Guide to Reimbursement Allowances & Tax in Payroll

Reimbursement Allowances

Certain components of salary are associated with reimbursements, where employees are required to submit supporting bills/proofs to claim them as non-taxable.

  • Monthly Submission: If the employee submits valid bills/proofs for the reimbursement allowance (e.g., telephone, fuel, medical), the approved amount will be treated as non-taxable in payroll. Any balance amount (if the bill is less than the allowance) will be treated as taxable for that month.

  • No Monthly Claim: If the employee does not submit any bills during the financial year, the entire reimbursement allowance will be paid out in the last payroll month of the financial year (March) and treated as fully taxable.

  • Partial Claim: If bills are submitted for some months but not others, only the unclaimed portion will be added to taxable salary during the payroll run.

Claim from Reimbursement Configuration

  • Navigate to Payroll → Allowances → Allowances Type

  • Select the Reimbursement-Linked Components: Choose the allowance types that can be claimed via reimbursement, such as: Fuel Reimbursement, Driver Reimbursement, Telephone Reimbursement, Leave Travel Allowances and Vehicle Maintenance Reimbursement.

  • Click the Edit button for the selected allowance. Enable the Claim from Reimbursement flag and select the applicable Reimbursement Type(Eg: Fuel, Driver etc)

  • Click Submit to update the allowance setup.




Fig: Reimbursement Allowances


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