Is Telephone and Internet Allowance Taxable?

Many companies nowadays offer telephone and internet allowances to their employees who work from home. These allowances include Landline bills, mobile phone bills, mobile internet bills and home Wi-Fi connection bills.

These allowances enable the employees to cover the extra cost incurred during their hybrid work mode. As they form a part of their salary, employees often get confused about whether these allowances are taxable or not.

As per Rule 3(7)(ix) of the Income Tax Act, all telephone or internet allowances that employees receive for doing their official work are not subject to tax. This means that salaried employees can claim a 100% tax exemption on the billed amount.

As per the government rules, there are no specified restrictions on how much a company can offer to their employees as reimbursement. However, the amount should be reasonable, and it should be according to the employees’ salary.

Key Points Regarding the Reimbursement That Should Be Kept in Mind

• Employees usually get reimbursements for only one mobile phone/ broadband connection.
• The connection must be in the name of the employee.
• To claim the reimbursements, employees are required to submit their telephone/internet bills
• Employees can claim the reimbursement on the actual bill amount or the total amount given by the company, whichever is lower.
• Companies should make sure that the allowances are strictly for official purposes.
• Both prepaid and postpaid internet connections are eligible for exemptions.

Tax Treatment of Telephone and Internet Allowances

There are two ways employers can give telephone and internet allowances to employees

• Reimbursement Basis: When the company offers allowances for telephone and internet expenses, these reimbursements are not subject to taxation. The reason behind this is that these allowances are treated as necessary expenses incurred for performing official duties.
• Fixed Allowance: If telephone and internet reimbursements are given as a fixed amount without the need to submit the actual bills, they are considered as a part of salary and, therefore, are taxable based on the employee’s applicable tax slab.

Telephone and Internet Allowance Exemption Under the New Tax Regime

Many salaried employees opt for the new tax regime to reduce the tax burden. Under the new tax regime, where most exemptions are not allowed, a few official-use perquisites like telephone and internet reimbursements are still exempt from tax.

So, no matter which tax regime you choose, you can still claim exemption on telephone and internet reimbursements to reduce your tax liability.