The Hindu Business Line : Leave travel: Out of India, out of pocket

IF A SALARIED employee takes a package tour to a foreign destination and if such person is in receipt of leave travel concession, can he claim exemption under Section 10(5) in respect of the travel expenditure on the tour?

R. K. Gupta

Reply

The value of any travel concession or assistance received by an employee from his employer or former employer for himself and his family in connection with his proceeding on leave to any place in India is exempt from tax subject to certain conditions.

The amount exempt under this provision can in no case exceed the amount actually spent by the employee.

"Family" for this purpose means the spouse and children; and parents, brothers and sisters of the individual wholly or mainly dependent on that individual.

Number of trips: The exemption is available in respect of two journeys performed in a block of four calendar years commencing from calendar year 1986. Where an individual does not utilise such travel concession or assistance (either on one or on both the permitted occasions) during any block of four calendar years, the value of travel concession or assistance first availed of during the first calendar year in the immediately succeeding block of four calendar years shall be eligible for exemption. This exemption shall be in addition to the exemption that will be available in respect of two journeys for the succeeding block.

This exemption is further subject to limits (refer table) depending on the mode of conveyance and is available only to the extent spent.

Children for this purpose shall not include more than two. If, however, the children were born before October 1, 1998, the limit on the number of children shall not apply.

This exemption is available only if the expenditure is incurred on travel in connection with his proceeding on leave to any place in India.

In the instant case, it has been indicated that the travel has been undertaken to a place outside India. You will, therefore, not be entitled to the exemption available under Section 10(5).

Query

I am employed with a bank and have availed myself of a housing loan from the same bank. The loan carries an interest of 8.5 per cent per annum. This is the normal rate of interest charged by the bank from an outsider as well. It may be noted that if I had chosen to utilise a loan from any other bank the interest that would have been charged would also have been 8.5 per cent per annum only.

Under the circumstances, I am of the view that no perquisite with value should be attached in respect of the loan, as I do not get any benefit from my employer by way of a concession on interest. Is this a correct view?

K. V. Seetharam

Reply

Under Section 17(2)(vi), a perquisite will also include "the value of any other fringe benefits or amenity as may be prescribed". In pursuance of the same, the rules in Rule 3 provide that the value of benefit to an assessee resulting from the provision of interest-free or concessional loan made available to the employee or any member of his household during the relevant previous year by the employer or any person on his behalf shall be determined as the sum equal to the simple interest computed at the rate of 10 per cent per annum in respect of loans for house and conveyance and at the rate of 13 per cent per annum for other loans on the maximum outstanding monthly balance as reduced by the interest, if any, actually paid by him or any such member of his household.

The Rule also clarifies that no value would be charged in case the loans are made available for medical treatment in respect of diseases specified in Rule 3A or where the loans are petty and not exceeding in the aggregate, Rs 20,000. With the interest rates on loans dropping considerably lately, it appears that there is a clear anomaly insofar as a situation such as the instant case is concerned.

In the instant case, the questioner has got no benefit by way of interest-free or concessional loan from the employer. The employee has, in fact, borrowed from his employer, which is a bank, at the normal rates of interest applicable to outsiders.

It, therefore, appears fair that no perquisite should be charged in your hands, as Section 17(2)(vi) read with Rule 3 only seeks to charge a perquisite where an interest-free or concessional loan is made available.

It is, however, felt that a strict reading of the section read with the Rule will result in a perquisite being charged to the extent of 1.5 per cent of the loan. It is once again made clear that your contention is not one without merit; in fact, it has substantial merit. The apprehension is only in respect of how an assessing officer would react to the view being canvassed by you.

It would, therefore, be in the fitness of things for the CBDT to have the said Rule amended with retrospective effect so that assesses such as you are not put to hardship as a result of strict interpretation by assessing officers.

Far from workplace, far from benefit?

I RESIDE in a rented house, which is about 43 km from my workplace. I commute to my workplace everyday from my rented house, in which my family stays along with me. In respect of the rent, I have a receipt from the landlord. I am in receipt of HRA. I have, therefore, filed a return claiming exemption under Section 10(13A) in respect of the HRA received by me. The assessing officer has, however, disallowed my claim for exemption by stating, "you have paid rent to a premises at Puttur (D. K. District, Karnataka) but you are employed at Badiadka (Kasarangod District, Kerala). As such it is noticed that you have paid rent for a premises occupied by persons other than you, exemption under Section 10(13A) is not allowed in such case."

Please clarify whether the rent for a residence 43 km away from the workplace is a disqualification for claiming the exemption under Section 10(13A). I have in support of my claim filed copies of the rent receipt, my Election Commission identity card and my ration card, all of which show my residential address as being at Puttur.

B. Rajaram Rai

Reply

Under Section 10(13A) read with Rule 2A, an exemption can be claimed in respect of HRA for a residential accommodation occupied by the assessee provided the accommodation occupied is not owned by the assessee and, further, the assessee has actually incurred expenditure by way of rent in respect of the residential accommodation occupied by him. The quantum of exemption available would be the least of the following:

An amount equal to 50 per cent of salary if the residential house is situated at Chennai, Delhi, Kolkata or Mumbai, and an amount equal to 40 per cent of salary where the house is situated at any other place.

Actual house rent allowance received by the employee.

The excess of rent paid over 10 per cent of salary.

In the instant case, the questioner is in occupation of the said property taken on rent and does not own the accommodation. He has also actually incurred expenditure by way of rent and, therefore, will be eligible for the exemption under Section 10(13A).

The assessing officer, it appears, is not correct in his view that the exemption will not be available. You may examine the options of filing an appeal before the Commissioner of Income Tax (Appeals) in terms of Section 246A of the Act or make an application for revision before the CIT under Section 264 of the Act.

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