Mileage Reimbursement

Definition

Mileage reimbursement compensates employees for using their personal vehicles (cars, motorcycles, or scooters) for official business purposes. The employer sets a per-kilometre rate that accounts for fuel costs, vehicle wear and tear, insurance, and maintenance. Employees log the distance travelled for business purposes and submit claims based on the applicable rate multiplied by the kilometres driven.

In India, mileage reimbursement intersects with several tax provisions. Under Section 10(14) read with Rule 2BB, conveyance allowance for travel between the employee's residence and workplace was historically exempt up to INR 1,600 per month (now subsumed into the standard deduction under the new tax regime). For business travel specifically, actual reimbursement against documented business trips is not taxable in the employee's hands and is deductible as a business expense for the employer under Section 37(1). However, if the company provides a fixed monthly vehicle allowance without requiring documentation of business use, it is fully taxable as salary. The perquisite valuation rules under Rule 3 also apply when the company reimburses vehicle expenses for cars used for both personal and official purposes.

Indian companies typically set per-kilometre rates between INR 8-12 for two-wheelers and INR 12-18 for four-wheelers, depending on city and fuel prices. These rates should be reviewed semi-annually to account for fuel price changes. GPS-based mileage tracking via mobile apps is increasingly replacing manual odometer logs, providing more accurate distance recording and reducing inflated claims.

Key Points

• Compensates employees at a fixed per-kilometre rate for using personal vehicles on business travel: separate from daily commute allowances
• Per-kilometre rates in India typically range from INR 8-12 (two-wheelers) to INR 12-18 (four-wheelers), varying by city and fuel costs
• Actual reimbursement against documented business travel is non-taxable for the employee and deductible for the employer under Section 37(1)
• Fixed vehicle allowances without documentation requirements are fully taxable as salary income under Section 15
• Perquisite valuation under Rule 3 of Income Tax Rules applies when companies reimburse vehicle expenses for mixed personal and business use
• GPS-based mileage tracking apps are replacing manual odometer logs for more accurate and fraud-resistant distance recording
• Rates should be reviewed semi-annually against current fuel prices (petrol and diesel) and adjusted accordingly