TDS on reimbursement of Expenses

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TDS on reimbursement of Expenses – What are The Top Things to Know?

TDS, also known as Tax Deducted at Source, is a vital component of the tax system in India. It is designed to ensure the systematic collection of taxes. TDS is omnipresent in all types of business transactions to ensure fairness in tax collection. After the introduction of 194C, there was a lot of confusion about TDS on reimbursement of expenses. Usually, the term “reimburse” means to pay back or refund. Reimbursement of expenses implies that the expenses incurred by an individual are recovered. It simply means expenses incurred by a person are not his personal expenses.Let’s explore the fundamental aspects of this type of taxation.

What is Reimbursement of Expenses?

The reimbursement of expenses is a pretty common practice in business. It allows the employees of a company to recover their out-of-pocket expenses incurred when performing their duties. These typically include hospital bills, lodging, travel, etc. Reimbursement motivates workers to perform their duties by ensuring that they are not financially burdened. It is necessary to understand TDS on reimbursement of expenses to understand the taxation associated with these transactions between employees and organisations.

Essential Aspects to Know About Taxable Reimbursements

There are specific reimbursements in India that are regarded as an integral part of the employee’s taxable income. Moreover, this taxable income attracts TDS. If the company reimburses its workers for medical treatments without any valid documents, it is subjected to TDS. TDS on reimbursement of expenses us 194C is deductible at the rate of 10%.

Non-Taxable Reimbursements – What are they?

There are specific exemptions as stated by the Income Tax Act of India for particular types of reimbursements. For instance, there is no TDS on travel expenses and meal allowances for employees. But the workers should stick to prescribed terms and submit valid receipts.

TDS for Clearing and Forwarding Agents

It is important to know about TDS on reimbursement of expenses to clearing & forwarding agent to learn more about this type of taxation. Usually, companies pay for the airfare of their employees. The payments made to the travel agent for buying air tickets are not subjected to tax deduction. This is because the employee is paying for the ticket initially.

However, section 194C will apply when the same plane has been chartered by the organisation. It should be subjected to tax deduction at source under section 194C of the Act.

TDS on Non-Resident Indians – Things to Learn

There is no TDS on reimbursement of expenses to non-resident under Section 195. Moreover, TDS is non-applicable for foreign enterprises operating in India. TDS under Section 195 is levied at the time of payment to the payee or at the time of crediting money. Note that TDS will be deducted only at the time of payment.

It is also important to know what happens when the contract gets cancelled after deduction. As per Section 195, if the contract is cancelled after the deduction of TDS, then the TDS on the advance payment can be claimed from the department.

Implications of TDS on the Salaries of Employees

Before discussing the implications of TDS on the salaries of workers, it is imperative to know about the nature of reimbursements. Employees often pay on behalf of their parent company while traveling or for other purposes. The workers are reimbursed by the company later.

TDS on reimbursement relies heavily on whether they are taxable or non-taxable. In India, some reimbursements are subject to TDS. On the other hand, other types of reimbursements are exempted from tax deductions. The organisations play a vital role in ensuring tax compliance by verifying the receipts submitted by the employees.

It is the responsibility of the companies to communicate the latest changes in tax policies to their employees. The focus should be on proper documentation to support the reimbursable claims from employees. It is the duty of the workers of a company to submit valid bills to avoid TDS. Thesedocuments act as evidence of the legitimate expenses incurred.

Taxable Allowances of Employees

Apart from salary, there are numerous components in one’s CTC. These are allowances that an individual is entitled to receive like conveyance allowance, tour duty allowance, mobile reimbursement, etc. The allowances provided by your employer will be exempted from income tax if these expenses are made in the discharge of the duty.

To avail the taxability of reimbursement of expenses to employees in India, you should consider two things. Firstly, the employee should submit all bills related to conveyance and travel expenses. Secondly, the expenses should be made in the lieu of performing official responsibilities. If the expenses aren’t related to your official duties, they will be taxable.

Claiming Tax Exemptions in ITR

It is important for employees to mention expense reimbursement taxablewhile filing the ITR. Based on the current regulations of the ITR form, taxpayers should mention the allowances granted to them by breaking up the allowances. If the allowances received by the worker are exempted from tax, the amount should be mentioned under the “exemption of income” in the ITR form.

TDS on Section 194R – Crucial Aspects to Know

As per Section 194R, TDS on reimbursement should be deducted at 10%. Organisations are responsible for deducting TDS at 10% if the net value of the goods is more than INR 20,000. But there are situations where Section 194R doesn’t apply. TDS on Section 194C doesn’t apply in cases where there is an employer-employee relationship. Moreover, if the allowances are received by a non-resident Indian, the tax would be deducted under Section 195.


Understanding TDS on clearing and forwarding charges is important for employees and organisations. TDS helps prevent irregularities of taxes and having a sound understanding is important for payers and receivers. If you want to learn about the implications of TDS, Manoj Kumar D & Associates can help. Visit and hire accounting and tax professionals for your accounting needs.

Frequently Asked Questions

Is TDS deducted on reimbursed expenses?

There is an utter lack of clarity on whether reimbursement of expenses is subject to tax deduction. Note that the reimbursement of expenses is illegible for TDS deduction under Section 194C. However, TDS will be deducted if there is a composite bill of service charges.

What is 194C for reimbursement of expenses?

Section 194C deals with the tax deduction provisions at source during the time of payment. The section clearly states that any employer who pays money to their employees for their duties is required to deduct TDS. The TDS can be deducted only when the payment amount exceeds INR 30,000 or INR 1,00,000 during a financial year.

What are the TDS rules for 194C?

The rate of TDS deduction under 194C is 1% if the payment is made from a company to an individual. The deduction rate will be 2% if the payment is given to others.

Who can claim a TDS refund?

Individuals who have made financial declarations at the beginning of the year that are lower than their investment proofs are eligible for a TDS refund.

What is the difference between 194C and 194J?

Section 194C talks about contractual services, whereas 194J is related to professional fees. There are certain instances where section 194C doesn’t apply and no taxes are deducted.