The Hindu Business Line : Is FBT payable on guest-house rent?

From the facts given in the query it appears that the two houses are not in the nature of guest-houses but are in the nature of a rent-free accommodation provided by the employer to the employee.

This appears to be the position since you have stated that the employees permanently use the house.

In such a case, the house will not be treated as a guest-house but will be in the nature of a house provided to an employee free of rent or at a concessional rate.

In such a case, the same will be treated as a perquisite and such perquisite will be taxed in the hands of the employee in accordance with Rule 3. Rule 3 provides that the value in the hands of the employee will be 20 per cent of the salary in cities having a population exceeding four lakhs as per the 2001 census and 15 per cent of the salary in other cities.

This value is to be reduced by the amount recovered by the employer from the employee.

No FBT will be payable on such expense since section 115WB(3) specifically provides that any privilege, service, facility or amenity on which tax is paid or payable by an employee will not be treated as a fringe benefit.

Query

Will FBT be payable by companies registered under Section 25 of the Companies Act?

K. P. Sivadas

Reply

Section 115W, which defines an employer, provides that a company is an employer and also provides that AOPs and BOIs will be employers except in case of a trust or institution exempt under Section 10 (23C) or registered under Section 12AA of the Income Tax Act.

Since a company cannot be regarded as an AOP or BOI and further since all companies are treated as employers under Section 115W even companies registered under Section 25 of the Companies Act and also registered under Section 12AA of the Income Tax Act will be subjected to FBT..

Query

During the financial year 2004-05, I earned a short-term capital gain of Rs 70,000 by sale of shares before October 1, 2004.

I also have a short-term capital gain from sale of shares after October 1, 2004 of Rs 40,000 and on the sale of such shares, securities transaction tax has been paid. My income by way of bank interest is Rs 20,000.

I have invested Rs 70,000 in a public provident fund account. Can I claim rebate under Section 88 in respect of the investment made in PPF against the tax on short-term capital gains earned before October 1, 2004?

Can I claim the deduction under Section 80C against the short-term capital gains earned by me from sale of shares where securities transaction tax is paid on sale in the financial year 2005-06?

Manjusha

Reply

You can claim the rebate against the tax on short-term capital gains earned prior to October 1, 2004 and tax on bank interest. You, however, cannot claim rebate under Section 88 against the tax on short-term capital gains which has suffered securities transaction tax and which will be taxed at 10 per cent (increased by the appropriate surcharge and additional surcharge).

You cannot claim deduction under Section 80C in the assessment year 2006-07 (Financial Year 2005-06) against the short-term capital gains which is taxed at 10 per cent (increased by the appropriate surcharge and additional surcharge) when securities transaction tax is paid on the sale of shares.

This is because of the specific prohibition on claiming rebate under Section 88 and deductions under chapter VI-A on the income taxed at 10 per cent in accordance with Section 111A of the Act.

You may, however, note that there is no prohibition in Section 111A on claiming the rebates under Section 88B, which is available to senior citizens who are resident in India and under Section 88C, which is available to women who are not senior citizens and who are resident in India.

(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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