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T. Banusekar

I HAVE been a non-resident in India in accordance with the Income-Tax Act since 1998. I had been working in Nepal with an international organisation from 1998 to 2002 and since then I have been working in Canada. My remuneration has all along been paid in foreign currency.

I now propose to return to India and will be engaged by my present employer as a consultant to work in India and Nepal for the next six months. I am not sure of my plans regarding stay thereafter.

Will I be considered as a resident but not ordinarily resident in accordance with the I-T Act for the financial year 2004-2005? If the professional charges paid by my present employers are chargeable to tax in India will I be eligible for any deductions since my income will be earned in convertible foreign exchange?

C. P. Jayalakshmi

Reply

You will not be treated as an RNOR but as a ROR in accordance with Section 6 of the Act. You will also not be entitled to claim any deduction for the income earned by you, though the same may be earned by you in convertible foreign exchange.

You may note that if at all you may have been eligible for a deduction under Section 80RRA in the earlier years, it will not available from assessment year 2005-2006 (previous year 2004-2005).

Query

My gross salary is Rs 1,03,861. My employer has deducted out of this a sum of Rs 420 towards profession tax. I have furnished proof of having made investments in LIC and PPF to the extent of Rs 17,557 to my employer. Last year I had invested Rs 10,000 in NSCs. Is the interest that has accrued on the same in the current year eligible for rebate under Section 88. How is this interest to be accounted in my tax return? I understand that the same is to be included as my income and will again be eligible for deduction under Section 80L.

Viral Vora

Reply

You are correct in your understanding that the interest accrued on the NSC invested last year will qualify for rebate. You are also right in that the NSC interest accrued is to be taken as income and will be eligible for deduction under Section 80L. The interest will be taken as income under the head `income from other sources' and the deduction will be available subject to the limits under Section 80L

Query

Under Section 17 read with rule 3, the value of rent-free accommodation provided with employer is to be taken at 10 per cent of salary if the accommodation is in a city having a population exceeding 4 lakh and 7.5 per cent of salary if the accommodation is in other cities. Supposing an employee is on loss of pay or half pay owing to leave, and so on, is the salary to be taken on the basis of the actual amount received or should the loss of pay, and so on, also be included in computing salary to determine the value of perquisite?

Anonymous

Reply

The salary for the purpose of valuing the perquisite will only be on the basis of the actual salary that you receive, that is, the salary receivable as reduced by the amount not received by you by way of loss of pay or half pay. Under Section 17 of the Act, read with Rule 3 of the rules, you are right in your understanding that the value of perquisite in respect of a rent-free accommodation will be 10 per cent of salary if the accommodation is in a city having a population exceeding 4 lakh and 7.5 per cent of salary if the accommodation is in other cities. Salary for this purpose includes the pay, allowances, bonus or commission payable monthly or otherwise or any monetary payment by whatever name called from one or more employers but does not include:

Dearness allowance or dearness pay unless it enters into the computation of superannuation or retirement benefits of the employee concerned;

Employer's contribution to the provident fund account of the employee;

Allowances which are exempt from tax; and

The value of perquisites or employee stock options or sweat equity.

Apparently, salary should exclude the sums not received by you by way of loss of pay, and so on, for the same is not receivable by you.

Query

I purchased a newly constructed flat in January 2002. For this I had used my savings and also had taken a loan from HDFC. I have been living in this flat since then. I also own another flat in the same city. For this flat the loan taken has already been repaid. The flat in which I stay and which was purchased in June 2002 is let on lease to my employer and the employer allows me to occupy the same as a rent-free accommodation. My gross taxable salary is Rs 6,00,000, which includes perks.

I now propose to cancel the lease of the accommodation to my employer and take the property as self-occupied and also claim HRA from my employer, which I will become eligible for. If I do so can I claim the interest on the housing loan as a deduction. If so, to what extent?

Punnuswamy

Reply

You can claim the interest on housing loan as a deduction in computing your income from house property. Since the property is self-occupied the annual value will be taken as nil. Against this the interest can be claimed as a deduction, which means that your income from house property will become negative to that extent. The maximum amount that can be claimed as a deduction by way of interest will be Rs 1,50,000.

It is assumed that the other property owned by you is let out. If it were not so only one house at your option can be treated as self-occupied and the annual value taken as nil.

The other property will be treated as deemed to have been let and the annual value will be taken as the sum for which the property can be reasonably be expected to let from year to year.

Against this, the municipal taxes can be claimed as a deduction. This will give rise to an annual value against which 30 per cent of the annual value and interest (without limits), if any, can be claimed as a deduction.

Mail your queries to taxtalk@thehindu.co.in or by post to `Tax Talk', Business Line, Kasturi Buildings, 859, Anna Salai, Chennai-600002.

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