The Hindu Business Line : Is medical reimbursement taxable?

My father-in-law is 80 years old and is suffering from prostrate cancer. He is undergoing chemotherapy. The treatment is carried out from home. My husband's employer reimburses the costs related to the treatment. Will the reimbursement be treated as a perquisite and hence taxable? Tara Nayar

If your father-in-law has not been hospitalised, the expenditure on his treatment for cancer which is reimbursed by your husband's employer will be treated as a perquisite in his hand and, therefore, be subject to tax in his hands.

Your husband can, if he is entitled to a medical allowance, claim a reimbursement of up to Rs 15,000 as this amount will not be treated as a perquisite by virtue of Section 17(2). Since, the excess over Rs 15,000 is treated as a perquisite in the hands of your husband, he can claim a deduction under Section 80DDB.

Section 80DDB allows a deduction to a resident individual if he incurs expenditure on medial treatment of a disease or an ailment specified by the Board if the treatment is for himself or his dependent.

The deduction will be the amount actually incurred or Rs 60,000 whichever is less (Rs 40,000 if the patient is not a senior citizen). For claiming this deduction, the assessee must furnish a certificate in the prescribed form from an oncologist working in a government hospital.

I deal in futures and options. Will the limit of Rs 40 lakh turnover for tax audit under Section 44AB apply to transactions where the assessee has no other source of income? Will it make a difference if the assessee also has professional income of Rs 1,20,000? Shyam Sharma

Futures and options are normally classified as business transactions and the income from them should be assessed as business income. That being so, the provisions of Section 44AB will apply to such transactions. Section 44AB provides for a tax audit where the sales, turnover or gross receipts exceed Rs 40 lakh for persons carrying on business and Rs 10 lakh for professionals. Therefore, if the turnover from transactions in futures and options exceeds Rs 40 lakh, tax audit under Section 44AB would be applicable to such transactions.

You may, however, note that the Bombay Bench of the Tribunal, in ACIT vs Saumil J. Trivedi in ITA No. 3266/Bom/1995, has taken a view that it is only the net of the selling and buying transactions which should be taken as turnover where there is day trading without delivery. This view should apply to transactions in futures and options as well. It will make no difference whether the assessee has no other income or has professional income of Rs 1,20,000.

My daughter and son-in-law pay income-tax. At the time of their marriage I gifted my daughter Rs 12 lakh. This money has been put in a fixed deposit in both their names. They intend using the money to buy a house. The interest that they have earned, I understand, is to be shown as income by my daughter. Is there a possibility of the tax authorities investigating the source of money that was used to purchase the property? In the event of my daughter stating the was gift from me, can I be investigated for the source of income for the gift? For how long can the tax department embark on such an investigation?

S. George

The tax department is entitled to raise a query on the source of investment with your daughter and son-in-law. Where they to show the source as gift from you, the tax department is also entitled to raise a query on your source. The law permits a notice of reassessment under Section 148 to be issued within a maximum period of six years from the end of the relevant assessment year (seven years from the end of the relevant previous year). It is only if no notice is received up to this time, can one be sure that no further investigation will be made.

You may, however, note that if you have furnished all the relevant particulars in your return of income and if the same has been accepted by the authorities, no notice under Section 148 can be issued after the expiry of four years from the end of the relevant assessment year (five years from the end of the relevant previous year).

I purchased a flat for Rs 14 lakh and paid registration charges of Rs 1,05,000. The purchase was in August 2004. For this purchase I took a housing loan of Rs 12 lakh. The value of the flat is now Rs 36 lakh. With the increase in interest rates and, consequently, the increased EMI, I propose to sell the flat. What will be the capital gains tax implications? Vijay

Since you have held the flat for less than 36 months the gain will be treated as a short-term capital gain.

The capital gains will be Rs 14,95,000 (Rs 36,00,000 less Rs 14,00,000 less Rs 1,05,000).

The tax will be charged at normal rates of tax applicable to an individual on such short-term capital gains.

I buy and sell shares on the same day without taking delivery. Will the gain be treated as short-term capital gains or as business income? Shubha C.R.

Where shares are bought and sold on the same day without there being delivery, the transactions should normally be treated as being in the nature of business and the gain should be assessed as business income.

You may also note that by virtue of Section 43(5), the transactions in shares without delivery will be treated as speculative and the gain or loss would be classified as speculative gain or loss.

(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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