Due to the hybrid work mode, most companies today provide telephone and internet allowances to their employees. This helps them deal with the additional expenses incurred while working from home. Now, as this forms part of their income, individuals may have questions about whether or not these allowances are taxable.
This article covers just that. Keep reading to learn their taxability and exemption limits!
Telephone and Internet Allowance Exemptions
As per Rule 3(7)(ix) of the Income Tax Act, alltelephone/internet reimbursem*ntswhich employees getfor conducting their official duties are not taxable. Thus, individuals canclaim a 100% tax exemptionon the billed amount.
These reimbursem*nts include the following:
- Landline bills
- Mobile phone bills
- Mobile internet bills
- Home Wi-Fi connection bills
According to government rules, there is no prescribed limit on the amount of reimbursem*nt the employer can provide. However, it must be reasonable and as per the employee’s pay grade.
Now, there are a few things which need to be kept in mind:
- Companies usually provide reimbursem*nts for only one mobile/broadband connection.
- The connection needs to be in the employee’s name.
- Employers must ensure that the reimbursem*nts are strictly for business use.
- Employees need to show their telephone/internet bills while claiming the reimbursem*nts.
- They can claim the reimbursem*nt on the actual bill amount or the total amount offered by the company, whichever is lower.
- Both prepaid and postpaid mobile/internet connections are applicable for exemptions.
The scope for providing reimbursem*nts will differ across companies and departments based on the employee’s job role and position within the organisation.
Telephone and Internet Allowance Exemption Under Section 10
These allowances can be on a reimbursem*nt basis or they can be fixed allowances.
Reimbursem*nt Basis
When employersreimburseemployees for telephone and internet expenses based on actual bills submitted, these reimbursem*nts are not taxable. This is because such reimbursem*nts are considered expenses incurred wholly, exclusively, and necessarily in the performance of the duties of an office or employment of profit.
Fixed Allowance
When telephone and internet allowances are provided as a fixed amount without requiring employees to submit actual bills, they are considered part of the salary and taxable as per the employee's applicable tax slab.
Telephone and Internet Allowance Exemption in New Tax Regime
Several individuals prefer filing their returns under the new tax regime to reduce their tax outflow. Among the few exemptions that it allows, perquisites for official purposes, includingtelephone and internet reimbursem*nts, areapplicable.
Thus, regardless of their tax regime, people canavailtelephone and internet allowance exemptionsto reduce their taxable income.
Final Word
Reimbursem*nt based on actual expenses is the most tax-efficient way to handle these allowances, as it ensures that employees do not incur additional tax liabilities. Both employers and employees should work together to ensure proper documentation and adherence to tax laws to maximize the benefits of these allowances. Additionally, consider researching the other deductions available for salaried individuals to increase your tax savings.
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