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.