Understanding Tax-Saving Reimbursements

Available for plans : Foundation, Growth, Strength.

This article provides a comprehensive overview of managing reimbursements through Keka. It covers the essentials of reimbursement components, highlighting their significance as tax-saving tools for employees and how they differ from taxable reimbursable components. Additionally, the article explains why a separate payslip is issued for reimbursements to ensure clarity and compliance with tax regulations. It also guides users on how to access these segregated payslips within the Keka platform, offering practical insights to efficiently manage the reimbursement processes.

TABLE OF CONTENTS

• What are reimbursement components?
• How are reimbursements different from reimbursable components?
• Why a separate payslip is used for reimbursements?
• How to access reimbursement payslips?
• Points to be noted:

What are reimbursement components?

Reimbursements are typically given to employees as part of a tax-saving policy, especially for those who fall into a higher tax bracket, to reduce their tax liability.

Despite being paid to employees, reimbursement components are not included in income tax computation nor reported as income to the IT department. Therefore, any amount paid to employees under these components will not be reflected on the employee's Form 16.

Some common reimbursement components used across different industries include:

• Fuel or petrol reimbursement
• Car reimbursement
• Internet and telephone reimbursement
• Driver reimbursement, and so on.

DISCLAIMER: The usage of reimbursement components is not recommended as the income received under these components is not reported to the IT department and might result in compliance issues.

How are reimbursements different from reimbursable components?

Despite having similar accrual and claim configurations, reimbursements and reimbursable components differ in their tax implications. Reimbursement components are not considered as income to employees and are not reported to the IT department, hence they can help employees save on taxes. 

On the other hand, reimbursable components are part of an employee's taxable income, like allowances, and will only be paid to employees when claimed by them.

How reimbursements are separated from employees' regular income?

To avoid any potential concerns from the IT department regarding reimbursements not being reported, many companies prefer to display the amount paid under reimbursements on a separate payslip from the employee's other monthly earnings.

Keka automatically generates a segregated payslip (a separate slip for earnings and reimbursements) for employees who receive reimbursements in a given month.

How to view/download reimbursement payslips?

The segregated payslip, like the regular payslip, can be accessed from the employee's finance section. To access this, navigate to My Finances from the left pane and select the My Pay tab. Here, find the Payslips tab. If any reimbursements are paid in a month, a new option will appear in the payslips section to download the segregated payslip.

As the name suggests, this payslip will have the details divided into two separate slips - one for regular earnings and the other for reimbursements. However, you will still have the option to download the regular payslip, which displays the total amount in one payslip.

Points to be noted:

• If an employee does not claim the reimbursement components, they will be paid as taxable under the "Special Allowance" component
• The segregated payslip will only be visible if the employee has received any reimbursements in a specific month.

Related Links:

Manually overriding reimbursable component claims

How to pay any reimbursable component outside the payroll