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CA Intermediate · Taxation · Salaries

Mr. Arvind Nair, an employee of a private company in Kochi, received a lump-sum payment of ₹40,000 from his employer during the tax year 2026-27 as a reimbursement of the monthly electricity bill of his own rented residence. The employer did not require any bills for official use. How is this amount treated for computing his income under the head Salaries?

The ₹40,000 is fully taxable under Salaries. Reimbursement of electricity for the employee's own rented home is a personal expense, not an official one, so it is a benefit from employment and no exemption or percentage limit applies to it.

  1. AFully taxable as a perquisite or allowance forming part of salaryCorrect
  2. BFully exempt because it is a reimbursement of an expense
  3. CExempt up to ₹20,000 and the balance is taxable
  4. DTaxable only if it exceeds 10% of basic salary

Explanation

Reimbursement of personal household expenses such as electricity at the employee's own residence is not incurred for official purposes. It is a benefit received in respect of employment and is taxable in full as salary. There is no exemption limit of ₹20,000 or a 10% rule for such expenses.

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