurgency Allowance, High Active Field Area Allowance, island duty allowance, tribal allowance etc. These allowances are tax-free, but you need to produce the proof of the actual expense in some cases.

Income Tax Exemption on Interest Paid on Housing Loan

This Exemption is also related to your accommodation because of the job. After shifting to a different place, you may opt for your own house instead of rented accommodation. If you take home loan for the house, the interest payment is tax exempted. You can get maximum exemption of Rs 2 lakh on housing loan interest. There are some conditions for this exemption.

The house should be self-occupied. You may get this exemption if your home is under construction. however the construction should complete within 3 years.

Deduction

exmption available from salary income
Sr. No.	Descripttion of Investment	Documents Required	Maximum Limit (Rs.)
1	House Rent paid to the Landlord	Original Rent Receipts every month (with Revenue Stamp above Rs.	Nil
		4999/-) or Rent Agreement. Receipt should contain PAN of Landlord if
		Rent for the year exceeds one Lakh.
2	New Pension Plan-80CCD(1)	Copy of Payment Receipt / Passbook	150,000/- or 10% of
		Copy of Payment Receipt / Passbook	Basic Pay + D.A
3	New Pension Plan-80CCD(1B)	Copy of Payment Receipt / Passbook	50,000/-
4	Mediclaim – 80D (Self, Family & Parents)	Mediclaim Policy Copy or Premium Certificate	25,000/-
5	Mediclaim – 80D (Self, Family & Parents Sen. Citizen)	Mediclaim Policy Copy or Premium Certificate	30,000/-
6	Preventive Health Check-up for Himsefl & Family & parents	Original Medical Bills	5,000/-
	(Senior Citizen or Not)-80D
7	Medical Expenditure for Himself, Family, Parents (Sen. Citizen	Original Medical Bills	30,000/-
	or not) (not having Mediclaim Policy) -80D
6	Interest on Housing Loan (Loan taken prior to 01/04/99)	Certificate from Bank / Financial Institution	30,000/-
7	Interest on Housing Loan (Loan taken after 01/04/99)	Certificate from Bank / Financial Institution	2,00,000/-
8	Expenditure on Maintainence or Medical treatment being	Certificate from Prescribed Authority in Rule 11A Form No. 10-IA Sec. 80	75,000/- or 1,25,000/-
	Dependant with – Disability Rs. 75,000 – Several Disability Rs.	DD
	1,25,000-80DD
9	Expense on Dependent for Specified Disease [Very Sen.	Prescripttion from Prescribed Authority in Rule 11DD Sec. 80 DDB	40,000 or 80,000/-
	Citizen ie., (80 years) Rs 80,000 for others Rs 40,000]-80DDB
10	Himself with – Disability Rs. 75,000 – Several Disability Rs.	Certificate from Prescribed Authority as per Rule 11A Form No. 10-IA	75,000/- or 1,25,000/-
	1,25,000-80U
11	Medical Bill Reimbursement	Original Medical Bills (including Parents, Wife/Husband, Children)	1250/- every month
12	Donations -Section 80 G	Prime Minister Relief Fund Receipt ( Employer can Consider only this	Donation Amount
	Deduction u/s 80C
Sr. No.	Descripttion of Investment	Documents Required	Maximum Limit (Rs.)
1	Public Provident Fund	Copy of Payment Receipt / Passbook
2	Life Insurance Premium:- Pension Plan & ULIP	Copy of Premium Payment Receipt
3	Repayment of Housing Loan Principal	Certificate from Bank / Financial Institution
4	Mutual Fund (Equity) (Sec. 10(23D))	Statement of Holding
5	NSC Purchased during the year	Copy of NSC Certificate/s
6	Interest on NSC Purchased	Statement regarding date of purchase & amount
7	Tuition Fees (Up to Two Children)	Copy of Payment Receipt from School
8	National Saving Scheme	Copy of NSS Certificate/s
9	Bank Fixed Deposit (More than 5 Years)	Copy of FD Receipt
10	Sukanya Samriddhi Account	Copy of Deposit Receipt
Please Note:-
1.Deduction under section 80C+80CCC+80CCD(1) can’t excedds Rs 150,000/- ( Section 80CCE)
2. Deduction of Rs. 50,000/- under section 80CCD(1B) is over & above deductuon under section 80CCD(1). Thus Section 80CCE in point 1. above will not applicable to this deduction.
3. Provided No Deduction under section 80CCD(1B) shall be allowed in respect of the amount on which a deduction has been claimed and allowed u/s 80CCD(1)
4. Deduction u/s 80D shall be allowed only if the payment is made by any mode other than cash. Exception is only for amount paid for Preventive health check up.
5. Maximum Deduction u/s 80D shall be allowed only upto RS 30,000/- in case point 5 & 7 AND RS 25,000/- in any other case.
6. For Inerest on housing loan:- provided such acquisition or construction is completed within [three] years from the end of the financial year in which capital was borrowed.

Jayateerth Kulkarni (1 Points)
Replied 20 September 2016

In my company an employee is asking for telephone reimbursement as exemption under income tax ... Pls let me know what treatment should be there for tax omputation purpose