Key takeaways
- Reimbursement of actual official expenses (tour travel, daily allowance on tour, local travel for work), backed by bills, is not taxable, in both regimes.
- Fixed allowances paid without bills are taxable salary, with TDS.
- Tax-free meal limit rose from ₹50 to ₹200 per meal; gifts and vouchers up to ₹15,000 a year.
- GST credit on employee expenses needs a tax invoice in the company’s name and GSTIN; food and leave travel are blocked.
The basic rule: reimbursement vs allowance
A reimbursement pays back money an employee actually spent on the company’s work, against a bill. It is not income, so it is not taxed. An allowance is a fixed amount paid whether or not anything is spent; it is part of salary and taxed, unless the law specifically exempts it.
Under the new Act, the exemptions for official travel and duty-related allowances sit in Section 11 read with Schedule III, with the details in Rule 280 of the Income-tax Rules, 2026 (they were Section 10(14) and Rule 2BB before). The new Act also adds an exemption for the cost of packing and transporting personal belongings on transfer.
What is tax-free in 2026-27
| Item | Tax treatment | Condition |
|---|
| Travel on official tour or transfer | Exempt | Up to actual cost, with bills |
| Daily allowance while on tour | Exempt | Up to actual expenses on the tour |
| Local conveyance for official duty | Exempt | Up to actual cost; not home-to-office travel |
| Packing and moving personal effects on transfer | Exempt | New under the 2025 Act; up to actual cost |
| Phone and internet bills for work | Not a taxable perquisite | Reimbursed against bills |
| Meal vouchers / employer-provided meals | Exempt up to ₹200 a meal | Non-transferable, for food and non-alcoholic drinks |
| Gifts, vouchers or tokens | Nil up to ₹15,000 a year | Total for the tax year |
| Fixed phone, fuel or “conveyance” allowance without bills | Taxable | Part of salary; deduct TDS |
| Travel between home and office | Taxable | Except specific cases such as disabled employees |
The new regime no longer blocks meal and gift benefitsThe old rules denied the meal exemption to employees in the new tax regime. The Income-tax Rules, 2026 do not repeat that restriction, so meal vouchers and gifts within the limits are now treated the same in both regimes. Check your payroll settings for 2026-27.
Paying claims: payroll or bank?
- Bill-backed reimbursements can be paid with salary or separately. Show them outside taxable salary on the payslip and in Form 130 (which replaced Form 16).
- Taxable items, such as allowances without bills or the excess over a limit, must go through payroll so TDS is deducted.
- Exits: pending approved claims are part of the dues on exit, paid with the full and final settlement within two working days.
GST input credit on employee expenses
When an employee spends on the company’s business, such as a client visit or a hotel on tour, the company can often claim the GST as input tax credit. Four conditions decide whether it can:
| Check | Why it matters |
|---|
| Tax invoice in the company’s name and GSTIN | Bills in the employee’s name generally do not support a credit claim |
| Not a blocked item | Food and beverages, and leave or home travel for employees, are blocked under Section 17(5) |
| GSTIN of the right state | Hotel GST is charged in the hotel’s state; credit needs a registration there |
| Supplier has filed the invoice | Credit must match what appears in your GSTR-2B |
The simplest fix is in the policy: ask employees to give the company GSTIN when booking flights, hotels and cabs, and pick the right state registration. Our free expense policy template includes this rule.
A 5-step claim workflow
1
Employee submits with the billOne line per bill, with the category, amount, date, business purpose and a photo of the bill, within the policy deadline.
2
System checks the rulesLimits by grade and category, duplicate bills, missing GSTIN and late claims are flagged before anyone approves.
3
Manager approves the purposeThe manager confirms the expense was for work. Large claims go to a second approver.
4
Finance verifies and booksFinance checks bills, books the expense, and marks GST invoices for input credit.
5
Payout and reportingApproved claims are paid with salary or as a separate payout, with taxable items going through payroll for TDS.
How GoHRMS helps
Expense claims built into your HRMS
- Claims with bill photos from the mobile app
- Grade and category limits checked automatically
- Approval workflow with reminders
- Reimbursements paid through payroll, with taxable items handled for TDS
See Expense Claims
Frequently asked questions
Reimbursement of actual expenses for official tours, daily allowance on tour and conveyance for official duty, supported by bills, remains exempt in the new regime too. Fixed allowances paid without bills are taxable in both regimes.
The Income-tax Rules, 2026 raised it from ₹50 to ₹200 per meal from 1 April 2026, for non-transferable vouchers or meals used for food and non-alcoholic drinks. The earlier bar for new regime employees was not carried forward.
Phone and internet bills reimbursed against bills for official use are not treated as a taxable perquisite. A fixed phone allowance paid without bills is taxable salary.
Often yes, for business travel such as flights and hotel stays, if the tax invoice is in the company’s name and GSTIN of the right state and the item is not blocked. Credit is not available on food and beverages or on leave travel benefits.
Tags:Expense claimsReimbursement taxMeal vouchersGST input creditIncome-tax Act 2025
GC
Gizmosys Compliance Team
Our team runs payroll, reimbursements, TDS and statutory compliance for businesses across India every month. Want us to handle it? See payroll outsourcing.
Sources:
Rule 280, Income-tax Rules 2026 (Income Tax Department) ·
Salary allowances under the 2025 Act (TaxGuru) ·
Income-tax Rules 2026: perquisite changes (KPMG) ·
Meal and gift voucher limits 2026-27 (CalcGuru) ·
Telephone and internet reimbursement (Keka) ·
GST on employee reimbursements (GSTZen).
Tax and GST rules depend on facts; check with your tax adviser. This article is general information, not tax or legal advice.