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MY QUESTION is two-fold with reference to exemption for leave travel concession. Whether the employee must have performed journey or is it enough if his family, excluding him, has done? And whether going on leave is a must or performance of journey during holiday is enough? --T. A. P. Krishanan, e-mail

Your kind attention is invited to Section 10(5), which sets store by the employee's proceeding on leave to any place in India. The tax exemption, therefore, is inextricably linked to, and contingent upon, satisfaction of two conditions: the employee himself must have performed the journey and while so doing he must be on leave. In other words, it is not enough if the other members of the family travel and the employee himself is not part of the entourage.

This is a trifle strange because the exemption is as much available to the cost of travel of family borne by the employer as it is to the cost of travel of the employee himself. But the law as it stands insists on the employee being part of the entourage. It does not insist upon travel by other members of the family along with the employee. Perhaps the legislative intent is to dovetail the tax exemption with employee welfare — take time off from the humdrum of workaday life.

Idea buried

THE Government seems to have buried the idea of giving sizeable representation to employees on board of directors. Your comments please. --T. A. Jacob, Kochi

It is imperative for proper functioning of a company that its board of directors takes a holistic view of things. A segmented board, as it were, in which berth is given to representatives of various stakeholders is bound to foster divisive tendencies. For example, a representative of a trade union is bound to take a blinkered view of things assuming that he is allowed to participate in the deliberations concerning labour matters because there is a view in some quarters that he cannot being an interested director. Be that as it may.

For the same reason, a nominee of financial institution is also bound to pursue a limited agenda. But then, financial institutions have an undeniable case for being granted a berth on the boards of assisted companies — they have committed huge amounts to them and have every right to watch over them. Of course the assisted companies have always resented the presence of nominees of financial institutions for two reasons — for being snapped at the heels constantly and for having to air trade secrets with the help of which often financial institutions are alleged to have indulged in insider trading.

But this is not to say that employees cannot ever contribute holistically to a company. L&T always comes to one's mind when one talks of professionally managed companies.

But it is one thing where executives work their way up diligently and quite another if berths are reserved in a spirit of quota system.

Confusing terms

WHAT exactly is the difference among exemption, deduction and rebate under the income-tax law? -- Shantanu Moitra, Bhubaneshwar

An exempted income simply does not figure in the gross total income (GTI) and, therefore, also not in the total income (TI).

A deductible income is very much a part of the GTI but being deductible from the GTI, does not figure as part of the TI. The bottomline is, of course, the same — tax-free status to the given income. Tax rebate on the other hand does not focus on the income. It is, as the name suggests, a rebate from the tax liability. My own feeling is that exemption is the most opaque form of giving a tax sop, because taking shelter under an exemption scheme one may not file his income-tax return whereas in all fairness to the tax administration the least it must be granted is the right to examine whether a person has claimed exemption correctly or not.

All exemptions must, therefore, be converted into deductions. And the cut-off point for filing of return must be prescribed with reference to GTI and not with reference to TI. This is necessary lest one does not become the arbiter of his own case.

For example, a man who sells his house for a whopping profit may reinvest the gains in another house property thus becoming entitled to a complete exemption from tax. He might not file any return assuming his income from sources other than this is below the tax-free limit. Tax compliance would improve if exemptions are converted into deductions and taxpayers seeking deductions are compelled to show transparently the details of the income as well as the deductions sought.

(ASK! Send in your queries on accounting, auditing, corporate law and taxation to ask@thehindu.co.in)

S. Murlidharan

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