The Hindu Business Line : An allowance to live tax-free

I have been assigned to a project outside India by my employer, an Indian company. I get a salary in India and this is credited to my bank account. I also receive a daily living allowance for my stay abroad. I would like to know the taxability of the latter. — Paul

The living allowance will not be taxable in India. In this connection reference may be made to Circular No 8 /2005 dated August 29, 2005 of the Central Board of Direct Taxes on the applicability of the Fringe Benefit Tax.

In answering Question No 79, the Board has clarified that such allowances will be exempt in the hands of the employee and that the employer will be liable to FBT on the same. The query and answer are as follows:

"79. On some occasions, employers prefer to give a per-diem allowance for meeting the expenditure on lodging and boarding rather than making payments on actual basis. The per-diem allowance is exempt from tax under Section 10(14). Would this be subject to FBT?

Ans. Since the per-diem allowance is paid for the purposes of use of hotel, boarding and lodging facilities, it would fall within the scope of clause (G) of sub-section (2) of Section 115WB. However, the employees will not be liable to pay income-tax on any surplus accruing to him from such allowance."

I have made short- and long-term capital gains from sale of shares. I do not have any other income in the current year. Will it be possible for me to set off the two capital gains against the basic exemption in computing the tax payable by me? — Manju

The first aspect that needs to be seen is whether the long-term capital gains is exempt. If the shares have been sold through a recognised stock exchange, the Securities Transaction Tax would have been paid at the time of sale and, therefore, the gain would be exempt.

On the other hand, if it were not exempt, it would be taxed at the rates stipulated in Section 112.

Short-term capital gains on sale of shares through a recognised stock exchange where STT is paid at the time of sale is taxed at rates set in Section 111A. Otherwise it will be taxed at the regular rates applicable to an individual.

In any case where the gain is taxable, whether as short or long term, the basic exemption can be reduced from the gain in computing the tax payable.

I was employed in West Asia for 25 years. I came back to India for good two years back and am now settled here. I have deposits in FCNR and RFC accounts, which are in US dollars. Am I liable to pay income-tax on the interest received from these deposits? — C. N. Sasankan

Section 10(15)(iv)(fa) allows exemption to a non-resident or a person not ordinarily resident in respect of deposits in foreign currency where the acceptance of such deposits by the bank is approved by the Reserve Bank of India.

Apparently these deposits are approved by the RBI and the exemption can be claimed if your residential status is either a non-resident or resident but not ordinarily resident.

From the facts given by you it is not clear what your residential status is.

But it appears that you are neither a non-resident or a resident but not ordinarily resident in the current year which would mean that the interest may become taxable in the current year.

I plan to buy a house with a bank loan. I propose to let this house out on rent. I am told by the finance department of my employer company that I cannot get any tax benefit for the loan. Is this correct? Also how is the income from house property computed? — Naveen

You can get tax benefits on the interest on the housing loan, under Section 24. The principal repayment will qualify for deduction under Section 80C, up to a maximum of Rs 1 lakh.

Note that the deduction under this Section is in respect of certain payments and investments and the aggregate limit is Rs 1 lakh.

The income from house property is computed by taking the annual value and reducing therefrom 30 per cent as a flat deduction.

The annual value is taken as the sum for which the property can be expected to be let from year to year.

From such net amount you can claim deduction in respect of interest on borrowed capital. Since in your case the property is to be let out, the deduction on interest will be available without any limit.

What is the cost inflation index for the financial year 2006-07? — V. Paulchamy

It is 519.

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