A reimbursement is simply a payment by the employer to make good an expense the employee has incurred. Whether that reimbursement is taxable as part of salary depends on whether a specific provision exempts that particular type of expense, subject to conditions like submission of bills and monetary limits. In the absence of a specific exemption, a reimbursement is just additional cash compensation and is fully taxable as salary, regardless of how it is labelled in the salary structure.
Generally exempt with documentation: Reimbursement of expenses actually incurred by the employee on telephone (including mobile phone) and internet connections used for official purposes is generally exempt as a perquisite, provided the connection is in the employee's name (or otherwise properly documented) and bills are submitted. There is no specific monetary cap prescribed for this exemption in the way some other reimbursements have caps, but the amount must represent actual expenditure on telephone/internet, not an arbitrary fixed payment unrelated to actual bills.
Medical Reimbursement: Largely Folded Into Standard Deduction Now
Historically, medical reimbursement up to Rs 15,000 per year (against bills) was exempt as a specific perquisite exemption. Following the introduction and subsequent increase of the standard deduction for salaried employees (which replaced several smaller exemptions including transport allowance and medical reimbursement), this specific Rs 15,000 medical reimbursement exemption is no longer separately available in the same form; medical expense reimbursements by the employer are now generally taxable as part of salary, with the employee instead benefiting from the consolidated standard deduction (a fixed amount, regardless of actual medical bills) and from Section 80D for health insurance premiums.
Worked Example
A salary structure with multiple reimbursement headsMs Chawla's salary structure includes a 'telephone reimbursement' of Rs 2,000 per month (against submitted mobile bills for a SIM used partly for work calls), a 'medical reimbursement' of Rs 1,250 per month (Rs 15,000 annually, against medical bills, structured the old way by her employer's payroll system), and a 'books and periodicals' reimbursement of Rs 1,000 per month against submitted bills for professional books and journals relevant to her work. The telephone reimbursement (Rs 24,000 annually) and books/periodicals reimbursement (Rs 12,000 annually), being supported by actual bills for work-relevant expenses with established exemption bases, are generally treated as exempt perquisites. The medical reimbursement of Rs 15,000, despite being structured the traditional way, is now generally taxable as part of salary under current rules, since the specific medical reimbursement exemption has effectively been subsumed into the standard deduction framework, meaning Ms Chawla's employer should ideally restructure or simply treat this component as taxable salary.
Books, Periodicals and Professional Subscriptions
Reimbursement of expenditure on books, newspapers, periodicals and similar items used for official purposes, against actual bills, can be exempt as a perquisite, similar to the telephone reimbursement principle, provided it represents genuine expenditure on items relevant to the employee's work.
Fuel and Driver Reimbursement for Company-Provided Cars
Where a car is provided by the employer and used partly for official and partly for personal purposes, reimbursement of fuel and driver salary is factored into the perquisite valuation rules for company cars (which have their own specific valuation tables based on engine capacity and usage), rather than being treated as a separate 'reimbursement' exemption, this is a distinct computation covered under car perquisite rules.
Frequently Asked Questions
If my employer pays for my gym membership or club fees as a 'reimbursement', is that taxable? ▼
Gym memberships, club fees, and similar personal lifestyle benefits, even if structured as 'reimbursements' against bills, do not fall within the specific exemptions discussed for telephone, internet, or books/periodicals. These are generally treated as taxable perquisites (the value of the benefit added to salary), since they represent a personal benefit to the employee rather than an expense incurred for official purposes with a recognised exemption.
Do I need to submit actual bills every month to claim the telephone/internet reimbursement exemption, or can it be a fixed amount? ▼
For the exemption to apply cleanly, the reimbursement should represent actual expenditure incurred, supported by bills (even if submitted periodically rather than strictly monthly, depending on company policy). A completely fixed amount paid regardless of actual usage or bills, labelled as 'reimbursement' but not tied to real expenses, is more likely to be characterised as a disguised allowance and treated as taxable, since the exemption is for reimbursement of actual official expenditure, not a fixed perk.
Are reimbursements for relocation expenses when an employee is transferred to a new city taxable? ▼
Reimbursement of genuine relocation expenses (such as transportation of personal effects/household goods, and travel costs for the employee and family) in connection with a transfer to a new place of work has generally been treated more favourably than routine personal reimbursements, on the basis that it is directly connected to a transfer required by the employer for business reasons rather than a personal benefit. However, any amount that goes beyond actual, reasonable relocation costs (for example, a lump-sum 'settling-in allowance' unrelated to actual expenses) would more likely be treated as a taxable allowance. Specific facts and company policy documentation matter here.