Reimbursements are the amounts paid to the employees, after any expenditure is incurred by the employee under some heads like telephone bill, medical bill and LTA. The spent amount is paid only when the employee claims it. Those amounts claimed are called as Reimbursements. First the employee has to pay the expenditure on such heads and then a claim can be made. Fringe Benefit Tax is applicable for other reimbursements like Telephone charges, which is very low when compared to Income tax.
Medical Reimbursements up to Rs.15,000/- are totally exempted from tax. Leave Travel Allowance is fully exempted depending on the rules specified. Other Reimbursements include Telephone charges, Transport charges etc. Fringe Benefit Tax is applicable for Other Reimbursements which is very low when compared to Income tax.
Difference between Reimbursements and Allowance:
Allowance is an amount which is given to the employees, irrespective of the issue whether they spend it or not. Reimbursement is the amount which the employee will get only after spending the money for hospitalization, traveling etc.
Medical Reimbursement:
The medical expenses reimbursed by employer are tax-exempted up to Rs 15,000 per year. Such payment should be a reimbursement, against the production of bills or vouchers, and not an allowance, which you may or may not spend. The medical expenses include the hospitalization expenses of employee and his/her family.
Tax Exemption on Medical Reimbursement
Amount received as Medical Reimbursement up to Rs.15,000/- is not treated as taxable perquisite. This exemption is enjoyed by the employee only if the expenditure is actually incurred on his medical treatment or for treatment of any member of the family after producing the bills.
Leave travel allowance/assistance: Reimbursement of leave travel expenses incurred is exempted to the extent of the actual amount spent. Expenditure on hotel accommodation is not included while calculating this exemption. Further, this exemption is available only up to the cost of air travel in first class to your destination, and is available twice in a block of four years.
LTA Rules:
- In a block period of 4 years – LTA can be claimed twice.
- One block period consists of 4 calendar years and it is defined by Government. The current block period is 2010- 2013.
- Only one LTA can be claimed in a Calendar Year.
- There is No limit on the amount (according to Govt.). The actual amount spent on the travel can be claimed.
- If No single LTA is claimed in one block period, one out of those two can be carried forward.
- The carry forwarded claim must be made in the first calendar year of the next block period.
Other Reimbursements include Transport allowance, motor car allowance, Telephone bill reimbursements etc.
Transport allowance:
This is meant to compensate the employee for the cost incurred in commuting to the place of work. Transport allowance is exempt to the extent of Rs 800 per month, irrespective of the amount actually spent by employee in commuting to the work place. The exemption is not available, if the employer provides a free conveyance.
Motor car:
If the employer provides a motor car, for both official and personal use, the taxable value of the perquisite is computed at Rs 600/- per month for cars up to 1.6 ltr and Rs 900/- per month for cars with a higher. It increases by Rs 900/- per month if a driver is also provided.
Telephone bills:
Some companies may also opt to reimburse the telephone bills incurred by their employees.
Reimbursements may be included 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. Flexible Employee Pay concept is nothing but showing a convincing amount to the employee as Gross Salary, which includes the Reimbursement amounts, Food coupons, Employer contributions for PF & ESI, Provision for Gratuity.
In the employer perspective, with such a concept, employer gets to know the total expenditure they are incurring per employee. This concept will help in reducing the amount of tax to be paid by the employee and usually called as CTC (Cost to Company).
Any salary head that is paid to employee is taxable. If the employer pays the LTA, Medical Reimbursements, Telephone Reimbursements, Transport charges under salary heads, that would attract the tax, and when the same is shown under Reimbursement heads, that reduces the amount of tax to be paid by the employee, since Fringe Benefit Tax is less when compared to Income tax.
