Is any loan exempt from being treated as a perk?

What is the perquisite if an employee avails of interest-free loans provided by his employer? Is any loan exempt from being treated as a perk?
- Ramesh Rao

Certain perks given to an employee are taxable. In case of interest-free or concessional loans, the difference between the prescribed interest rate and the rate paid by the employee is the perk value for which he is taxed. Right now, the prescribed interest rate is 10% per annum for housing and vehicle loans, and 13% per annum for other loans. So, if your company gives you a home loan at 6%, the 4 percentage point discount on the prescribed interest rate will be the value of the perk.

Small loans of up to Rs 20,000 are tax-free. Loans for the treatment of certain specified diseases are also exempt, provided the amount is not reimbursed under any medical insurance scheme. If any reimbursement is received, the perquisite value will be taxed at normal rates. The charge will be from the date of reimbursement, but not repaid against the outstanding loan.

TAX

I was provided a laptop and a car by my employer. Now, I am leaving the organisation and have been told to buy both. How will their cost be calculated?
- Ram Saran

The car’s value will be worked out by cutting 20% from its actual cost through the reducing balance method. This is done for each year that the car was utilised. As computers and electronic gadgets have a higher degree of obsolescence, the value of the laptop will be calculated by reducing 50% from the actual cost. The final amount will be subjected to VAT as it is being sold to you by the employer.

Is it necessary to undertake an actual journey to claim leave travel allowance (LTA). Which family members qualify for such travel?
- Ranjan Sinha

Yes, it is mandatory to undertake an actual journey for claiming LTA. If the LTA is encashed without undertaking the trip, you will have to pay tax on the entire amount received by you. For claiming this allowance, ‘family’ is defined as follows as per the Income Tax Act:

• a) Your spouse and children. The exemption is only available for two children born after 1 October 1998. However, this rule does not apply with respect to children born before this date, and also in case of multiple births after the first child.
• b) Your dependant parents or siblings.

I gifted shares worth Rs 15 lakh to my wife. Now, I want to purchase a house. My wife shall sell the shares and invest the money to buy it. If I rent the house, will it be clubbed with my income or be taxable in my wife’s hands?
- Alok Tikoo

The rental income will be clubbed with your income because the property will be purchased with the money originally gifted by you. As per the Income Tax Act, if an asset has been purchased from the proceeds of a gifted asset, whose income was clubbed previously, the new asset’s income will also be clubbed. In such a case, the asset has merely changed shape and form. If the house is purchased with the income generated by the shares gifted to your wife, such as dividends, then the rental income will be taxable in her hands.

MUTUAL FUNDS

In case of systematic investment plans (SIPs), is a daily plan better than a monthly one? How can I evaluate which model is better suited to my financial situation?
- Ranjeeta Sahni

In a SIP, you can make regular (monthly or quarterly) investments in a mutual fund at the prevailing price. The SIP option is available in both equity and income type of funds.

SIP instalments are mostly monthly and can be as low as Rs 50. Recently, Bharti AXA launched a daily SIP plan for its equity scheme. This allows an investor to benefit from the daily market volatility by splitting a lump sum into daily instalments over a relatively short time frame. In addition, the threshold investment limit is low. Therefore, the daily SIP is ideal for investors who have a small amount to put in on a recurring basis, but cannot provide a lump sum for investment.

Your decision to choose a daily or monthly option will depend on how much money you want to invest, how easily it is available, as well as your desire to take advantage of daily or monthly movements in the price of securities.

I earn Rs 5 lakh a year and have no liabilities. Should I invest in a fund of funds (FoF)? What are the advantages and disadvantages of investing in an FoF compared with an ordinary fund?
- Pritam Kohli

An FoF is a fund scheme that invests in various other schemes. Two examples are Kotak Fund of Fund and Optimix Multi-Manager Fund. The advantages of investing in such a fund are:

• a) The scheme provides extended diversification across different fund schemes and varied investment styles.
• b) The risk involved is low compared with the other schemes.
• c) Fund selection is no longer a challenge for the individual investor as the FoFs select which funds your money will be invested in.

The pitfalls:

• a) The returns posted by FoFs are usually lower than those for diversified equity plans.
• b) The cost involved is higher than in the other equity funds because the total cost includes recurring expenses of the FoF scheme, besides the recurring expenses of the underlying mutual fund schemes that the FoFs invest in.
• c) The investors cannot avail of the tax benefit of an equity fund, such as zero dividend distribution tax (DDT) and exemption from long-term capital gains tax. FoFs are taxed in a manner similar to debt funds. They have to pay a DDT of 14.03% and long-term capital gains tax of 10% without indexation and 20% with indexation, whichever is less.

DEBIT CARD

I lost my debit card recently, but before I could report its loss, it was used to conduct a transaction worth Rs 5,945. Is there any remedial action that I can take?
- Manjuri Bhaduri

You must file a complaint with your issuing bank so that you are on record regarding this transaction. Read the terms of your contract with the bank to know whether it will assume the liability for the fraud. Some banks accept the liability up to a certain amount. You can ask the bank to produce a copy of the signed counterfoil. Though merchant establishments are supposed to verify the physical signature, your card may have been used for an online transaction that did not require one.

If the fraud had occurred with a credit card, you could have issued a stop payment request. This is not possible in case of a debit card as the money is debited at the time of transaction.