DIFFERENCE BETWEEN ALLOWANCES AND REIMBURSEMENTS

Hi there,

Can anyone let me know the differences between allowances and reimbursements? Also, what are the iff allowances/reimbursements? Are allowances taxable and reimbursements not? Please tell.

Thanks & Rdgs,
Supriya

Dear Supriya,

Allowances are taxable. Reimbursement is the expense made on behalf of the company or the company is paying on your behalf and hence is not a direct income, thereby not taxable up to a certain slab.

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Regards,
Zakir Malik

Allowance is what you get before spending.

Reimbursements are those that you get after spending. 😒😒😒😒😒😒😒😒😒😒

To elaborate a little more.

Allowances are payable irrespective of whether the amount paid is actually used for the specific purpose it is meant for. Under normal circumstances, they are fully taxable. However, the Income Tax Act states that some allowances are partially or totally non-taxable, depending on the circumstances - for instance, House Rent Allowance, Conveyance Allowance, Leave Travel Allowance - refer to the ITA for full details on how these can be deemed partially or totally non-taxable.

On the other hand, reimbursements are payments made when a specific payment is incurred and allowed as a tax-free payment subject to certain limits. For example, reimbursement of medical expenses subject to laid-down limits.

The taxability of either an Allowance or a Reimbursement depends on the Income Tax Law then in force. So, you have to do some research to know the exact taxability of any payment made. I hope this has cleared matters.

Jeroo

Hi Supriya,

It's a very good topic - the difference between Allowance and Reimbursement.

Travel Allowance

A travel allowance is a definite predetermined amount or grant to cover an estimated expense. It is paid regardless of whether the recipient incurs the expected expense. The recipient has the discretion whether or not to expend the allowance.

Travel allowances are assessable income of the recipient and may require tax installment deductions to be withheld.

Travel Reimbursements

A travel reimbursement occurs when the recipient is compensated exactly, either in whole or in part, for an expense already incurred.

Travel reimbursements are not assessable income of the recipient but are subject to Fringe Benefits Tax legislation.

Travel Advance

This is where a 'lump sum' is paid in the amount of the travel. The lump sum is based on a percentage of the 'budgeted' amounts. Travel advances are not assessable income but are subject to FBT legislation. Travel advances must be acquitted against the 'exact' amount of expenses actually incurred. Unused travel allowance must be repaid.

Please see the link to get more information; I think this will serve your purpose: [Anu](http://anu.edu.au) (link updated to site homepage).

Hanuma

Hi Jeeroo and Hanuma,

Thank you for your replies. I will go through the IT Act once, and I am sure that if I have certain confusions, I will get the replies. I think we should move on with this discussion for the sake of our knowledge.

Regards,
Supriya