I work for an Indian company and am presently on deputation to Hong Kong. I get a salary in India, plus a living allowance for my stay overseas.What is my tax liability on the living allowance?
Companies pay living expenses to their employees when they are on tour or when they are transferred to another city. Section 10(14)(i) of the Income Tax Act provides that any such allowance paid to an employee is exempt from tax to the extent to which this money is actually spent. So the employee has to furnish proof that the money has been spent. Of course, it may not be possible to produce bills and vouchers for every expenditure incurred. In such a case, a reasonable amount of expenditure is assumed.
If your stay abroad exceeds 180 days and you become a resident but not an ordinary resident, the living allowance will not be taxable. This is because if it is received abroad, it will be deemed as foreign income and will therefore not be taxable in India. However, any unspent portion of this income will be taxable in India if you continue to be an ordinary resident of India. You will have to give an undertaking to your company regarding the amount spent out of the living allowance, according to which it will or will not deduct tax at source.
I have a business partnership with two friends. One of the partners died this year and his accounts have not been settled. How will his personal return be filed? Where can his family invest the money to claim tax exemption?
—Satya Prakash Meena
For filing the personal income-tax return of a deceased person, you first need to split his income into two parts. The first part will be the income earned by your partner from the company and other sources while he was alive, from the beginning of the financial year till his death. The deceased person will be taxed for this income.
The second part will be the income earned after his death till the end of the financial year. His legal heirs, nominees or executors will be taxed for this income. Splitting the income may even lower the tax liability for the year. This is applicable even if the representative and the executor are the same. Also, tax exemption under Section 80C is available to any individual for investments made from income earned during the year. The legal representative(s) of the deceased partner can invest in the Public Provident Fund for availing of rebate on tax.
What will be the tax on the profit earned from the sale of shares within a year of buying them?
When you make a profit by selling shares which were acquired within one year from the date of sale, the income earned is termed as a short-term capital gain. If the sale of shares is done through a recognised exchange and you pay the securities transaction tax (STT) at the time of sale and purchase of shares, you will be taxed at the rate of 10% of the profit, plus cess. From this financial year, this rate has been hiked to 15%.
If STT is not paid, short-term gain is added to “other income” and taxed at the normal rate of tax. If your net taxable income under the head “salary” is Rs 5 lakh a year and the net amount of short-term capital gain is Rs 1.5 lakh (STT paid) for 2007-8, you need to pay a tax of Rs 15,000 on the Rs 1.5 lakh short-term gain (plus 3% cess). The rest of the income will be taxed at the applicable rate.
My company has provided me a car which I use for personal as well as official purposes.Will the car be treated as a perquisite? When is a car given by an employer non-taxable as a perk?
When a car provided by an employer to an employee is used for private and official purposes, and the cubic capacity of the engine of the car does not exceed 1.6 litres, the value of perquisite will be Rs 1,200 a month (plus Rs 600 a month if a chauffeur is also provided). If the running and maintenance expenses are paid by the employer, the perquisite value will be Rs 400 a month (plus Rs 600 a month with a chauffeur).
If the car is used only for official purposes, no perquisite value will be added to the salary of the employee. Commuting from residence to work and back is regarded as official use, not personal. A car that is provided by the employer and is used only for official duties is not taxable as a perk, provided the employer has maintained complete details of the journeys undertaken for official purposes. These may include dates, destinations, mileage and the amount of expenditure incurred and is accompanied by a certificate that the expenditure was incurred exclusively for official work.
I want to invest Rs 2 lakh in bank fixed deposits.What is the minimum annual interest on such deposits that requires tax deduction at source?
The bank will deduct income tax at source (TDS) if the interest income from fixed deposits in any bank branch exceeds Rs 10,000 in a financial year. In case an individual holds more than one account in the same bank branch, tax will be deducted if the total interest payment exceeds Rs 10,000. However, if the total income of the depositor, including the bank interest, does not exceed the basic tax exemption limit, which is Rs 1.5 lakh in case of males, Rs 1.85 lakh for females and Rs 2.25 lakh for senior citizens for 2008-9, the depositor can submit Form 15H to the bank, based on which the bank will not deduct income tax at source.
I earned an interest of Rs 1,500 on the balance in my savings account in 2007-8. Is this income taxable? How much tax do I have to pay on it?
After Section 80L was abolished two years ago, any interest earned from fixed deposits, balance in savings bank account, National Savings Certificates, bonds and recurring deposits has become taxable. The interest income is to be added to your total income while computing your tax liability for the year and taxed at the marginal rate applicable to you.
My employer had asked for proof of investments under Section 80C in February, when I had invested only Rs 70,000. So my TDS was cut accordingly. But after that I invested Rs 30,000 more. How can I claim the refund?
If your employer has already deposited the tax with the authorities, he cannot refund the amount to you. The employer will give you a TDS certificate, which is your Form 16. Mention the additional investment with your return of income and the TDS by your employer. If the overall tax paid by you is more than the tax due, after accounting for your income under all heads, you will be eligible for a refund. While filing your return, mention your bank account details so that the money can be sent directly to your bank through the electronic clearing system.