Tax On Expenses Reimbursed By Employer?

Hi,

If an employee spends some amount for official work and the same amount is reimbursed by the employer and transferred to the employee's salary account, will it affect any tax deductions?

Regards,
Vishal

Dear Parabvishal,

Why is that amount connected to his salary account? Whatever he spent, it has to be reimbursed. Moreover, it is not eligible for tax.

Hi,

Any amount spent in the course of employment and reimbursed by the employer is not liable to tax, irrespective of whether it is credited to the salary account or otherwise. The employer will not incorporate such amounts in Form 16.

Hope this clarifies.

Thank you, but please let me know if the employee's file is returned and the income tax department finds a variation in the income mentioned in Form 16 and the employee's salary account.

Dear Mr. Vishal,

It is always suggested that any credit or debit in the bank statement should be noted in pencil or pen for future reference in case Assessing officers have queries. Under the IT Act, the employer is liable to TDS on salary. You may show such entries with a detailed explanation to satisfy the Income Tax officers. They will address any concerns with employers if they are not satisfied. Therefore, the individual need not worry.

I assume you have a payroll system in place and also that accounts do a reconciliation between the salary sheet and bank transfers. If the above is in place, in case of a scrutiny or enquiry, you need to show the workings, records, and reconciliation to prove that your Form 16 is correct. Further, check the possibility of doing separate credits for salary and expenses to minimize a problem.

Salary A/C does not mean only salary is to be credited. Other credits are also allowed, including his personal money, if any.

Expenses incurred for Company work are treated as reimbursements.

Pon

Dear all,

Many learned followers have given valid points. To sum up and add mine, please go through the following:

1. Income Tax is deducted on income and not on reimbursement of expenses connected with company affairs like TA/DA, repair & maintenance of office equipment, etc.

2. Initially, such reimbursements should not be paid through the salary slip. However, if it is a matter of the system, the amount should be shown under a separate head "Reimbursement of Expenses." This amount should not be included in income while preparing Form - 16. Instead, it can be shown in Form - 24 and subtracted from Total Income under a separate head, as detailed above.

3. In no case should the reimbursement for expenses related to the company's affairs be taxable.

Best wishes,
AK Jain
HR Personnel
NCL, CIL

I am sure Vishal Parab, as well all readers will agree to the views expressed by Mr A K Jain, which has great clarity. It is 100 per cent correct that these reimbursements are not taxable.

However, I think Vishal has different kind of thoughts, in his mind. Everything is fine, till reimbursement is done, and no tax is deducted, by the employer. But, when IT officer goes through his bank pass book, and there are credits to his account, paid by employer as reimbursements, it is not always possible to show that these are reimbursements. IT officer may insist that this is your additional income, apart from salary, say incentives etc. This query will be raised after two/three years of actual transaction. At that time, Company’s accounts/salary department, may not cooperate the employee, and he will be in trouble.

I have an example : A field executive, working in Calcutta, offers a prestigious Gift to his client, or organizes business lunch to his client, worth Rs.10000. His HO,located in Gujarat, reimburses these expenses to his bank a/c. After 2 to 3 years, how the said employee can prove to IT officer that this credit to his a/c is not his income, but reimbursement.

the question that comes up is : was the money spent or was the reimbursement taken without spending. Generally, a large part of the reimbursement today is against credit card expenses. That should be easy to explain.
Second, you can always take and keep copies of expense claims that you have filed and possibly copy of the approvals taken for each months claims which will be matched with the additional reimbursements.
Tax Officers will rarely bother with small salary accounts. It would be different if the employee has huge salary and income.