Dear Freshers, let’s understand tax-saving employee reimbursements

The joy of holding your first-ever offer letter is unparalleled. Scanning through the letter, you can’t stop gushing over your newfound identity, and of course, your annual compensation package. But it’s always a struggle for freshers to make sense of the salary breakup that consists of CTC, total gross salary, tax-saving employee reimbursements and benefits.

When we start out, we’re a bunch of inexperienced youngsters who take whatever we’ve been served in our salary packages at face value. But the moment of realisation comes with the first paycheck. That’s when you have questions: How is the monthly salary less than what I expected? What are tax-saving employee reimbursements? Why should I opt for them? Let’s find answers to these questions here and more.

What are tax-saving employee reimbursements?
Companies offer various components in the CTC to retain and boost the morale of employees. While some salary components are fully taxable, some are exempted from taxes, only if you have a few pearls of wisdom in your pocket. These tax-saving employee reimbursements a.k.a flexible benefits can be claimed as tax-saving reimbursement through submission of bills. A typical flexible benefits plan can consist of all or some of the following components:

• Fuel and travel reimbursements
• Leave travel allowance
• Mobile/Internet reimbursements
• Gadgets reimbursements
• Books and periodicals reimbursements
• Gift vouchers
• Meal benefits

Does opting for reimbursements increase your take-home?
YES, it does! Now pin that to your soft board. Reimbursements are referred to as ‘benefits’ because employees get to save big on their income tax. If you do not opt for reimbursements, all the components in your salary package will become taxable and you end up paying more tax.

Joining your new job after March 2018? Some updates for you
Do you remember your parents saving medical bills so that they could get them reimbursed at office? Medical reimbursements have always been the most well-received tax-saving benefit of all times. However, you don’t have to go through the pain of saving and filing medical reimbursements claims from April 2018 onwards. Thanks to the reintroduction of Standard Deduction in Budget 2018, you enjoy a flat deduction of Rs 40,000 on your taxable income in lieu medical reimbursements and conveyance allowance.

What happens when you do not claim your reimbursements?
Well, nothing much, apart from the fact that a few of your Saturday nights will be spent at home rather than partying at a club. Why? Because you just gave away your money to the government in tax deductions. The amount that is not claimed by you is marked unclaimed and Income Tax would be deducted on that amount.

Why should you check about tax-saving reimbursements before you join a company?
It is always advisable to join a company that offers you the choice of opting for employee reimbursements. By giving employees the freedom of designing their own reimbursement plan, a company is helping them save income tax as per government norms.

So, here’s to new beginnings for freshers. Be smart and opt for tax-saving employee reimbursements. All said and done, submitting claims and saving paper bills for months on end is an overwhelming task. If you’re not a fan of saving paper bills, go digital!