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Taxability of telephone reimbursement provided to employees

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.

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4 Comments

  1. Avinash December 17, 2014

    What about the internet / data charges with the mobile bill. So many peoples are using internet in their bill and there is a consolidated bill for phone call charges and data uses charges. Is there any such provision that only phone call charges are allowed and internet charges are not allowed for reimbursement ?

    reply
    • gautham December 24, 2014

      No, there is nothing in the law which prohibits data charges.

      reply
  2. shiv nath prasad December 29, 2014

    please tell me prepaid mobile bill can paid on behalf of cashmemo

    reply
    • gautham January 9, 2015

      We are unable to understand your question. Can you please rephrase it?

      reply

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