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House leased and furnished at company cost

T. Banusekar

I WORK in a private limited company and my salary is around Rs 5 lakh. I stay in Noida in a company-leased accommodation. My employer takes this accommodation on lease and the lease rental is paid directly by him. How is the perquisite to be valued?

G. Y. Srinivas

Reply

If the accommodation is taken on lease or rent by the employer and provided free of rent to the employee, the value of perquisite shall be the actual amount of lease rental paid by the employer or 10 per cent of salary. The lower of the two would apply.

If the accommodation is furnished, the value of perquisite has to be increased by 10 per cent of the actual cost of furnishing. Furnishing for this purpose includes television sets, radio sets, refrigerators, other household appliances, and air-conditioning plant or equipment or other similar appliances or gadgets.

If the furnishing is not owned by the employer, but is taken on hire by the employer, the perquisite value shall be increased by the actual hire charges payable by the employer.

Query

IN 1997 I had a taken a housing loan from Punjab National Bank. I have since rescheduled the loan and the loan has been taken over by HDFC in 2000. I have been claiming income-tax benefits in respect of the principal repayment of the loan as also the interest paid on the loan. I now propose to repay the loan to HDFC by withdrawing from my provident fund account. Will it be necessary that the refinanced loan must continue for a minimum period of five years and will a failure result in any tax implications?

V. Venkatesan

Reply

The refinanced loan need not continue for at least five years. There will be no tax implications if you repay the loan in full and close the loan account. The rebate benefit availed of under Section 88 will be treated as tax payable only if:

  • the house property for which the loan is taken and rebate availed of is transferred; or

  • the loan is received whether by way of refund or otherwise. As you would neither be transferring the property nor getting a refund for the principal repayment of the loan, the question of any tax liability does not arise.

    Query

    The Finance Bill, 2004 proposes to levy a transaction tax in respect of transactions in securities if the sale is through a recognised stock exchange; long-term capital gains on sale of securities has been exempt from tax and short-term capital gains will be taxed at 10 per cent. If I am to buy a share and take delivery, and sell it the next day or immediately thereafter and pay this tax, will the income be treated as business income or capital gains?

    V. Rangan

    Reply

    The assessing officer (AO) would not be required to treat the income from a transaction on which the security transaction tax has been paid as capital gains. He could independently examine the transaction, and if the transaction is in the nature of business carried on by the assessee, the AO can assess the income earned under the head "profits and gains of business or profession." Securities transaction tax will be levied even on transactions which are in the nature of business and where the income is in the nature of business income.

    We provide a summary of the proposed changes to the taxation of securities transactions. The pre-requisites are:

  • the sale is made through a recognised stock exchange in India; and

  • the sale is on or after the date fixed by the Central Government for levy of securities transaction tax.

    Long-term capital gains: They would be exempt from tax for securities' transactions that fulfil the above-mentioned requirements.

    Short-term capital gains: Transactions that fulfil the prescribed conditions will attract a tax of 10 per cent.

    Individuals and HUFs can set off the un-exhausted portion of the basic exemption available to them against such short-term capital gains and pay tax at 10 per cent only on the balance.

    Deductions under Chapter VI-A and rebates can be claimed against such short-term capital gains.

    Transactions resulting in short-term capital gains will also be liable for a transaction tax of 0.15 per cent.

    Security transaction tax: This will be chargeable on the value of taxable security transactions.

    The rate was initially fixed at 0.15 per cent of the value of the transaction; it has been subsequently revised with lower rates for transaction in select securities.

    The revised rates announced by the Finance Minister are:

    In respect of capital gains (both short term and long term) subject to fulfilling the above conditions at 0.15 per cent of the value of transactions to be shared equally between the buyer and the seller.

    For equity-oriented mutual funds, transaction tax will be payable at 0.15 per cent.

    For day traders, the rate would be 0.015 per cent; this will be available as a credit against tax on business income.

    For futures and options, the rate would be 0.01 per cent; this will be available as a credit against tax on business income.

    The transaction tax will not apply to bonds and mutual funds other than equity-oriented funds.

    For securities which are exempt from this levy, tax will be levied at the normal rates that are applicable now.

    The value of taxable security transactions will be:

  • the aggregate of the strike price and the option premium for option contracts;

  • the price at which a futures contract is traded in the case of futures; and

  • the price at which other securities are purchased.

    Query

    I am working as a senior scientist at the Central Food Technological Research Institute, Mysore. I am given an allowance of Rs 5,000 per annum for paying professional societies and improving professional knowledge in my area of work. My employer is of the view that this is not exempt under Section 10(14). Is this correct?

    K. Udaya Sankar

    Reply

    Any allowance granted for encouraging the academic, research and training pursuits in educational and research institutions will be fully exempt.

    The allowance paid to you does not appear to fall in the specified categories; it appears that your employer's view that the amount will not be exempt is correct.

    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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