Reimbursement of employer related expenses is not an income for the Employees:

Introduction:

1.  The term “reimbursement” has not been defined in the Income Tax Act. It has a significance for the reason that the recipient incurs money and is subsequently compensated by some other person or authority.

2.  To put it otherwise, the person incurring the expenditure will not get enriched monetarily by way of reimbursement as it is only a recovery of a previous outlay.

Taxability:

1.  If an employee incurs expenses wholly and exclusively for the business of the employer (e.g., travel expenses, office supplies, etc.), and the employer reimburses these expenses, it is not taxable as income in the hands of the employee.

2.  The condition is that the expense must have been incurred for business purposes and not for personal benefit.

3.  Section 17(2) defines perquisites but excludes reimbursements for official purposes from taxable income.

4.  Section 10(14) provides tax exemptions for allowances granted to employees to meet official expenses, subject to prescribed limits.

Some legal precedents:

1.  Gujarat High Court has delivered a judgment in the case of Commissioner of Income Tax Vs. S. G. Natale (124 ITR 391) that any expenditure incurred by an employee on behalf of employer, which was reimbursed by employer is not to be considered as income of employee.

2.  In the case of J. S. Bindra Vs. Inspecting Assistance Commissioner 18 TTJ 27 Allahabad it has been held that, in case, General Manager of the Company has paid expenditure for get together of invitees, which was further reimbursed by the company, the expenditure is not taxable in the hands of general manager.

3.  Kerala High Court in the case of A. Ratnakar Rao Vs. Addl. CIT (128 ITR 527) and Madras High Court in the case of CITY Vs. V. K. Balchandran (147 ITR 4), the sum received by the assesse in the course of internship in the Worcester City Hospital is in the nature of scholarships granted to him for the purpose of meeting the cost of education falling under section 10(16) of the Income Tax Act and, therefore, not includible in the computation of the total income of the assesse.