Telephone and Internet Allowance Tax Exemption Limit

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, all telephone/internet reimbursements which employees get for conducting their official duties are not taxable. Thus, individuals can claim a 100% tax exemption on the billed amount. 

These reimbursements 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 reimbursement 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 reimbursements for only one mobile/broadband connection. 
• The connection needs to be in the employee’s name. 
• Employers must ensure that the reimbursements are strictly for business use.
• Employees need to show their telephone/internet bills while claiming the reimbursements. 
• They can claim the reimbursement 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 reimbursements will differ across companies and departments based on the employee’s job role and position within the organisation. 

Telephone and Internet Allowance Exemption 

These allowances can be on a reimbursement basis or they can be fixed allowances.

Reimbursement Basis 

When employers reimburse employees for telephone and internet expenses based on actual bills submitted, these reimbursements are not taxable. This is because such reimbursements 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, including telephone and internet reimbursements, are applicable.

Thus, regardless of their tax regime, people can avail telephone and internet allowance exemptions to reduce their taxable income.  

Final Word 

Reimbursement 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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Uniform Allowance

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Subsistence Allowance