Telephone and internet allowance exemption to save tax

What is telephone and internet allowance?

Employers have the provision to add a tax-exempted telephone and internet allowance to employees’ CTC. It allows employees to claim the cost involved in buying mobile and internet plans for work from the employer.

The amount and conditions of the allowance can vary depending on the employer's policy.

What is telephone reimbursement in salary?

Telephone reimbursement in salary refers to reimbursement of expenses incurred on mobile phone plans (Calls, internet and SMS) given to employees by employers. It translates to employees submitting bills of usage and getting them reimbursed by the employer.

The maximum amount of reimbursement will be mentioned in the salary breakdown/structure. If it is not mentioned, then the entire amount you spend will be reimbursed. However, it is best to check with your Payroll HR to understand the policy at your company.

What is internet reimbursement?

Similar to telephone bill reimbursement, internet reimbursement means employees getting reimbursed for the money they spend in buying WiFi connections andmonthly WiFi bills. With remote and hybrid working, WiFi reimbursement is a common allowance given by employers to employees to save tax.

Is telephone allowance exempt from income tax?

Yes, the telephone allowance is exempt from Income Tax. The Income Tax Act under section 10, all telephone/internet reimbursements employees claim for conducting their official duties are not taxable.

It means there’s 100% tax exemption on the billed amount spent or the allowance set by the employer; whichever is lower.

This allowance covers the following:

• Mobile phone bills
• Mobile internet bills
• Home Wi-Fi connection bills

How does telephone allowance work?

There are two ways an employer can provide telephone and internet allowance:

Allowance limit-based: Think of this similar to a prepaid service. The employer can set a limit and give money that employees can use towards purchasing mobile data, paying Wi-Fi bills and more.

Reimbursement-based: Employees after purchasing, at frequent intervals or yearly, submit bills for employees to reimburse. It can be fully reimbursed on actuals or reimbursed up to the limit set by the employer.

Rules for reimbursement of telephone reimbursement exemption

Here are the common rules followed by companies:

1. Reimbursement coverage: The company provides reimbursement for a single mobile or broadband connection per employee. The connection must be registered in the employee's name and primarily used for official purposes.
2. Submission of bills: Employees are required to submit their telephone/internet bills for reimbursement. These bills should reflect the usage during the specified reimbursement period.
3. Reimbursement limits: Reimbursement can be claimed on the actual bill amount or the total amount offered by the company, whichever is lower. The reimbursement is subject to company-defined limits or caps.
4. Sole connection reimbursement: Only one mobile or broadband connection per employee is eligible for reimbursement. Any additional connections used for work purposes are not covered under this policy.
5. Prepaid and postpaid connections: Both prepaid and postpaid mobile/internet connections are eligible for reimbursement, provided they are used primarily for official tasks.