In this post, we will learn about Payroll reimbursement.
There are different types of reimbursements and we will be discussing about each of them. But first, we will start with what reimbursement means and then move on to the following types of reimbursements:
- Leave travel allotment/conveyance
- Food coupons
- Telephone reimbursement
- Fuel reimbursement
- Uniform reimbursement
- Magazine and newspaper reimbursement
What is Payroll Reimbursement?
Reimbursement is the amount which the employee will get only after they have spent it. For an employee to claim the reimbursement, it should be defined by the company.
In many cases, the employee has to produce the necessary bills in order to claim it. But first, the employee has to pay the expenditure on such heads and then a claim can be possible.
If reimbursements are defined as a part of the salary, then to be able to get tax exemptions, producing the bills is necessary.
Difference between Reimbursements and Allowance
An allowance is an amount given to the employees, irrespective of whether they spend it or not. Reimbursement is the amount which the employee will get only after spending the money for hospitalization, travelling etc.
Types of Reimbursements
There are different types of reimbursement.
This is the reimbursement given to employees for hospitalization or medical bills.
As of the financial year 2018-19, the tax exemption of Rs.15,000 on medical reimbursement is discontinued. Now, it comes under the general exemption of Rs.40,000.
Rules of Medical Reimbursement –
- Only you and your dependent family members, including parents, can claim tax exemption on medical expenses.
- Medical bills or prescriptions of hospitals can relate to such medical reimbursement. And these bills need to be submitted to your employer.
- The tax exemption of medical reimbursement falls under section 80 D, with the limit of Rs.15,000 p.a.
Leave travel allowance/conveyance (travel reimbursement)
Reimbursement of leave travel expenses incurred by the employee can be claimed as LTA. Expenditure on hotel accommodation and food does not come under LTA. Further, you can claim LTA only up to the cost of air travel in first-class during your travel and is available twice in a block of four years.
Tax exemption: LTA amount is completely exempt to the extent of the amount that has been allotted and bills produced.
As per the new tax regimes, LTA will be exempted up to a certain limit of income tax. And as an exemption, you can deduct your LTA amount from your taxable income.
LTC reimbursement rules
- You can claim LTA twice in a block period of 4 years.
- One block period consists of 4 calendar years and defined by the Government. The current block period is 2023- 2027.
- You can claim only one LTA in a Calendar Year as long as it is alternative years. The exception to this condition is when you have not claimed LTA in the first 2 years and you want to claim it in 3rd and 4th year.
- If you have not claimed any LTA in one block period, you can carry forward one out of those. The carry forwarded claim must be made in the first calendar year of the next block period.
- The carry forwarded claim must be made in the first calendar year of the next block period.
- It is applicable on-road travel via any means (4-wheeler, owned or rented; Bus), by rail (up to 1st class A/C) or by Air (economy class). Cruise and sea voyage does not come under LTA.
- There is No limit on the amount (according to Govt.). You can claim the actual amount spent on travel.
- An employee has to apply a minimum of 3 days of paid leave to claim LTA.
Food coupons are a part of the salary. The reimbursement amount will be deducted from the salary and paid as physical or digital coupons under the “Food and non-alcoholic beverages” option.
Food coupons are given on the basis of per-day food for the employee. It can be 2 meals per day, with a per meal costing Rs. 50. Hence, the total food coupon amount per month will be Rs.3000 considering 30 days.
Tax exemption: The complete food coupon amount is exempt from tax.
Telephone / Mobile reimbursement
Some companies also opt to reimburse the telephone/mobile bills incurred by their employees.
Conditions for telephone reimbursement: The connection should be postpaid and billed in the name of the employee. This is applicable for data connection also.
Tax exemption: It is exempt up to Rs.15000 per year or the bill amount whichever is the lower.
Key Points – As per the job role of the employees, an employer can categorize them into the different levels of employee mobile/telephone reimbursement. For example – an assistant engineer can claim a reimbursement of up to Rs.900 pm. Whereas a senior/manager can claim a reimbursement up to Rs.2500 pm.
Any reimbursement for fuel charges incurred by the employee for official duty is considered as fuel or petrol reimbursement. The amount paid is up to the extent of bills produced.
Tax exemption: This is completely exempt from tax in the hands of the employee and considered as an expense to the employer.
You can download the Application for Fuel Reimbursement in PDF.
Any reimbursement given for the purchase of official attire such as uniforms and related accessories will come under Attire reimbursements. It is paid to the extent of bills produced.
Tax exemption: It is completely exempt from tax in the hands of the employee and considered as an expense to the employer.
Magazine and newspaper reimbursement
It is the reimbursement amount given for any amount the employees pay towards newspaper and magazine subscription for official purposes. It can be claimed to the extent as defined by the company.
Tax exemption: Tax exemption on this type of reimbursement is up to 10,000 per year or bills produced, whichever is the least.
Reimbursements in CTC
According to the widely used CTC (Flexipay) concept, the gross salary is derived from the CTC, in which the reimbursement amounts are included.
The flexible Employee Pay concept is nothing but showing a convincing amount to the employee as Gross Salary. It includes the Reimbursement amounts, Food coupons, Employer contributions for PF & ESI, Provision for Gratuity.
From the employer perspective, with such a concept, the employer gets to know the total expenditure they are incurring per employee. It is usually known as CTC (Cost to Company).
This brings us to the end of the payroll reimbursement post.
Do you define any other reimbursements in your company? Let us know by commenting below.
You can also see how it works in Saral Paypack