Corporate Per Diem Policy in India: Setting Rates, Tax Rules & Enforcement

Having employees who travel frequently is not always easy to handle. Employees require a reliable and consistent solution to cover their meal and incidental expenses while finance needs ways to control costs and minimize reimbursements.

In this case, having a properly designed corporate per diem policy could become very helpful. It will include defining per diem allowance, eligible expenses, approving guidelines, and many more.

When working with Indian companies, however, setting up a corporate per diem requires special attention to taxes, traveling types, and policy enforcement.

What Is a Per Diem Allowance?

Per diem allowance is a fixed daily amount of money provided to an employee to cover all the eligible expenses related to his/her business travels.

Depending on the per diem policy of a company, this allowance may include:

• Meals
• Local transport
• Incidental expenses
• Other expenses related to a business trip

In general, travel accommodations and airfares should be managed differently using actual reimbursement or corporate booking.

The greatest advantage of per diem allowance lies in its predictability. An employee knows the amount of money he is going to receive every day, while finance teams do not have to track every small expense of an employee.

Reasons For Per Diem Allowance Policy

In the absence of proper guidelines, employees and finance teams might interpret rules differently when it comes to the types of reimbursable expenses.

A company per diem policy should cover:

• Employee eligibility
• Domestic and international travel policy
• Limits on daily allowances
• City or location categories
• Eligible expenses
• Documentation requirements
• Approval procedures
• Treatment of unused allowances
• Tax treatment

Per diem allowance policy documentation ensures better compliance and auditability.

How to Determine Per Diem Allowance in India

There is no single government-mandated corporate per diem rate applicable to every private company in India. A company determines its own per diem rate based on destination, needs of the employee, expected expenses and company policy.

A company may use location-based categories such as:

LocationIllustrative Daily RateTier 1 cities₹1,500–₹2,500Tier 2 cities₹1,000–₹1,800Tier 3 cities₹700–₹1,200InternationalDestination-specific

These are indicative corporate planning ranges and not rates prescribed by the government.

The company must keep reviewing the per diem rates in terms of actual cost of travelling. Per diem rates for cities like Mumbai, Bengaluru, Delhi, and Hyderabad may have to be higher than per diem rates for small locations.

Should Per Diem Rates Be the Same for Everyone?

No, they may vary according to certain factors including:

• Destination
• Employee grade
• Domestic/international travel
• Duration of travel
• Availability of meals
• Meals offered by hotel
• Purpose of the business

For instance, if a conference offers both lunch and dinner then per diem rates would be lower according to company policy.

Consistency of rate and reasoning of varying per diem rates is the most important part.

Is Per Diem Allowance Taxable in India?

One of the most frequently asked questions is: is per diem taxable in India?

Taxation depends upon the nature of the allowance, purpose of the allowance and satisfaction of applicable exemption conditions.

According to Section 10(14) of income Tax Act 1961 read with Rule 2BB of the Income-tax Rules, the allowance provided to meet ordinary daily expenses incurred by an employee during a tour when the employee is away from his/her normal place of duty may be eligible for tax exemption depending upon certain conditions. The Income Tax Department prescribes that the daily allowance provided to an employee to meet his/her ordinary daily expenses when he/she is away from his/her normal place of duty would be eligible for exemption from tax under section 10(14).

However, there is no need for companies to assume that all per diem payments fall under tax exemptions just because of the term. The intention of the payment, official travel, necessary documentation, relevant limits, and tax jurisdiction play an essential role in determining how per diem should be treated.

It is recommended that corporate finance and payroll teams consult with a qualified tax expert to get updated on current regulations before creating a per diem policy.

Domestic vs International Per Diem

A corporate per diem policy should clearly differentiate between domestic and international travel.

In the case of domestic travel, companies may choose to determine rates in Indian Rupees (INR) depending on the category of cities.

When it comes to international travel, businesses need to consider:

• Specific costs of the destination
• Currency exchange rate
• Meal costs in local currency
• Frequent change in exchange rate
• Duration of the trip
• Whether meals are included

The policy should also mention whether the per diem allowance is reduced in the case of meals paid by a hotel, conference, or client.

Corporate Per Diem Policy Ready-to-Use Template

Corporate policies can be organized into such sections:

1. Purpose: Describe the need for such a policy.
2. Eligibility: Define covered employees and situations.
3. Rates: State domestic and international per diem rates.
4. Eligible Expenses: Describe meals, incidental expenses, and any other eligible expenses.
5. Exclusions: Provide the list of excluded expenses.
6. Approvals: Define pre-travel and expense approvals.
7. Documentation: Identify the situations requiring receipts or travel documentation.
8. Tax Treatment: Specify that payments will be processed in accordance with the applicable tax laws.
9. Exceptions: Identify the personnel authorized to grant exceptions.
10. Review: Review rates on a regular basis depending on the costs of business travel.

How to Enforce a Per Diem Policy

Developing a policy is the easy part. But enforcement is crucial too.

Manual enforcement implies that finance departments have to verify employee claims by matching their claims with spreadsheets, travel dates, destinations, and policy guidelines.

Expense management software can automate these verifications.

Using it businesses can automatically confirm:

• Employee eligibility
• Travel dates
• Destination
• Per diem allowance that applies
• Spending limits
• Double submissions
• Necessary receipts
• Approval status

This saves manual effort and makes enforcement of per diem policies more consistent.

How Expendesk Can Help You With Per Diem Allowance Management

Expendesk is an AI-powered expense and reimbursement management solution that assists businesses in managing employee expenses, reimbursements, approvals, and per diem allowance claims in one platform.

With Expendesk, firms are able to:

• Setup Per Diem and Expense Policies
• Automate Approval Workflows
• Digitize Receipts
• Track Spending by Employees
• Identify Duplicate Claims/Out of Policy Claims
• Manage Reimbursements
• Gain Visibility into Spend
• Keep Their Expenses Organized

This is particularly helpful for companies that have a lot of business travels and field employees.

An effective per diem policy must offer a set of predictable travel allowances to employees along with clear financial controls for finance teams.

Defined per diem amounts, eligibility criteria, documentation process, approval workflows, and tax implications will avoid ambiguities and minimize the potential expense leakage.

Finally, Indian companies must assess whether their per diem allowance allows any tax exemptions and not take it for granted that each and every daily expense is tax-exempted.

Automation comes handy when the travel volume increases. Expendesk assists companies in managing per diem claims, receipts, approvals, enforcement, and reporting all in one platform.